The Delphi pension scandal, or why government can’t be trusted to enforce contracts

It’s come to light that none other than Tim Geithner himself made the call that non-union Delphi employees would get screwed out of the pensions they were promised in the auto bailouts clusterfuck.

Geithner lied and said it was an impartial board of bureaucrats that determined who would get their pensions, and that the board was just honoring the agreement GM made with the UAW. GM promised the nation’s largest auto union when Delphi’s spun off in 1999 that it would pay for union workers’ pensions if Delphi went bankrupt. But when GM went bankrupt that obligation was eliminated.

Even still, when Delphi went bankrupt the government stepped in and funded union workers’ pensions while leaving non-union workers out in the cold.

As Todd Zywicki explains in a recent Mercatus Center publication:

General Motors’ decision to guarantee the obligations of a separate company—Delphi—was completely unjustified under established principles of bankruptcy law.

[GM’s] bankruptcy filing eliminated any continuing obligation owed by GM to Delphi’s employees. However, new GM’s management—while being overseen by the Obama administration—nonetheless agreed to spend $1 billion to supplement the pensions of Delphi’s UAW retirees. Other hourly employees and all employees in Delphi’s salaried pension plan were not as fortunate: GM did not supplement their pensions.

What’s interesting to me is that while most people insist that enforcement of contracts is something only a state can do, the Delphi example illustrates exactly why enforcement of contracts should never be left up to the state.

A functioning society absolutely requires a fair and predictable enforcement of contracts. Government enforcement of contracts is predictable only in that contracts will be enforced in favor of whichever group the current administration thinks they need to currying favor with. Emails prove that Geithner stepped in and used bailout money to fund union employees, the only possible reason being to curry favor with big labor to benefit his boss’ party.

The only way to prevent politics from distorting contract enforcement is to separate the two and leave contract enforcement to the private sector. It’s hard to imagine a fair, functional society where contracts don’t mean what they’re supposed to mean. But in reality that’s exactly what we have. Union contracts are enforced and non-union contracts aren’t.

I’m learning about the Human Action model of change in KAP. This fucking of non-union employees should create in you a sense of unease, as it does me. Now imagine a world where politics and contract enforcement are totally separate. I believe we can get there. Do you?

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