Voice For Liberty

Tag: Economics

  • Liberals and economic knowledge

    Who might you guess is better informed on issues of economics: liberals who promote government intervention in the economy, or conservatives and libertarians who oppose it?

    A recent study found some surprising — or maybe not surprising — results. The study is titled Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans. At this link you can read an abstract of the study and the entire document, too.

    An article by one of the authors that appeared in the Wall Street Journal is Are You Smarter Than a Fifth Grader? Self-identified liberals and Democrats do badly on questions of basic economics.

    In the study, researchers asked a series of questions designed to “gauge economic enlightenment.” Conclusions included these: First, and surprisingly, “for people inclined to take such a survey, basic economic enlightenment is not correlated with going to college.”

    Perhaps more importantly, who scored best: conservatives or liberals? Here’s the rundown:

    Adults self-identifying “very conservative” and “libertarian” perform the best, followed closely by “conservative.” Trailing far behind are “moderate,” then with another step down to “liberal,” and a final step to “progressive,” who, on average, get wrong 5.26 questions out of eight.”

    The authors say “we should acknowledge that none of the eight questions challenge typical conservative or libertarian policy positions.”

    The authors also note:

    At least since the days of Frédéric Bastiat, many have said that people of the left often trail behind in incorporating basic economic insight into their aesthetics, morals, and politics. We put much stock in Hayek’s theory that the social-democratic ethos is an atavistic reassertion of the ethos and mentality of the primordial paleolithic band, a mentality resistant to ideas of spontaneous order and disjointed knowledge. Our findings support such a claim, all the caveats notwithstanding. Several of the questions would seem to be fairly neutral with respect to partisan politics, particularly the questions on licensing, the standard of living, monopoly, and free trade. None of those questions challenge policies that are particularly leftwing or rationalized on the basis of equity. Yet even on such neutral questions the “progressives” and “liberals” do much worse than the “conservatives” and “libertarians.”

    Author Daniel B. Klein concludes in the Wall Street Journal piece: “Adam Smith described political economy as ‘a branch of the science of a statesman or legislator.’ Governmental power joined with wrongheadedness is something terrible, but all too common. Realizing that many of our leaders and their constituents are economically unenlightened sheds light on the troubles that surround us.”

  • Kansas and Wichita quick takes: Tuesday April 12, 2011

    Kansas Medicaid overhaul ideas. Kansas Reporter: “A collection of 120 ideas to overhaul the Kansas Medicaid program will become the groundwork for the state’s effort to transform its health program for the poor.” Full article at Lt. Gov. releases Medicaid overhaul ideas.

    Moody’s down on Kansas finances. From Dow Jones: “Moody’s Investors Service lowered its outlook on Kansas to negative, citing several budget challenges for the Midwestern state. The move indicates an increased likelihood of a near-term downgrade and comes as U.S. states face a host of hurdles, such as the funded status of pensions for public employees, mounting costs for programs such as Medicaid and tax revenue that remains pressured amid tepid economic growth. Moody’s noted Kansas’ general fund balance was negative for the second-straight year in fiscal 2010 and is likely to remain in the red in the current year. Meanwhile, the state legislature appears unlikely to include significant reserve-rebuilding provisions in the budget for the 2012 fiscal year, which begins July 1, it said. Kansas has used non-recurring measures to bolster its budget, such as a proposed $200 million from the state highway fund, the rating agency added. It also said pension under-funding ‘remains a significant challenge.’” … Moody’s has Kansas at Aa1, a step below its coveted Aaa rating. It said the state’s strengths include “strong management, with financial flexibility and adherence to best practices.”

    Kansas tax revenue. Following is a chart of the composition of Kansas general fund tax revenue through 2009. Note the general trends of personal income tax rising, and retail sales tax declining. This chart does not cover the time period since the statewide sales tax was increased last year.

    Composition of Kansas General Fund Tax Revenue

    Kansas consensus revenue estimating group. Within the next week the Kansas consensus revenue estimating group will meet to arrive at a forecast of revenue for the next fiscal year, and perhaps adjusting the estimates for the last few months of the current fiscal year (2011, which ends on June 30, 2011). This group is composed of “representatives of the Division of the Budget, Department of Revenue, Legislative Research Department, and one consulting economist each from the University of Kansas, Kansas State University, and Wichita State University.” All of these people are Kansas state government employees, and their institutions are dependent to different degree on appropriations from the legislature. Could this composition lead to a conflict of interest or possible bias in the forecasts? … The chart below shows the percent error between the group’s initial estimate of revenue for a year and the actual results. It seems that the group has a tendency to underestimate the magnitude of the swing of actual results, both good and bad. During the recession years of the early 2000s, the group was too high in its estimates (leading to a negative error percentage). Then during the following boom years the group underestimated. For the past two years the group forecast much more revenue than the state actually received, leading to some of its largest errors, in relative terms. … Forecasting the economy, of course, is a very difficult task, subject to all sorts of uncertainty that can’t be forecast.

    Kansas Consensus Revenue Estimating Group Error

  • Reisman: Social Security, Medicare must end

    Last week George Reisman published an article that should be required reading for all who care about the future of our country. Titled How to Eliminate Social Security and Medicare, it will take more than a few minutes to read, but it holds the type of information we need to know as we consider reform of government entitlements. Reisman is the author of the monumental work Capitalism: A Treatise on Economics.

    Reisman lays out a plan that would gradually, over time, end the Social Security and Medicare systems. It’s a detailed plan, and I don’t pretend to know enough to tell if the plan would work. But it seems like it would, and the important thing is that Reisman’s plan calls for an end to these programs. Most plans call for merely bringing these programs “under control” — whatever that means. And for all the courage attributed to House Budget Committee chair Paul Ryan and his Path to Prosperity Plan, he left the Social Security program for solution some other day.

    What’s important about Reisman’s article is his explanation of the harm that these two programs have caused. Here I take the liberty of rewriting two sentences of his into one: Many of the elderly and infirm are incapable of caring for themselves in large measure simply because they had been promised that the government would care for them and thus that it was not necessary for them to save.

    Social Security has reduced the need to save for one’s old age, Reisman writes: “The effect of Social Security and Medicare has been to remove the apparent need for much of that saving. Not surprisingly, in the conviction that the government was now providing for people’s old age, the rate of saving in the United States has declined precipitously over the years, falling all the way to zero in some years.”

    The saving of individuals for their retirement would greatly increase our capital stock, which is vital for economic competitiveness. In fact, Reisman writes that if American industry had access to greater capital, it would be able to operate with lower costs, allowing it to compete more effectively with foreign countries that pay lower wages. But because government diverted Social Security taxes into consumption rather than saving, that capital has not been accumulated. Instead, our capital stock is becoming depleted.

    It will become worse as young people learn they must pay off the national debt — not only the debt figures we see reported in the media, but the debt implicit in the promise of Social Security and Medicare. This debt, as we see, has been accumulated over the decades as politicians of all stripe have carried out what Reisman accurately calls embezzlement:

    Two major lessons to be learned from the financial disaster constituted by Social Security/Medicare are that the government should be prohibited from incurring any significant national debt and that a governmental promise of pensions or provision of future medical care is a category of national debt. All levels of government should be constitutionally prohibited from incurring significant amounts of debt beyond a very short term, including, above all, pension obligations of any kind.

    Hopefully, there is a special place in Hell reserved for all the political con-men and intellectual shysters of the last generations who endlessly dismissed the significance of national debts with such glib phrases as “we owe it to ourselves” and asserted that national debts need never be paid. These, of course, were the same con-men and shysters who again and again ignorantly denounced saving as cash hoarding and the cause of depressions and mass unemployment.

    And in the case of all the government officials who over a period of decades and decades knowingly used the proceeds of Social Security taxes to finance current government spending, these con-men and shysters descended to the status of major criminals, guilty of the crime of embezzlement on a scale unprecedented in all of human history. They diverted literally trillions of dollars of what people were led to believe were their savings, set aside for their future benefit, into current government spending. The spending was for projects desired by these officials and designed to keep them in office by fostering the illusion that the officials had performed the miracle of providing seemingly valuable current benefits at no corresponding cost. Of course, the reason for the apparent lack of cost was that the costs were covered by the proceeds of embezzlement.

    Besides dim prospects for the young, the mass of old people faces a grim future, too. While it is the individual who has the greatest motivation to see for their provision in old age, government has assured us that it will care for us in our old age. The individual versus the collective, in other words. While nearly every politician insists that the elderly will be cared for (“we’re not going to throw Grandma under the bus”), the political reality may become different some day as demographics shift towards a country with a higher proportion of elderly and fewer young people:

    The actual fact is that while the lives of the elderly are of inestimable value, when taken one at a time, to the individual elderly person concerned, they are of no actual value to politicians and government officials. Indeed, from the perspective of the self-interest of all-powerful officials, contemplating the land and the people of their country as their personal possessions, existing for no purpose other than their — the officials’ — glorification, the existence of the elderly stands as an actual impediment. For the elderly consume substantial amounts of the resources of the collective that the officials control, and at the same time they produce little or nothing, and no longer have any prospect of ever doing so. If they ceased to exist, the officials would have resources available to put to other uses that they would certainly judge to be more important.

    Could this lead to the “death panels” that some fear but ObamaCare supporters deny? Reisman cites a recent New York Times article titled When Ailments Pile Up, Asking Patients to Rethink Free Dialysis. The title is almost self-explanatory.

    This is just scratching the surface of Professor Reisman’s article. Reading it and understanding what government has done under the guise of caring for us, I alternate between anger and depression. For me, the saddest realization is that Social Security and Medicare have not only reduced the motivation of Americans to save, their taxes have reduced the ability of people to save, even if they want. I recommend a full reading so that all may understand what the future looks like.

  • Kansas and Wichita quick takes: Monday April 11, 2011

    Social security entitlement. In today’s Wichita Eagle Opinion Line, this comment was left: “Please stop calling my Social Security an ‘entitlement.’ I paid into it all my working life, and I just want my money back.” Two points: The writer seems to believe that just because people pay into Social Security, they’re entitled to benefits as through there was a contract in place. But there is no contract. Social Security benefits are what Congress says they are, and Congress can make changes at any time. … Second, the writer wants his money back, as though the money was paid onto some sort of investment account and has been working there earning interest. Unfortunately, the Social Security trust fund money has been spent. There’s nothing for the writer to get back except the future taxes to be paid by future workers.

    New York Times may be offended. “The New York Times is carrying out a vendetta against Charles and David Koch, two of the very few rich people who support conservative and libertarian causes. The Times is offended, apparently, that the Left does not quite have a monopoly on big money. The paper’s editorialists flat-out lied about the Koch brothers, and had to issue a retraction.” … Referring to author David Callahan and a recent op-ed: “What is most striking about Callahan’s piece is its rampant hypocrisy. He himself is an employee of a left-wing organization that prefers not to abide by the transparency standards that Callahan advocates.” From Powerline: The Times Vendetta Continues.

    Kansas Legislature website. Kansas Reporter writes: “Most hurdles now behind legislative website update.” The major problems I experience now are reliability issues, where many times clicking on a document produces the dreaded “Error 500 Internal Server Error” message. … The cost of the work, plus a new system for preparing legislative text, is some $11 million.

    General Electric tax bill. The Washington Post looks at the New York Times and its reporting on General Electric and its taxes: “Unfortunately, for all its good work, the article has created at least one major misperception: that GE paid no U.S. income taxes last year and is getting a $3.2 billion refund from the Treasury. … The company says it’s not getting any refund for 2010 — validating [accounting professor Ed] Outslay’s analysis. Its 2010 tax situation? ‘We expect to have a small U.S. income tax liability for 2010,’ said Gary Sheffer, GE’s chief spokesman. How big is small? GE declined to say. The number is unlikely to be disclosed unless GE goes public with it or is forced to do so. One reason the Times was ensnared — and that it took us a while to sort this out — is that the material is confusing. Outslay drew up 10 GE tax metrics for us and could have given us at least six more. None shows what GE’s U.S. income tax bill is for a given year.”

    Sweet deal for big sugar. Senator Dick Lugar, writing in the Washington Times, explains the harm to U.S. consumers from a tariff that benefits a few: “The collapse of communism brought an end to many of the world’s command-and-control economic systems and central planning by government bureaucrats. But a notable exception is the United States government’s sugar program. A complicated system of marketing allotments, price supports, purchase guarantees, quotas and tariffs that only a Soviet apparatchik could love, the U.S. sugar program has actually lasted longer than the Soviet Union itself.” The idea is that by keeping prices high and insulating domestic sugar produces from the world market, jobs are saved. Counters Lugar: “But in 2006, the Commerce Department calculated that for every sugar-growing job saved by artificially high prices, three manufacturing jobs in the confectionery industry are lost. Overall, from 1997 to 2009, more than 111,000 jobs were lost in the sugar-using food sector, according to Commerce data.” This is always the case with protectionist trade tariffs: a small number of highly-visible jobs are saved, at the cost of great economic harm spread across the economy, harm that is difficult to see. Sugar protectionism is only one such example. President Bush’s tax hike and Obama’s tax increase on tires are other examples.

    Williams on role of government. A short lecture by Walter E. WIlliams. “Almost every group in our country has come to feel that the government owes them a special privilege or favor.” Conservatives too, he says. Williams highlights the contradictions of conservatives, who “don’t have a moral leg to stand on,” he says. “They merely prove that it’s a matter of whose ox is being gored.” He quotes H.L. Mencken: “Government is a broker in pillage” and “Every election is an advance auction on the sale of stolen property.” Williams says not to blame the elected officials we send to Washington and local centers of government. They, he says, are doing precisely what we send them there to do: “Namely, to use the power of their office to confiscate the property of one American and bring it back to another American to whom it does not belong.” Politician who say they would not do this — of course, they do not speak so bluntly on the campaign trail — would not be elected.

  • Kansas and Wichita quick takes: Sunday April 10, 2011

    Local elections, qualifications of Wichita’s elected officials. On today’s edition of the KAKE Television public affairs program This Week in Kansas, Wichita State University’s Ken Ciboski, Chapman Rackaway of Fort Hays State University and myself join host Tim Brown to discuss local elections in Kansas. Mention was made of a recent article I wrote that was critical of the educational attainment of some Wichita City Council members. See Education gap on Wichita City Council.

    Steineger, Kansas senator, to address Pachyderms. This Friday (April 15) Kansas Senator Chris Steineger will speak to the members and guests of the Wichita Pachyderm Club on the topic “Using Business Principles to Restructure State and Local Government For Long-Term Efficiency.” Steineger, of Kansas City, has served in the Kansas Senate since 1997 and in December switched his affiliation from the Democratic to Republican party. Steineger has voted with Republicans on fiscal issues for many years. Explaining why he switched parties, he wrote “I am a fiscal hawk who believes Americans have been borrowing, spending, and living beyond their means for too long.” Steineger has spoken at events organized by Americans for Prosperity.

    Washington Monument strategy. At about 11:00 pm Friday night, President Barack Obama spoke on television in front of a window where the Washington Monument could be seen in the background. He said that thanks to the just-struck agreement to continue funding the operations of the federal government, the monument would be open to visitors the next day. This is explicit use of the Washington Monument strategy, in which the response to any proposed cut or slowdown in the growth of government is illustrated in the most painful or visible way. As the Wikipedia entry states: “The most visible and most appreciated service that is provided by that entity is the first to be put on the chopping block.” … The president also said “I would not have made these cuts in better circumstances.”

    Soros conference online. This weekend’s conference of the Institute for New Economic thinking has quite a few papers and videos online at the conference’s website. Surprise: Keynes and his economic theories are revered. Attendees are treated to papers and presentations like this: “It is the interdependence between the rule of law and the production and distribution of goods and services that gives capitalism its unity. The autonomy of the economy is thus an illusion, as is its ability to self-regulate. And we are in the current mess because the scales have tipped slightly too far in favour of this illusion. This shift in the balance represents an inversion of values. Efficiency, it was believed, would be better served if the workings of governments were regulated more tightly (especially in Europe, although the theory originates in America) and if the markets were deregulated to a greater extent. The ingenuity of the financial markets initially, then their blind sightedness, did the rest.” … What?

    Economics in one lesson this Monday. On Monday (April 11), four videos based on Henry Hazlitt’s class work Economics in One Lesson will be shown in Wichita. The four topics included in Monday’s presentation will be The Lesson, The Broken Window, Public Works Means Taxes, and Credit Diverts Production. The event is Monday (April 11) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Wichita City Council this week. On Tuesday, the Wichita City Council considers only consent agenda items. Then, tributes — including video — to outgoing Council Members Paul Gray, Sue Schlapp, and Roger Smith and installation of new members. A new vice mayor will also be selected. … I don’t know if the city will be hosting a luncheon afterward. Two years ago a celebratory luncheon titled “Wichita City Council Changing of the Guard” cost over $1,000.

  • Kansas and Wichita quick takes: Friday April 8, 2011

    Kansas Meadowlark blog recast. Earl Glynn of Overland Park has reformed his Kansas Meadowlark site from a blog to a news site along the lines of the Drudge Report. Glynn’s full-time job is working for Kansas Watchdog.

    Economics in one lesson next week. On Monday, four videos based on Henry Hazlitt’s class work Economics in One Lesson will be shown in Wichita. The four topics included in Monday’s presentation will be The Lesson, The Broken Window, Public Works Means Taxes, and Credit Diverts Production. The event is Monday (April 11) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Government shutdown guide. Americans for Limited Government reports on What happens if the government shuts down? :Well, nothing really, and the consequences of a shutdown are really rather mundane. The worst part of it all, Congress would still be working, oh, and all government museums and tourist sites will close.” Tourist sites closing: that’s the “Washington Monument Strategy,” where any threatened cuts to the National Park Service will first cause a closing of the Washington Monument. Instead of looking for the ways to save money with the least impact, agencies propose cuts with the most impact first. … The Washington Post has more, noting that only essential government employees would work during the shutdown. Which causes me to ask: Why do we have non-essential government employees?

    Halve the deficit by doing nothing. Writes Ezra Klein: “Just let the Bush tax cuts expire in 2012, as they’re currently scheduled to do.” But this is not “doing nothing.” It’s government taxation at a higher level than present, which is far from nothing. It’s redirecting resources from the productive private sector to government, which almost always means less effective application of these resources. The Wichita Eagle editorial board approved enough of this that they mentioned it — favorably, I think — on their blog.

    State debt worse than federal. While many are aware that the U.S. federal government is awash in debt and that any plan to forcefully deal with this problem is denounced by liberals, the states, collectively, are in worse shape. Washington Examiner explains: “House Budget Committee Chairman Paul Ryan of Wisconsin talked Tuesday about cutting federal spending by a staggering $6 trillion in the next decade and in the process eliminating the $14.3 trillion national debt. As incredible as these numbers are, all 50 states face perilous fiscal times as well, but they are less able to cope than the federal government. States can’t print money, as the federal government can, and they are far more limited in whom and how much they can tax. There is one common factor here, though: Washington and the state capitals are drowning in red ink largely because professional politicians promised excessive entitlement benefits without making provisions to pay for them. … These liabilities are coming due as the baby boomers begin to retire, which means entitlement reform — at the federal and state levels — is likely to be the defining political issue for the next decade.”

    This Week in Kansas. On “This Week in Kansas” Chapman Rackaway, Kenneth N. Ciboski, and myself discuss local elections in Kansas, and then the Kansas Legislature. Tim Brown is the host. “This Week in Kansas” airs on KAKE TV 10 Sundays at 9:00 am in Wichita, and 11:30 am Saturdays on WIBW in Topeka.

  • There are a lot of government employees

    Two recent articles — one national in scope, the other covering only Kansas — tell us why our budgets are so bloated and why the private sector is struggling to survive.

    Kansas Watchdog reports “In February more than one in five non-farm employees in Kansas worked for government.” This is government all levels. Why is this a problem? Reporter Paul Soutar explains:

    Malcolm Harris, a professor of finance at Friends University in Wichita, said the level of government employment is an indicator of a bigger problem, “It tells me that we’ve got a lot of our resources going into government.”

    “Government spending squeezes resources that might be available for increasing productivity,” Harris said. “It makes us less competitive.”

    Harris said Kansas and the U.S. need to be more competitive in order to increase exports and reduce our trade imbalance.

    The second article in is the Wall Street Journal, penned by Stephen Moore. Titled We’ve Become a Nation of Takers, Not Makers: More Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined, it starts off with a startling statistic: “Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.”

    Later Moore highlights the decline of America’s manufacturing tradition at the expense of more government: “Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital, have more government bureaucrats than people making things.”

    Moore finds that since government has been hiring, and since rarely is anyone fired or laid off from a government job, many college graduates want to work for government: “Sadly, we could end up with a generation of Americans who want to work at the Department of Motor Vehicles.”

    Moore notes that productivity in government is measured differently than in the private sector: “But education is an industry where we measure performance backwards: We gauge school performance not by outputs, but by inputs. If quality falls, we say we didn’t pay teachers enough or we need smaller class sizes or newer schools. … The same is true of almost all other government services. Mass transit spends more and more every year and yet a much smaller share of Americans use trains and buses today than in past decades. One way that private companies spur productivity is by firing underperforming employees and rewarding excellence. In government employment, tenure for teachers and near lifetime employment for other civil servants shields workers from this basic system of reward and punishment. It is a system that breeds mediocrity, which is what we’ve gotten.”

    Moore also uncovers a paradox of government employees: “Public employees maintain that they are underpaid relative to equally qualified private-sector workers, yet they are deathly afraid of competitive bidding for government services.”

  • Kansas and Wichita quick takes: Wednesday April 6, 2011

    Economics in one lesson next week. On Monday, four videos based on Henry Hazlitt’s class work Economics in One Lesson will be shown in Wichita. The four topics included in Monday’s presentation will be The Lesson, The Broken Window, Public Works Means Taxes, and Credit Diverts Production. The event is Monday (April 11) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Opinion on tax levels. From Rasmussen, 64% Say Americans Are Overtaxed, Political Class Disagrees: “Roughly two-out-of-three voters think Americans are overtaxed, and nearly as many say any federal tax increase should be subject to a vote by the American people. … But the Political Class strongly disagrees. While 79% of Mainstream voters think Americans are overtaxed, 87% of those in the Political Class don’t share that assessment.” … Political class is a group Rasmussen defines by their answers to these questions: “Do they generally trust the judgment of America’s people or the judgment of its political leaders? Do they view the federal government as its own special interest group? Do they see big government and big business often working together against the interests of consumers and investors?” More on the political class is at 67% of Political Class Say U.S. Heading in Right Direction, 84% of Mainstream Disagrees.

    Freedom leads to wealth and prosperity. Among the nations of the world, and among the states of the U.S., economic freedom leads to higher incomes and prosperity. Unfortunately, the City of Wichita has taken a step backwards in terms of economic freedom based on yesterday’s elections, and the long-term prosperity of our city is certain to suffer as a result. The state of Kansas suffers losses due to out-migration of people and income each year. This short video by Josh Hall explains. Summarizing, he says: “Individual freedom in economic life leads to economic progress. If you care about growth and prosperity, you can’t ignore the importance of economic freedom.” This video is available on YouTube through LearnLiberty.org, a site which has many other informative videos.

  • Latest public pension fund data show taxpayers still on hook for trillions

    By Frank Keegan

    Despite pension fund investment gains in 2010, taxpayers still owe state and municipal workers trillions of dollars for promised benefits no matter how much funds earn during the next 30 years.

    According to data for the 4th Quarter released Thursday by the U.S. Census, cash and security holdings of the top 100 public pension plans gained 7.6 percent in 2009, the fifth consecutive quarterly year-over-year increase.

    Census reported the funds reached “the highest level since the second quarter of 2008.”

    Unfortunately, pension fund managers promise taxpayers and workers they will earn about 8 percent a year every year forever, and a loss of about 28 percent at the bottom of the recession would require a 62.5 percent gain the next year to fulfill their promise.

    Spread across 20 to 30 years, funds would have to gain 9 percent to 11 percent every year to achieve their goal. That means no investment market ever could have another downturn for decades. It would require risk-free investments with the highest returns in history. Good luck.

    Even if fund managers could achieve that, taxpayers during intervening years would have to come up with about $1 trillion to $1.5 trillion every year to fill intermittent funding gaps.

    This Census survey “comprised 89.4 percent of financial activity among such entities.”

    On that basis, the total immediate investment cash and security holdings shortfall is more than $1 trillion just for pensions, which will compound to $16 trillion to $34 trillion in additional hits to taxpayers during 20 to 30 years even if fund investments realize unprecedented gains.

    Guaranteed pension costs continue to grow, and government must put taxpayer money into them every year whether investments produce promised returns or not.

    Politicians’ false promise of retiree health care benefits adds more than $530 billion to the debt as of 2008, according to the Government Accountability Office, because “most of these governments do not have any assets set aside to fund them.”

    Other estimates of the total retirement promise gap range from $1 trillion using old data and official assumptions from the Pew Center on the States, to $3 trillion to $5 trillion based on other accounting standards.

    An update of the Pew study that includes data from the beginning of the recession is due out next week. No matter what the actual number is, experts agree it will continue to grow and require more contributions from spending cuts and tax increases now.

    A report released Thursday by Standard & Poor’s confirms that despite recent gains, “The funded ratios of U.S. states’ pension funds continue decline ….”

    Credit analyst Gabriel Petek wrote in “U.S. States’ Pension Funded Ratios Drift Downward” that “Without exception, reduced pension asset values relative to estimated liabilities is placing upward pressure on the annual required contributions of state governments, compounding what is already a difficult budget cycle for most states.”

    S&P focuses on whether states will be able to pay their debts, not whether taxpayers can bleed more for the hidden tab politicians have run up. The report says:

    • Pension liabilities and current contributions are not presently jeopardizing any state’s capacity to meet its debt service obligations;
    • There is general upward pressure on recommended contributions (actuarially determined) to pension funds due to the phasing-in of market losses in 2008;
    • Pension reform efforts could help contain the rate at which some estimated long-term pension liabilities are growing. The significance of near-term fiscal relief generated from these reforms in most cases remains to be seen; and,
    • Early indications in 2011 suggest that deteriorating pension funded ratios — when coupled with a lack of full actuarial contributions — could serve as a source of potential credit pressure for some states.”

    That all adds up to major service cuts and tax increases now to make sure public workers get their pension benefits and bondholders get their principal and interest payments.

    With states facing billions in operating deficits despite revenue higher than pre-recession levels, coming up with the money they must invest now to avoid certain catastrophe in the future is going to be tough.

    Especially on beleaguered taxpayers who now know state government puts them last on the priority list behind public workers and bondholders.

    Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity, watchdog.org and statehousenewsonline.com. Any disgusted public employee, journalist, activist organization or citizen watchdog who wants help exposing government waste, fraud and abuse may contact him at: frank.keegan@franklincenterhq.org.