The California Public Employee Retirement System (CalPERS) issued a report in July claiming that its benefit payments to retired government employees in 2013-2014 “supported 104,974 jobs throughout California and generated more than $15.6 billion in additional economic output.”
Through an economic “multiplier effect,” in which pension benefit checks are spent and re-spent throughout the economy, CalPERS claims to have generated over $387 billion in sales tax revenues and $328 billion in property tax receipts.
To reduce pension benefits for public employees, the study implies, would harm the overall California economy.
One would expect a study like this to gild the lily a bit. But the CalPERS economic stimulus study goes far beyond that: It is a cost-benefit analysis that doesn’t include any costs. This study is nothing short of propaganda that wouldn’t get a passing grade in a freshman economics course.
The study, titled “CalPERS Economic Impacts in California,” is nothing new. For several years, public employee retirement systems around the country have published “pensionomics” studies claiming that the benefits that they pay stimulate the economy and create jobs.
The logic of these studies is simple: Retirees spend their CalPERS benefits on, say, food, housing and medicine. The grocers, homebuilders or health care providers who receive retirees’ money re-spend it, and so on down the line.
CalPERS claims that thanks to this “multiplier effect,” a single dollar of pension benefits creates $2.02 in total economic activity. CalPERS uses an economic model to track these purported economic gains by industry and county so everyone can see how much they benefit.
But for all the seeming economic sophistication, the CalPERS study lacks one important component, called “counting both sides of the equation.” It needs to count economic costs as well as economic benefits.
Yes, retirees spend their CalPERS benefits, and that spending creates economic activity. Economists may debate how big the “multiplier effect” is, but that’s not the problem with the CalPERS study.
The problem with the report is that CalPERS doesn’t create money out of thin air. Every single dollar of CalPERS benefits comes from a dollar that taxpayers or government employees contributed to the program or from the interest earned on those contributions.
Had those CalPERS contributions not been necessary, then both public employees and taxpayers would have had more money in their pockets. When they spent or invested those dollars, precisely the same economic multiplier effects would apply.
Once you count both sides of the equation, the economic costs of supporting CalPERS are just about equal to the economic benefits of the checks CalPERS writes to retirees. It’s a wash.
from AEI » Latest Content http://ift.tt/1P5KgFW
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