This was so epic that I had to purloin the whole thing. From
Matt Yglesias:
Is employee compensation driving state budget woes? No:
In the short-term, the problem for state budgets is that the recession
caused a drop in tax revenues. In the longer-term, the main issue is
Medicaid costs.
And while we're at it, let's revisit the actual state of public pensions:
- The drop in pension values was caused by Wall Street, not unions;
- Since 2000, through good times and bad, states themselves failed to pony up the contributions they were committed to make while workers continued to pay into them;
- Calculations by the Right that pensions will go broke assume a "riskless rate of return" of 4-5%, when in fact pension returns have been well above that for decades (8-9% since 1984) and are likely to continue to be so (they have already recovered much of their losses);
- A realistic estimate of the shortfall is from $750 billion to $1 trillion over 30 years. If the funds only saw a return similar to Treasury bonds--4.5%--they would still earn $850 billion over that 30 years and cover or nearly cover the shortfall within the needed period;
- If states increase their domestic product by merely .2% over that 30 years, or increase funding by 1% of their budgets, it would be enough to eliminate any shortfall;
- And finally, public pensions can afford to pay 100% of benefits for the next 15-20 years with no changes at all.
In the meantime,
God save Japan.
