Robert Novy-Marx and Joshua D. Rauh write,

The true extent of public pension underfunding has been obscured by governmental accounting rules, which allow pension liabilities to be discounted at expected rates of return on pension assets. This paper takes stock of the distribution and magnitude of prospective underfunding in state pension plans given current state pension funding, asset allocation and liability estimates. This analysis demonstrates the large burden that current public pension policy places on future generations. In particular, we show that while the plans appear almost fully funded under government-chosen discount rates, there is a large probability of significant shortfalls in the future. The shortfalls are likely to occur if the economy performs poorly, and so are particularly costly to future generations. The cost of fully insuring future taxpayers and plan participants against these potential shortfalls would approach $2 trillion.

The paper is dated September, and since then I’ll guess that a lot of the pension funds have lost 25 percent or more of their value.

They point out that the degree of underfunding in state pensions far exceeds that of corporate pension plans–not that the latter should be of no concern.

If you are an opponent of markets and a fan of government, then please explain why you are not frightened by the power of government to create enormous unfunded liabilities.