Public Pension Shortfalls: Don't Forget Braindead Economists

[Hannah Bell]

As noted below, the NYT declared class war against school teachers and custodians, arguing that the public must focus on taking away their pensions. The prior note left out a very important point -- if the economists who make projections of pension returns knew arithmetic, then the pension funds would not be facing these huge shortfalls.

These "experts," all of whom draw high salaries in their working careers and much higher pensions than public employees (think of people like Harvard Professor Martin Feldstein, Boston University Professor Lawrence Kotlikoff, and Steve Goss the Chief Actuary for Social Security), all asserted that stocks would average 7.0 percent real returns even when the market was at its bubble peaks. If the market had performed as they had projected, then these pension funds would be just fine today.

In short, the biggest problem with these pension funds is that they listened to the country's leading economic experts in planning for the future. Unfortunately, the workers and the taxpayers will pay for the incompetence of the experts. The experts themselves are protected.

http://www.cepr.net/index.php/blogs/beat-the-press/public-pension-shortfalls-dont-forget-braindead-economists


where's the accountability?

oh, that's right, elites are never accountable for their own mistakes -- they make the peons bear the consequences of their fraud.

[Davis_X_Machina]

1. But 7% *is* the long term historical average real return....

...and pension fund managers manage for the long term.

[Hannah Bell]

5. it doesn't produce "average" 7% returns. that's the average of $1 invested 1950-present - 60 years.

few people "invest" their pensions for 60 years. and depending on when you start & when you end, results could be higher or lower than 7%.

pension funds should be invested for stability & sure returns. and they shouldn't be underfunded on the basis of dubious projected future returns -- which is the case with many private & public funds.


decade by decade, real inflation-adjusted returns in the s&p (including dividends & capital gains):


1950's: 16.7%
1960's: 5.2%
1970's: -1.4%
1980's: 11.6%
1990's: 14.7%
2000's: -3.4%

1950-2009: 7.0%

[KamaAina]

2. So this guy is browsing in a back-alley shop

and he runs across a shelf full of jars with brains in them, each carefully labeled "Mathematician Brains, $10/lb.", "Novelist Brains, $15/lb." and so on. Finally he sees one marked "Economist Brains, $1,000/lb." Shocked, he asked the shopkeeper why the price was so high.

She replied, "Do you know how many economists you have to kill just to get a pound of brains?"

[Hannah Bell]

3. lol.

[Starry Messenger]

4. rofl