July 08, 2011
The NYT, which has repeatedly printed news stories implying that public pensions are hugely underfunded, wrongly implied that economists all agree that public pensions have overly optimistic return assumptions for their pension funds. This is not true. In fact, most pensions are now making assumptions that are completely consistent with the expected return on their assets based on widely accepted projections for the growth of the economy and the growth of profits.
In fact, it is almost impossible to produce a plausible set of returns (capital gains and dividend payouts) that is consistent with a substantially lower rate of return than what the pension funds are assuming. If the economists who claim that the pension funds are assuming too high a rate of return believed what they say, then they should be able to write out return projections that would support this contention in just a few minutes. Given the trillions of dollars at stake in this debate, laying out a set of return projections would seem to be a reasonable price for being taken seriously.
This argument is explained more fully in a 2005 Brookings Paper that I co-authored with Paul Krugman and Brad DeLong.
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