On Monday, Economics 21 and the Manhattan Institute hosted a debate on pension accounting and reform, at which I was one of the panelists. The discussion was wide-ranging, but most of the debate boiled down to a key question: Does the government have a special advantage in bearing investment risk, thus justifying the use of defined-benefit pensions? As I’ve written before, taxpayers are not indifferent to investment risk assumed by governments, as investment losses and gains will be passed through to taxpayers and recipients of government services. While these parties also receive the excess gains when investments do well, that’s not a wash; the gains come when they are least needed and the losses when they are least affordable.
There were a couple of key discussion points at the event that are worth hashing out in writing. Defenders of the status quo often claim that pension costs are not that high and shortfalls can be managed with little impact over a 30-year window.
