George Will's opinion column on airline pensions appeared in yesterday's NY Post. While the Post isn't exactly a pedigree publication, it is Rupert Murdoch's gift to NY conservatism and, of course, Page Six is (always) well worth the read. http://www.nypost.com/seven/01162005/postopinion/opedcolumnists/38602.htm AIRLINES VS. MARKETS JOURNALISM sometimes involves reporting to readers the considerable importance to them of something they never knew existed. Such as the 30-year-old Pension Benefit Guaranty Corporation. Its existence may be necessary, but it causes "moral hazard," and is pertinent to the debate about how to guarantee the benefits of the biggest pension system, Social Security. PBGC is a government entity created in 1974 after some bankruptcies left thousands of retirees without pensions. PBGC insures ? but not completely ? companies' pension funds. Since 1991, companies with pension plans have been billed $19 annually for every worker and retiree covered by the plans. The money ? about $1 billion a year ? funds the PBGC. Last week the Bush administration endorsed increasing the annual assessment to $30 ? and more for financially shaky companies. This is because the agency's $8 billion surplus in 2001 has become a $23 billion deficit, a reversal largely the result of the airline industry's crisis, the worst of which is still to come. United Airlines and US Airways are two of the so-called "legacy" carriers, the older airlines ? older than the low-cost newcomers like Southwest. In 2002 the five strongest legacy carriers had costs of $95,500 per employee. Southwest had costs of $59,100. The older carriers are being to driven to, or over, the threshold of bankruptcy by the weight of their pay and pension costs. Some of these commitments were made before the new low-cost carriers made it impossible for the legacy carriers to pass on high costs to their customers, and some were made to buy short-term labor peace because strikes could destroy the companies. The PBGC is taking over the pilots' pension plan of United and will soon have all of US Airways' pensions, just as in recent years it took over many from the steel industry. Three other airlines are in bankruptcy court to dissolve imprudent labor contracts. No legacy airline can compete with another that has dumped its pension burdens in the government's lap. Some, perhaps most, legacy carriers could be one price spike in fuel costs ? meaning serious terrorism against oil production facilities ? from extinction. Moral hazard exists when government policy creates incentives that make bad behavior rational. One example is the policy of bailing out countries whose reckless spending policies are encouraged by banks' reckless lending. Another example is a PBGC that assumes substantial responsibility for pension promises that companies have found convenient to make. The PBGC will reduce its potential contribution to moral hazard by increasing fees paid by companies with poor credit ratings. Even more important, the administration wants the PBGC empowered to prevent financially parlous companies from making pension promises they are apt to eventually make a government burden. All this could cause some companies to abandon defined benefit plans. The PBGC probably is necessary to ease the political friction that must attend what the airlines must eventually experience ? a radical reduction of excess capacity. Eventually this should mean the liquidation of one or more of the major airlines. But this reduction of friction takes a toll on America's economic system. Three decades ago sociologist Daniel Bell postulated the "cultural contradictions of capitalism." He meant that capitalism, by its success, subverts its cultural prerequisites. At first, capitalism depended on a Protestant asceticism ? thrift, deferral of gratification, industriousness. But capitalism produces wealth, and a shift from production to consumption ? the marketing of hedonism ? as the economy's motor. The banishment of asceticism by acquisitiveness means the systematic inflammation of appetites and the undermining of stern capitalist virtues. The PBGC's increasing importance may herald a new cultural contradiction of capitalism in the context of today's increasingly fierce competitive marketplace, and of the regulatory, aka welfare, state. Today's contradiction is this: Market forces, including the gales of globalization, prod capitalist entities, in their pursuit of efficiencies necessary for survival, to shed pensions. This heightens the entire public's sense of insecurity. But the welfare state exists to assuage insecurities. So this dynamic of capitalism draws the economy deeper into regulation, overruling market forces that make possible capitalism's rational allocation of wealth and opportunity. Hence capitalism's dynamism, a virtue which entails insecurity, reduces capitalism's virtues. The financial fragility of the airline industry may be spreading an infection of insecurity about pension promises generally. This should not, but probably will, complicate convincing the public to make necessary changes in Social Security. E-mail: georgewill@xxxxxxxxxxxx