An Amusing Analysis of the Pension Discount Rate Controversty from a Nobel Laureate in Economics

Posted by Jeffrey Brown on Aug 22, 2011

Filed Under (Retirement Policy, U.S. Fiscal Policy)

Readers of this blog know that I have written several posts over the past 2 years about the mis-use of “expected returns” as a discount rate for public pension liabilities.  It turns out, this issue even has risen to the attention of Bill Sharpe, Stanford Professor and winner of the Nobel Prize in Economics for his contributions to financial economics.   Don’t worry – this is not a difficult technical piece.  It is a cartoon – and I highly recommend it.  You can watch it by clicking here.   It shows the absurdity of acting like future liabilities are smaller just because the assets are invested in a diversified portfolio.  Enjoy!