How the Geezers Cashed in on the Gulf War
Ericson, Edward
How the Geezers Cashed in on the Gulf War And why you'll pay for it by Edward Ericson Ec ount on $50,000 speaker’s fees or his reported $5 million book deal, the retired four-star would do...
...As a general who maxed the pay grade, Schwarzkopf will take home $1,028,953 in federal retirement in the next decade alone...
...Under a reasonable system, the first $18,000 of a retiree’s pension-and only that $l8,OOO-would be indexed to inflation...
...Thanks to compounded COLAS, the outlay resulting from this brief increase in the inflation rate will probably reach $3 Edward Ericson is a writerfor The Hartford Advocate...
...As a direct result of Bush’s oil policy preceding Operation Desert Storm, the U.S...
...The oil and gas increase had a cost that nobody has recognized,” says Ed Herman, professor emeritus of the Wharton School of Business...
...He opened the reserves-a day late, $3 billion short...
...But George Bush just kept saying no...
...The day of the invasion, 600 million barrels of crude oil-enough to replace Iraqi and Kuwaiti imports for nearly two and a halfyears -were tucked in caverns throughout Louisiana and Texas, ready to stave off oil panic and keep prices stable when called upon by the president...
...your adjustment is a percentage of the higher figure-a difference that adds up...
...While few people bother to question it anymore, the illogic of COLAs is three-fold...
...By failing to open the reserves sooner, Bush made himself responsible for $226 million in increased pension expenditures this year alone...
...Last year the government had estimated its COLA would be 3.9 percent...
...That single, modest step would reduce the pension liability by a formidable $500 billion and protect Americans from huge, unnecessary losses like the one we suffered before we ever made war in the Gulf...
...When inflation prompts a rise in COLAS-as it inevitably does-it starts a chain reaction that leads to higher inflation, economists argue...
...And on occasionas in the case of Bush’s preparation for the Gulf war-they’re just billions of dollars down the drain...
...Even under ordinary circumstances, the bill for all these pension checks is staggering...
...And this fed into the budget in ways that nobody has paid any attention to...
...It wasn’t...
...Finally, COLAs are a self-fulfilling prophecy...
...But more importantly, the consequences of Bush’s inaction highlight the larger folly of across-the-board government COLAs...
...The numbers speak for themselves-and those numbers were bad enough before the oil shock...
...As the crisis deepened and the economic costs escalated, Bush faithfully toed the free-market line...
...screamed The New York Times and The Washington Post...
...The Strategic Petroleum Reserve, created in 1975 in the wake of the Arab oil embargo, was designed for times just like these...
...The lesson here is both particular and general...
...But some things aren’t so easily left behind...
...COLAs make great sense for the career GS-5 whose pension barely covers his apartment and cat food...
...First, extreme, short-term inflation that can be stopped through reasonable market intervention should be-and quickly-to protect the American economy from unnecessary long-term costs...
...Payouts this year alone are estimated at $56.5 billion, up three billion from two years ago...
...A month later, President Bush opened the nation’s strategic oil reserves, world oil prices plummeted to below pre-invasion levels, and inflation for the rest of the year retreated to a modest .3 percent...
...Today, the average civil servant can expect to earn two and a half times as much in retirement as a private pensioner, who, according to the Employee Benefits Research Institute, generally receives no adjustment for inflation at all...
...in that case, an annual adjustment protects him from real economic misfortune...
...advised oil analysts from Daniel Yergin to Philip Verleger...
...First, they aren’t applied year after year to a base pension figure, but are compounded annually, COLA on top of COLA...
...In general, they’re a dreadful strain on the Treasury...
...Simply put, COLAs magnify inflationary shocks...
...With a trillion dollar liability, a $279 billion deficit, and tremendous social needs going unmet, that sort of ‘‘fairness’’ simply isn’t fair...
...I think it has something to do with inflation,” a public information officer at the Pentagon offers helpfully...
...Open the reserves...
...By September, the price had doubled...
...Each year, all 3,700,000 military and federal civil service pensioners receive an annual cost-of-living adjustment (COLA...
...How the Geezers Cashed in on the Gulf War And why you'll pay for it by Edward Ericson Ec ount on $50,000 speaker’s fees or his reported $5 million book deal, the retired four-star would do just fine...
...That’s a debt all of us will eventually have to pay, through increased taxes or decreased spending...
...Problem is, Ted Kennedy will get exactly the same adjustment, even though he’ll get a pension of $11 1,000 a year if he quits the Senate at the end of this term...
...oil companies were holding more crude in their inventories than at any time in the eighties, oil executives gleefully seized the moment...
...government will spend billions of extra dollars in the next decade upping the pensions of federal workers from the general on down to the lowliest GS-2...
...This time, George Bush helped Market forces are a complex product of popular mood and government action-or inaction, as in this case...
...But as government salaries crept up in the seventies and eighties, pensions also kept on creeping...
...While that baseline inflationproofing would ensure that those who need COLAs don’t have to skimp on Purina Cat Chow or the rent, it also ensures that COLAs aren’t handed out promiscuously to Schwarzkopfs and senators with summer homes...
...Last August, oil prices shot up in the wake of Iraq’s invasion of Kuwait, and fears of gas lines began to fuel a new national resolve to fight a war...
...billion by 2001-money that might otherwise have been spent providing balanced meals for 3.7 million poor pregnant women or treating 790,000 little kids to Head Start...
...COLA wars To the public, the oil shock might have seemed inevitable: Saddam invades Kuwait, 6 percent of the world’s oil supply is taken off the market, and Exxon Super Premium starts to levitate...
...In the civil service and military, the “unfunded pension liability” (the amount by which scheduled pension benefits exceed workers’ contributions) now exceeds one trillion dollars...
...But the oil shock did not last...
...The result...
...Despite the fact that U.S...
...If he had quit the service before the Gulf war, however, he’d be taking home thousands of dollars less-not because of his service there, but thanks to a little-noticed statistical fillip created by George Bush’s blind faith in the free market...
...Of course, Schwarzkopf isn’t the only one cashing in...
...In July 1990, a barrel of crude oil was selling for less than $18...
...Say you start with a $20,000 base pension, to which a $3,000 COLA is added...
...Finally, he responded to common sense...
...It was not until October, when the price of oil had skyrocketed to a decade high of $40, that Bush began to comprehend the economic damage being wreaked by rampant oil speculation...
...Today, with a barrel of crude going for about $22.50, the Gulf war and its oil shock seem like ancient history...
...What is fair...
...Designed to protect the widow’s mite against the scourge of inflation, COLAs have evolved into an annual windfall for millions and millions of people who don’t need them...
...The oil price alone was responsible for about half of that increase...
...The next year, the base figure is $23,000, not $20,000...
...Problem is, inflation doesn’t just happen...
...Act now...
...If we can’t stop Bush’s love affair with the free market, at least we can mitigate the far-reaching economic and social damage it will cause...
...At the same time, the Consumer Price Index, the government’s main inflation barometer and the key indicator for the year’s cost-of-living adjustment, shot up .8 percent, the biggest rise since the previous January...
...But while the president demurred that he would “explore whether and when we and our allies should draw down reserves,” his policy was unequivocal: As he and his spokesmen patiently explained, mere price increases were no reason for a drawdown...
...Yet after so many years on the gravy train, civil servants began looking at generous pensions not as compensation for low wages, but as a fundamental right...
...Only “physical shortages”-bone-dry tanks at Exxonwould justify the move...
...Second, and worse, COLAs are applied across the board to all pensioners, no matter how lavishly provided for...
...COLAs mean higher wages, and higher wages lead to inflation,” says Laurence Ball, a Princeton University economist...
...Hype r- p e ns i on Why should attention be paid...
...But by that time, irrevocable damage had been done...
...The original rationale for decent pensions for government workers was noble: In exchange for what were then relatively meager salaries, workers could count on a comfortable, federally funded dotage...
...Within days of the invasion, they began ratcheting up their prices in the face of grumbling from oil experts, congressional leaders, and the press...
...Means-test the COLA, as pension reform groups like the National Committee on Public Employee Pension Systems have long demanded...
...Inevitably, the annual cost-of-living increase became an intrinsic part of that expectation...
...Thanks to the oil hike, it ended up paying 5.4 percent-the biggest increase in nine years...
Vol. 23 • November 1991 • No. 11
