Anti-government conservatives have been attacking public employees and their pensions for years, but the attacks picked up after the financial crisis in 2008, when the stock market crashed, leaving many public plans—and private plans, too—temporarily underfunded. Rather than going after Wall Street and searching for ways to prevent a repeat of the sub-prime mortgage crisis or too-big-to-fail banking, which threatened the entire economy (and not just public employee pensions), conservatives are trying to use the crisis to cut pension benefits. They want to claim that the current state of public pensions is somehow inevitable, even though it is unprecedented and clearly the result of the market crash. They want people to ignore the cause of the pension plans’ underfunding and simply do away with them, replacing them with individual accounts, just as they want to destroy Social Security and replace it into private accounts.
As part of this anti-pension campaign, National Review Online recently published a story with the provocative headline, “How the High Costs of Public-Sector Pensions Affect States’ Economic Growth.” The story, in fact, has nothing to do with economic growth. Instead, it describes a report that simply ranks the states on the size of their pension plans’ underfunding, while admitting that its data are out-of-date, which “argues for caution in interpreting this or any study on current public pension funding.”
Not one of the eight tables in the report has anything to do with economic growth, and there is not one bit of data that connects pension plan underfunding to faster or slower economic growth. It is possible that the National Review’s editors never read the report, which is honest about the massive but temporary effect of the financial crisis on the pension plans’ health:
The financial crisis and recession wreaked havoc on public pension asset balances, as investments in real estate, equity, and other investments suffered huge losses as some state and local governments decided to forego making full contributions. The effects of the financial crisis, recession, and slow recovery were not uniform across the 50 states. Therefore, lack of up-to-date data amid such gyrations argues for caution in interpreting this or any study on current public pension funding.
I couldn’t have said it any better.