March 2011, Dean Baker and Hye Jin Rho

Dean Baker
The Guardian Unlimited, March 7, 2011

Dean Baker
Truthout, March 7, 2011

This week, we post links to reports from Center for American Progress, Center on Budget and Policy Priorities, Center for Law & Social Policy, Economic Policy Institute, The Joint Center for Political and Economic Studies, and Political Economy Research Institute.

It seems that Andrew Biggs, at the American Enterprise Institute, is taking issue with my argument on the rate of return that public pensions should assume on the portion of their assets held in stock. (The rate of return on the asset is the same issue as the rate of discount applied to future liabilities. I use rates of return just because it makes the discussion easier to follow.)

To start, we should be clear on what exactly is at issue. Andrew and I are not debating the expected rate of return on stocks. Both of us agree that the pension funds are at least close to the mark in their assumptions on stock returns. Rather, Andrew feels that their return assumption does not correctly account for the risk associated with stock returns. He notes that the higher return on stocks comes in exchange for higher risk. Since the pension obligation is an absolute commitment, he argues that pensions should assume a risk-free rate of return on their assets.

My contention is that because a state or local government is essentially an infinitely lived entity, it need not be as concerned about the variance in returns as individuals. Therefore state pension plans can make their projections based on the expected value of their stock holdings.

Since the Great Recession was formally declared over in June 2009, the economy has experienced only two quarters of above-trend growth in real GDP – growing at an annual rate of 5.0 percent in the fourth quarter of 2009 and 3.7 percent in the first quarte

March 4, 2011

March 4, 2011 (Jobs Byte)

Dean Baker
CNNMoney.com, March 3, 2011

Conservatives have tried to argue that the problem state and local governments face is that the public-sector employees have used union power to pull away from the rest of us. What has really happened over the last 30 years is almost the opposite. Since t