The Cost of Promises

By James Schaefer.

CalPERS, California’s massive state employee retirement fund, has $227 billion invested in the stock and bond markets to guarantee the future promises that have been made to the state’s workers.

Those investments generate earnings, and CalPERS has to guess at the rate of return they’ll produce to know whether $227 billion is going to be enough. Recently they lowered that earnings guesstimate from 8% to 7.75% to reflect disappointing returns, and just this past March the management of CalPERS rejected the advice of their actuaries to lower the number further, to 7.50%.

The $2.5 trillion Social Security trust fund makes similar guarantees to future retirees, but the funds are “invested” in U.S. Treasury bonds.  That means that they’re loaned at low interest rates to Congress, which spends the money right away.  Congress will have to pay the money back, and of course the cash will come from the taxpayers of the future.

If the Social Security trust funds were invested like the CalPERS retirement fund in stocks and bonds at 7.75% (or even 7.5%), they would produce enough earnings to meet all the promises that Social Security has made to the citizens of the future.

Without loans from the Social Security trust fund, Congress would have less money to spend.  And if your representatives didn’t find another place to borrow, the nation’s  taxpayers wouldn’t have to pay that $2.5 trillion twice — first to provide, and then later to redeem, the trust fund “surplus”.

In the June 19, 1994, edition of the LA Times Magazine, Karen Tumulty wrote the following, referring to President Bill Clinton and New York Senator Daniel Patrick Moynihan:

“As a candidate, the Arkansas governor had sounded the many of the themes that Moynihan had been preaching for years — ideas such as personal responsibility and a rejection of the notion that more government spending was the answer to every social problem.”

“It must have seemed to Moynihan that Clinton could be the President who would bring the Democrats out of the ideological wilderness where they had been wandering since Jimmy Carter.”

No good deed goes unpunished, and our entitlement programs — however noble and well-intended — are unsustainable.

Bill Clinton and Daniel Patrick Moynihan were right about personal responsibility.

Al Gore was right about the Lock-box.

And Jack Kennedy was right when he said, “Ask not what your country can do for you . . .”

Author Information
No Comments

Start the ball rolling by posting a comment on this article!

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>