The Washington Post is always willing to accommodate those who want to make a big issue out of budget deficits. In that spirit it ran a column today by Robert Pozen and Theresa Hamacher warning readers about "public-pension pitfalls."

The piece begins by decrying the fact that almost 80 percent of state and local government employees are still covered by traditional defined benefit pensions even as these pensions are rapidly disappearing from the private sector. This may seem a bizarre complaint to most people.

After all, few workers have been able to accumulate enough in 401(k)s to guarantee themselves any sort of security in retirement. In 2009, the financial wealth for the median household between the ages of 55-64 was only around $50,000, including all 401(k) assets.

Most public sector workers will have some pension income to support them in addition to just being dependent on Social Security. This might be considered a source of security that we would like to see brought back for private sector workers rather than eliminated for public sector workers. Of course this is the Washington Post.

It is also important to remember that close to a third of state and local employees are not covered by Social Security so their public pension will be their only regular source of retirement income. Somehow, Pozen and Hamacher forgot to mention this fact in their piece.

Next we are told that the unfunded liabilities of these plans are $600 billion. This is supposed to sound very scary, since $600 billion is a big number. To make sense of big numbers we need a context.

The planning period for a pension fund is typically 30 years. Over the next 30 years, GDP is projected to be over $400 trillion in today's dollars. This means that the unfunded liability is equal to about 0.15 percent of projected GDP over this period. To make another comparison, relative to the size of the economy it is equal to a bit more than 3 percent of what we are currently spending on the military. Are you scared yet?

April 5, 2012

For the past few weeks, CEPR has been beating the federal minimum wage drum with a series of issue briefs. In the latest brief, we describe how the increases in age and education of the low-wage workforce have not been recognized by the minimum wage. Seve

Dean Baker
Al Jazeera English, April 4, 2012
En Español

All the inside Washington types seem to agree, we should change the indexation of Social Security benefits to the chained consumer price index (CPI). This would supposedly make the annual cost-of-living adjustment (COLA) more accurate and save the government big bucks. Sounds great, right?

First of all, when all the inside Washington types agree on something, it is a good idea to hang on to your pocket books. Remember, these are the folks who thought it was great that everyone was becoming a homeowner in the middle of a housing bubble and that Alan Greenspan was the greatest central banker of all-time. In other words, inside Washington types are a group of people that mindlessly repeat the conventional wisdom and are largely incapable of original thought.

At the most simple level, the switch to a chained CPI is a way to reduce the annual COLA in Social Security by roughly 0.3 percentage points. That may sound trivial, but it is important to remember that this sum adds up over time. After ten years, this lower annual cost-of-living adjustment would imply a reduction in benefits of roughly 3 percent, after 20 years the reduction would be 6 percent, and after 30 years close to 9 percent. So this is real money.

This plan to lower the COLA raises two obvious questions. First would the new measure actually be more accurate, and second is a cut in Social Security benefits good policy?

Dean Baker
Truthout, April 2, 2012