Dean Baker says (pdf) the danger has been exaggerated. Ezra Klein summarizes Baker's main points and agrees. Josh Borro's article argues the opposite - that pensions are a disaster. Tyler Cowen polices the debate:
I don't see Baker -- not once -- analyzing the public choice considerations of how state governments actually behave and treat their finances. Or how about how state voters hate tax increases, reasonably or not, and think their governments should be forced to actually solve their mismanagement problems? A crisis usually is an institutional crisis.
... Most of Barro's piece focuses on public choice considerations -- of how state and local government institutions actually work -- and thus it is the better analysis.
Klein follows up:
But the bottom line is that the correct questions to ask about pension plans are: 1) Are they estimating a realistic rate of return going forward? 2) If so, are they sufficiently funded? And 3) If not, what should be done? I think there's less disagreement about the underlying nature of the problem here than some people might think. The disagreements, rather, are about the country's likely economic performance going forward (as that will ultimately decide returns) and what our state pension system should look like in general.
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