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Mar 21 2016
NYT Promotes Study by Private Pension Company That Says Not to Trust Public Pensions
By Dean Baker
Reputable newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently the New York Times (3/17/16) does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.
Both the article and the study itself seem intended to scare more than inform. For example, the piece, by reporter Mary Williams Walsh, tells readers:
Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.
That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are not on government balance sheets, Citigroup said.
OK, folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?
The Times has committed itself to putting numbers in context; where is the context here? Virtually none of the Times readers have any clue how large a burden $78 trillion is for OECD countries over the rest of the century. The article did not inform readers with this comment; it tried to scare them. That is not journalism.
For those who are keeping score, GDP in these countries for the next 80 years will be around $2 quadrillion, or $2,000 trillion (very rough approximation, not a careful calculation). So were talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.
Furthermore, the whole treatment of the expense as an unfunded liability is problematic. Suppose the United States spends 7 percent of its GDP on education (roughly current spending) and this share is projected to rise to 8 percent over coming decades. We can treat the commitment to educating our children as an unfunded liability; after all, we dont have any money set aside from prior years to fund it.
But since we are already spending 7 percent on education every year, the additional burden will just be the boost to 8 percent. That is a burden of 1 percentage point of GDP, or roughly half the cost of the increase in annual military spending associated with the wars in Iraq and Afghanistan.
There is a similar story with public pensions. In the case of Social Security, the US is currently spending about 5.0 percent of GDP on the program, up from 4.0 percent in 2000. Spending is projected to rise by another percentage point over the next 1015 years; are you scared?
in full: http://fair.org/home/nyt-promotes-study-by-private-pension-company-that-says-not-to-trust-public-pensions/
TreasonousBastard
(43,049 posts)public pensions are not paid out of GDP, but government receipts, which are themselves tiny portions of GDP. Pensions, public and private, are massively underfunded. And, ummm... some of those private pensions are insured by the government, quite possibly making the question moot.
Then, taking that 5% of the GDP spent on SS... Sounds like it's not much, but every program existing takes some percentage of the GDP, so there are only 20 programs taking 5% that could exist before we reach 100%. And that's of the GDP, not the government receipts. The GDP is huge, and includes a whole bunch of things we won't get rid of, like payrolls, construction, inventory..
The whole thing ends up in a magic show. A private pension plan offers me possibly greater returns but the same money in has to get me those returns, plus make a profit for the managers. One wonders where the extra money comes from. The public plan would seem to be more efficient, but it depends upon the whims of politics just how it is funded-- politicians hate to ask for more money from taxpayers or voters (unless it is for their campaigns).
This is excessively simplistic, but living in a huge, complex mixed economy such as we do, simplistic has its place.