Again, I haven’t studied the issue of public pensions at all, but not a good sign when the Washington Post is heh-indeeding writers who admit the Post made a $2.8 trillion dollar error in its recent anti-public pension polemic:
Josh Rauh takes the words right out of my mouth: http://t.co/wFFx2XFSsN
— Charles Lane (@ChuckLane1) July 22, 2013
Paul Krugman and Dean Baker took the Washington Post editorial page to task yesterday for stating that unfunded state and local pension liabilities amounted to $3.8 trillion. They accuse the page of misquoting a study in which the total was cited as only $1 trillion.
The WaPo editorial page did misquote the study…
No correction as of yet. If the evidence of WMD in Iraq had been convincing, Bush et al. wouldn’t have had to lie about it. If the public pension problem was so bad, WaPo wouldn’t have to misquote studies to make it sound scary.
Not complicated.
Yatsuno
Mr Rauh then turns around and says, “But WaPo was right” and throws up a bunch of static about calculations and *gasp* TAXES!!! that really does nothing to enlighten the actual issue.
Nerdlinger
It was corrected this morning, after sufficient time had passed for the wingnuts to digest another bit of WaPo propaganda.
David in NY
Who was it reported the actual average Detroit pension was $19,000 (some without Social Security)? And the big money was the head of the PD with approximately $92,000? This is not hedge fund territory. It ranges from bare survival to a comfortable income for somebody who did a job worth a lot more than that, in most big cities (and who had been on teh force for years, apparently).
You know, these pensions were guaranteed by the Michigan Constituion, and the state has the power to tax. It’s only fair that it use that power to live by its promises.
burnspbesq
Not to mention that that $1trillion isn’t due tomorrow, or next month, or next year, but over the actuarial life expectancy of all of the plan participants, both retirees and active employees. If you model it out, the present value of that $1 trillion is probably more like $150-200 billion.
The Dangerman
Has anyone calculated the upfront money people sacrificed to get those backend pensions?
burnspbesq
@David in NY:
The law school exam question just gets better and better. I’m waiting to hear the Michigan courts explain why it’s OK for them to violate the automatic stay, or point to the exception in Bankruptcy Code Section 362(a) they’re relying on.
burnspbesq
@The Dangerman:
Unknown and unknowable. No way to know how past negotiations would have played out if retirement benefits hadn’t been on the table.
Nicole
Oh, WaPo. I bet you say that to all the boys.
Spaghetti Lee
It must have been while you were kissing me
Is Charles Lane playing the part of Meat Loaf or Patti Russo in this scenario?
eemom
I’ll never forgive the Loaf for that drunken Romtron fanboy shit.
Omnes Omnibus
@eemom: Crack is whack.
ChrisNYC
It’s an interesting juxtaposition with the NYT Public Editor’s stuff on Nate Silver. The NYT journalists simply did not care for that guy with all the numbers and stuff and his dismissing of horse race, momentum, etc. Disruptive to the culture of the Times. Correct, yes. Right, sure. But disruptive. Much more journalismish to talk about Trump and his 2016 prospects. We have quotes from sources close to the candidate!
So Lane says, “I got the numbers wrong, yes, but the principle that govt workers are slurping up ill gotten tax dollars remains. I stand by that regardless of silly facts and magic numbers.”
burnspbesq
Rauh goes on to say that the $1 trillion number in the BC study is far too low, because it’s based on an unrealistically high assumption about future earnings on plan assets. That’s not an unreasonable view, but coming from the Hoover Institution it’s a Trojan horse. If you say, as Rauh does, that the real value of the unfunded liability, based on a more reasonable earnings assumption, is $5 trillion, it’s a very short step to “those pensions are unsustainable, so fuck the retirees.”
Quarks
That’s ok. A few more articles about the Royal Baby and everyone will forget about these tiny little mathematical mistakes.
MikeBoyScout
Wait!
Won’t the Koch Brothers poisoning of the environment in Detroit kill off those mooching pensioners early?
A financial benefit of oligarchy gone wild is lower pension liabilities… QED
David
I think the reason guys like Rauh are becoming so noisy on this is that rates are moving up, which increases the discount rate and so lowers the size of the liability. Already you are seeing the funded status of public funds improve.
Chris
@ChrisNYC:
I think the main thing to remember is that Great Men, or Very Serious People, if you like, don’t have facts, they have Ideas. Great Ideas. That’s what makes them Great Men. And, now, you don’t just abandon a Great Idea because of a few inconvenient facts – we’d never get anything done that way.
I mean, you know, you people in the reality-based community, you believe that solutions emerge from your judicious study of discernible reality… That’s not the way the world really works anymore. We’re an empire now, and when we act, we create our own reality.
Belafon (formerly anonevent)
And actually, they hurt their story. If they’d just come out and said “the city owns $1 Trillion in pensions” people would have freaked. Instead, they said, “the city owns $3.8 Trillion in pensions” and now they say “our bad, the city only owes $1 Trillion” which doesn’t sound nearly as bad.
Spaghetti Lee
@Belafon (formerly anonevent):
I’m honestly confused about that, and I’d love an explanation from someone more knowledgeable. $1T in pensions, divided by oh let’s say a couple hundred thousand government workers (and that may be too high) would be a few million per person. But the pensions aren’t nearly that large. For a $19,000 a year pension, it would take over 200 years to pay out four million dollars. So what gives. Administrative costs? Graft? IOUs upon IOUs?
burnspbesq
Doug:
Must disagree. Where WaPo is concerned, stupid is much more likely to be correct than evil.
burnspbesq
@Spaghetti Lee:
You’re way off on your assumption about the number of participants, on the low side.
The 126 plans that are included in the study data include CalPERS, which has over a million participants all by itself.
Villago Delenda Est
Some day, Charles Lane is going to be in the depths of Hell, in a sulfur jacuzzi blowing the Ayatollah Khomeni, and I will laugh and laugh and laugh.
Spaghetti Lee
@burnspbesq:
OK, I stand corrected.
Steeplejack
@David in NY:
Those pension numbers were in the New York Times coverage.
Hey, the comment box is acting funny. It’s not word-wrapping until it goes way past the right edge of the window. Haven’t seen that before.
ETA: Never mind. Minor change in my settings.
Bill in Section 147
All you have to know is that the same characters who were up in arms that the banksters had contracts and they should get their chunk of the stimulus as their bonus are the same ones who want the wage-earner to lose their pensions because… well money is for real people and those contracts were made when cities had money – but reality happens… times change.
It used to be that private industry paid a lot more but had less security. The basic government job, when you added all of the benefits, wasn’t awful but was bulletproof. But both systems were built on the idea that hard work and loyalty would lead to an eventual ‘care-free’ retirement. Now you are an idiot if you’re loyal and pensions and benefits are more of a set of guidelines.
They have gutted the middle class in the private sector and now that private-sector jobs have no security and are paying what government jobs used to pay… so the Government workers should be happy with less. Eventually we’ll all be Real Americans.
Jay Gould has an opening for any McDonalds worker. It doesn’t have a fancy title but the description is, “kill that overpaid Government worker ’cause he’s robbing you with his taxation and choking you pension grubbin’ hands.”
The Fat Kate Middleton
So, I receive a pension from one of the absolute best in the country, which amounts to a whopping $20,000 a year … but, you know what? I receive a pension! And that means I should die right now and my pension fund hand whatever is in there over to the MOTU. God, I hate those fuckers.
Gian
@The Dangerman:
as a public but not cop/firefighter county employee I’m opted out of social security and pay about 8.5% of my salary (all pretax) to the defined benefit retirement plan. Which after roughly 40 years of service will pay me back about 80-90% of my pay
those are rough cut numbers from reading my last emacs statement but they are in the ball park.
note that I do not get social security (we are opted in for medicare though)
not a math wiz, but if you put 8.5% away for 40 years I think that would be a decent savings rate, no?
and you could expect to live on at least hamburger and not cat-food, right?
and maybe take a grand-kid out for ice cream…
daveNYC
What I love is that he admits that the Post quoted an incorrect number from the study, but he continues on to say that the $1 trillion number is also incorrect because of something-something about being hard to measure and smoke and mirrors.
Which makes one question why they’d use any number from a study that appears to be so unreliable. It’s almost as if they have some agenda.
RobinDC
@daveNYC:
Are you having trouble understanding basic math? How about I break it down for you: the geniuses who have been running all the pension systems in the U.S. have held sacred the idea that they could make 8% a year on their investments. They can’t, and they haven’t been making that much for a long time. That is why they are already underfunded, and why the problem will drastically increase, because of unreal investment return expectations. This article is absolutely right, the pensions are going to be legitimate problem which should be discussed and dealt with in some form, either through increased taxes, or cutbacks in pensions.
This is going to be a serious challenge going forward, and if we don’t prepare for it all of these pensions are going to be wiped out by the next financial crisis in a wave of municipal defaults.