The fiscal scolds are at it again

OK, this is quite amazing: Dean Baker catches the WaPo editorial page claiming that we have $3.8 trillion in unfunded state and local pension liabilities. Say it in your best Dr. Evil voice: THREE POINT EIGHT TRILLION DOLLARS. Except the study the WaPo cites very carefully says that it’s $3.8 trillion in total liabilities, not unfunded; unfunded liabilities are only $1 trillion.

I’ll be curious to see how the paper’s correction policy works here.

But how big is that $1 trillion anyway? It still sounds like a big number, doesn’t it? Dean tries to compare it with projected GDP, which is one way to scale it. Here’s another.
[...]
According to the survey, the ARC is currently about 15 percent of payroll; in reality, state and local governments are making only about 80 percent of the required contributions, so there’s a shortfall of 3 percent of payroll. Total state and local payroll, in turn, is about $70 billion per month, or $850 billion per year. So, nationwide, governments are underfunding their pensions by around 3 percent of $850 billion, or around $25 billion a year.

A $25 billion shortfall in a $16 trillion economy. We’re doomed!

OK, there are some questions about the accounting, mainly coming down to whether pension funds are assuming too high a rate of return on their investments. But even if the shortfall is several times as big as the initial estimate, which seems unlikely, this is just not a major national issue.

So, why is it being hyped? Do I even need to ask?