Skip to comments.Public Pension Stimulus Nonsense (Each $ of pension benefits produces $2.37 in economic output?)
Posted on 05/03/2012 6:27:49 AM PDT by SeekAndFind
Breaking windows will stimulate the economy, according to a leading public pension advocacy group. Skeptical? The National Institute on Retirement Security (NIRS) has not literally endorsed breaking windows, but a report recently published by the organization relies on the same economic fallacy.
According to NIRS-whose membership consists principally of public employee unions, the pension plans in which they participate, and the actuarial and investment firms that serve them-the best economic stimulus is not tax cuts or unemployment checks, but increased pension benefits to public-sector retirees. Each dollar of pension benefits produces $2.37 in economic output, NIRS says, creating millions of new jobs and billions in additional labor income.
Put simply, this is nonsense.
Many people have heard of the "broken window" fallacy in economics. The argument is that breaking a window is actually good for the economy, since the window owner has to pay a glazier, who uses the money to pay a butcher, who uses the money to pay a cobbler, and so on. (A little bit like the old TV commercials for Faberge Organics shampoo: "I told two friends, and they told two friends, and so on....") One doesn't need to be an economist to see the problem: Had the window not been broken, the owner could have spent or invested the money elsewhere.
NIRS gives its own version of the broken windows story: "A retired firefighter uses his pension money to buy a new lawnmower. As a result that purchase, the owner of the hardware store, a lawnmower salesman, and each of the companies involved in the production of the lawnmower all see an increase in income, and spend that additional income. These companies hire additional employees as a result of this increased business, and those new employees spend their paychecks in the local economy."
According to NIRS, each dollar of pension payments results in an additional $1.37 of income flowing to non-retirees. By this logic, states could spend themselves to prosperity by borrowing money to increase public sector pension benefits. And, some states appear to be giving this approach a try.
Of course, this reasoning is wrong because it ignores the cost to the economy of providing public pension benefits. Each taxpayer dollar flowing into public pensions is a dollar that cannot be spent or saved on something else. To the degree it is not spent, today's economy is smaller as a result. To the degree it is not saved, tomorrow's economy is smaller, since saving helps boost productivity. If the stimulus provided by pension benefits has a multiplier effect, the cost of funding pensions presumably has a divisor effect - and this effect is entirely unaccounted for by the NIRS study.
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That is against the 2nd Law of Thermodynamics.............
A guy who wants to take your money can always come up with a reason...
The question is: Are you enough of a Rube to bite?
Has anyone ever heard of the “multiplier effect” applied to taxes? If the government takes $1 from me, that means that I can’t spend it on lunch, which will then be send to a farmer and then to fertilizer makers, etc. For every dollar in taxes (or borrowing) is $2.37 taken out of the economy? Or maybe $4 is taken out because the private sector is more efficient than the government.
Well, other than by this author who mentions it a few paragraphs after I have gone into Rant Mode™.
....Ergo..... if we would just give ALL of our money to the public employee union pension plans, then we could collectively save the economy, which would be a good thing, right?