Sunday, April 10, 2016

US public pensions face "grave difficulties."

I have been warning about under-funded US state and city pensions since the first edition of our textbook.  The latest warning tells us to look for bankruptcies in 5-10 years:
The Stanford study found that the states of Illinois, Arizona, Ohio and Nevada, and the cities of Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues. 
In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services.

Hank Kim, executive director at the National Conference on Public Employee Retirement Systems, a trade association for public pension plans in the US, called Mr Rauh’s study a “manipulation of arithmetic” and “The [public pension] plans are in good shape and are headed to being in even better shape,” he said.

I  hope that the economists who study this problem won't quit writing about it.  But I suspect they are feeling a little like Cassandra who was given the gift of prophecy by Apollo, but because she rebuffed his advances, she was also cursed so that no one would believe her.

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