August 08, 2010
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.
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