“A billion here, a billion there, and pretty soon you're talking real money."*
Of course, that quote is outdated -- now, real money has to be measured in the trillions.
Except the "trillions" is most often used today to scare, even when the "trillions" is off by nearly triple the actual amount, and is exaggerated when put in context. What we are witnessing now is use of
(a) arithmetic errors; and (b) out of context interpretation
to further noxious policies. We saw this with the Rogoff-Reinhart Excel Spreadsheet Error, used for three years to inflict economic pain on hundreds of millions of people. Now, one of the main disseminators of that lie, the WaPo editorial board, has turned its malignant innumeracy to the war against government pensions.
With the Detroit bankruptcy, the war against government pensions is being amped up into a jihad, with the usual suspects screaming that state and local economies are doomed, doomed I say, by those sweet government pensions (which employees greedily bargained for often in exchange for pay raises or other benefits).
The war is aided and abetted by outrageous planned or accidental arithmetic mistakes, the latest in a Washington Post Editorial Friday. The Post writes:
A new survey by scholars at Boston College finds that state and local pension plans have $3.8 trillion in unfunded liabilities, even assuming strong rates of return.
Scary, huh? Except for one small thing. The actual unfunded liabilities
are $1 trillion and not $3.8 trillion as Dean Baker (and now
Paul Krugman) point out.
The WaPo Editorial Board apparently does not know how to read a balance sheet. What the report they cite actually states is that the total pension liabilities are $3.8 trillion, but the pensions have $2.8 trillion in assets. Well, so what -- a trillion here, a trillion there -- let's use it to force retirees into poverty. (As of this hour, the piece has not been corrected on line.)
But what about $1 trillion, isn't that still scary? Dr. Krugman explains that the Study used by the WaPo also estimates the ARC: defined as the "present value of the benefits accrued in a given year – plus a payment to amortize the unfunded liability." Compared with th $1 trillion in unfunded liabilities, this is not nearly as scary:
According to the survey, the ARC is currently about 15 percent of payroll; in reality, state and local governments are making only about 80 percent of the required contributions, so there’s a shortfall of 3 percent of payroll. Total state and local payroll, in turn, is about $70 billion per month, or $850 billion per year. So, nationwide, governments are underfunding their pensions by around 3 percent of $850 billion, or around $25 billion a year.
Not quite as scary -- or not scary at all. What we have here is now the formula for screwing average people:
Malignant Innumeracy + Distorted Intepretation = Terrible Policy
*Attributed to Sen. Everett Dirksen, R. IL. (a late member of the extinct moderate Republican species that roamed that Senate in the '50s and '60s).