Jim

You still haven't answered the question as to why securities have regained and passed their high values from 2 years ago and how that is sustainable. Talk about burying one's proverbial head in the sand ... Well that's acutually pretty easy - the government kept some large institutions afloat, the private sector cut back (some say too much) and reduced overhead, and the economy is picking up steam ever so slowly. The stock market is generally a predictor of future conditions - so is thus anticipating future growth. Now if you are some how making the convoluted argument that the government constantly goes into debt to uphold the stock market - and that debt is similar to the pension obligations of the states - well, that's an interesting take. Especially since the states can't sell bonds for that debt while the US government can - but you likely don't understand that state's cannot run deficits and the details of bond obligations. But by the way, now that I've addressed your question you can now explain how the 4% graph is related to the actual states' rate of return and/or assumptions and how the state's debt obligation and lack of fund for the past 15 years is not relevant.

Ah yes -reasonable assumptions - that being 1) that states were basing their projections on a safe 4% return - Which is false and 2) that though not addressed - that states were fully funding their debt obligations - also false. So much for that arm waving exercise. Nobody claimed anything you said and you know it. You are starting to look like a sore loser on this. Doesn't the graph show a 4% return? And yes, the article adroitly side-steps the issue of non-funding. Clever.

I heard that Martin Sheen was going to take over CA's pension fund.

4% return assumptions - that's rich!! fully funded pension obligations! Unfortunately this bury the head in the sand logic is what has led to the high debt obligations and ultimately will cause more problems for taxpayers and retirees in the future, than if the problems were dealt with in a sustainable manner today. I much prefer having control over my own retirement in a 401k than having to deal with such shenagigans.

$857 billion is the difference what these assets would be worth under reasonable assumptions and what they are worth today. I am sorry you can't see it. Your readers will have to assess your understanding of these things. I clearly already have. Ah yes -reasonable assumptions - that being 1) that states were basing their projections on a safe 4% return - Which is false and 2) that though not addressed - that states were fully funding their debt obligations - also false. So much for that arm waving exercise.

Baker got his numbers from figure(1) so I don't see what so arm wavy about it, nor is it hysterical to point out that you didn't understand figure(1) after claiming that you were some kind of expert (talk about shooting yourself in the foot). No he didn't -- Jesus Christ! - figure 1 is just a comparison against 1) a 4% return (which has nothing to do with state pension assumptions) and 2) real stock market returns. If you can't grasp this fundamental point then there is nothing to discuss. Don't you understand what this relatively simple graph is showing? No states were assuming such returns and actuary assumptions continue to be well above this - even in WA state. So somehow, thru waving of a magic wand, state are going to add the needed capital to meet debt obligations - especially in the even tighter budget conditions - and when they have not done so in the past???? Well that's airtight logic.

Ok, great - the funds would have been higher than before the crash. So what? The solvency question has to do with debt vs obligations - which this article doesn't even address. So what is your point of posting this blurb and that graph? Huh? Meanwhile in a fuller analysis: And notice this is with a rather rosy 8% return. Read here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1596679

Figure 1 shows this: the difference between a safe investment of 4% and the actual stock market returns over the same period. Newsflash: it says nothing about how states are managing their portfolios, nothing about how states are funding their pension funds, and nothing about how states make assumptions regarding their returns. So - assuming I'm talking to freshman economics 101 here - states are in trouble with their pension funds because of all three reasons where they have strayed -1) states managed their portfolios with too much risk - way above the 4% noted in the graph, 2) states consistently underfunded their pension obligations - this means that each year for the past 15 yrs or so, they have not put in the capital they needed to meet current and future retiree obligations, and 3) they assumed much higher returns than they acutally received. All of these combined to screw themselves, and the taxpayer or the retirees in the long run. As the Pew report notes - states acted as if they were making minimum credit card payments over the past 10 years. Arm waving isn't changing the numbers. But continue the hysterics at will.

Learn how to f****** read a friggin economic output report dude - this says nothing about the relative debt obligations of states - NOTHING. Here's a primer for you: Downloadable here: http://www.cheap-credit-cards.org/pension-news/u-s-state-pension-funds-in-1-trillion-deficit/ Seriously - if you want to argue this stuff get educated.

Exactly!

Actually that is what he says, without any supporting data - point me to the data please.

Seems pretty dang clear ---Pew report on pensions:

And thanks for providing that link. But did you actually read it? Notice the "risk proof investment line" --- well great - without any link to reality and how states and municipalities were assuming their investments would grow. Excellent! A graph! Please lean how to interpt them. AND - the artlice says NOTHING on how states and municipalities were consitently, year after year, not setting aside funds to meet their pension obligations. While I generally like Krugman this article is disingenous.

Bullshit with no proof. Any actuary would look at states' pension funds and conclude they are underfunded. Their RETURNS, similar to 401ks were diminished, but how they were FUNDED - meaning that legislators choose not to, or were unable to, fully fund their obligations is the crux of the matter. Previously someone posted a "report" that Krugman cited and the lovely graph that noted how the market deviated from a safe return of 4%. Yea - but - earlier in the thread we were discussing how NJ, and other states, were making the ASSUMPTION of an 8.5% return and over ten years getting 2.5% returns - and not FUNDING their debt obligations so that they were adding DEBT. Get it? Really dude, you need an economics or accounting class.

Oh, I strongly disagree. While pension funds and 401ks are both subject the vageries of the market, the vast amount of pension funds are woefully underfunded - meaning that states and local jurisdictions are in debt against their obligations. All the arm waving in the world can't dispute those facts. The financial crash made no differnce in this issue. 401ks by definition are self funded - no debt - so really no comparison.

Newsflash. You're not the only one aware of how the economic downturn has affected folks, including family and friends. I'll spare you the details. I was merely responding to some of your comments on the downturn. While you seem to be deriding the bailout of financial institutions - which to some degree I agree - but also pointing out the hardships of unemployement, which very likely would have been worse without the said bailouts. My advice to my kid who is in college: work hard, be smart about career choices, be fiscally prudent.

I think it's fair to say that the market would have gone lower - how much? Speculation. But unemployment also would have gone further south along with middle class 401ks, pension funds, etc. without the bailout and stimulus. Could the depth of the financial crisis been averted? Probably. Could the bailout have been smaller without hurting the middle class and unemployment? I don't know. But if you hung in there or manged some proper market timing you're doing pretty well now with equities. 13% for 2010 and almost 6% ytd (S&P). Not without risk but better than stuffing it in the mattress.

Well, of course they don't. Frankly - I don't see a solution - the Repubs are just wacko on this subject this day and the Dems don't have a spine regarding softballs like letting the tax benefits for upper income folks expire. The shift of the tax burden to the middle class has been constant the past few decades and I see no signs of it slowing down. Maybe if the dumbass middle class got off their butts something would happen. That appears doubtful as well.

Not bad actually - a little heads up and sound money management will go a long way. Maybe that is what folks are scared about - actually having responsibility over their own future.

Don't know what you mean by this. I'm not a public employee nor do I have a pension. Self-funded 401k that is doing quite fine thank you. What a concept.

That guy is a bit of a wacko. But - the unions are now willing to negotiate items they said were off limits a week ago. Better to be at the table than on the menu.

Agreed. But even in WA, just to get up to date on the pension liabilities, about $2B is needed right now. And that will repeat about every 5-7 yrs. What is the solution? Taxes? Given the results of the last election I'd say it's not improbable but impossible. Maybe you could pitch taxes if you showed serious structural changes to the pension plan. Maybe.

The unsustainability of pension benefits has nothing to do with cyclical tax revenue cycles. These issues were there for the past 10 years and have only gotten worse. The recent economic strain has only stripped bare the facade. Your argument seems to be "the fat cats are getting tax breaks so there's no reason why public employees should walk away from the public trough - even though these pension programs are unsustainable." The day of reckoning is coming and the unions can help how to decide to change these programs or get taken along on the ride. Business as usual might go on for a year or two more at best.

I agree with the notion of getting the marginal rates back up to more historic levels - but that will not solve the unsustainability of the pension issue. Seriously - raising taxes substantially on say, those that make $250k plus will certainly help state coffers deal with some underlying structural issues and will lend some stability but they will not scratch the surface of pension liabilities. The problem lies with the amount of retirement funds promised employees, the amount of capital that would need to be set aside for each employee to be able to generate those promised funds until death, the pittance that has to be put up by employees, and the astonishing estimates of return by legislatures. In NJ the legislature assumes and 8.5% return annually. Anyone with an common sense would know to lower that to a more reasonable 4-5% return. NJ's return on pension investments over the past 10 yrs? A whopping 2.5%. Most other states are dealing with the same issues. WA is better and can likely deal with it by doing several things - 1) raise taxes (but good luck with that one) 2) eliminating COL raises to existing retirees, 3) either convert all present workers over to 401ks or have them contribute much more to their own retirement rather than ride on the taxpayers. I would vote for converting all incoming employees to 401ks and raising the contribution level of all existing employees substantially. Gregoire, to date, has ignored the issue just as past governors have.

And your point? The states have let liabilities build up. NJ has some of the highest if not THE highest taxes in the US. The larger problem has been promising what cannot be delivered. I noticed you failed to mention the chart on pg 3 that indicates the liabilities of each state. WA, with one of the smallest, has ONLY a pension liability of $3,200 per household. The only two solutions I hear from the left is 1) it's not a problem, or 2) raise taxes. The former is more of the same, the latter not feasible. You cannot tax your way out of these huge liabilities. No way. No how. Taxing the rich 50% will not do it.