I suspect not everyone looks forward to the latest issue of the Journal of Finance to the same extent I do. After all, most of the articles are fairly technical and generally lack a direct connection to public policy (my primary interest). The August issue, however, was a real exception, having a number of articles on issues related to the financial crisis. More importantly was a paper by Robert Novy-Marx and Joshua Rauh. The paper provides estimates for the unfunded liabilities inherent in our state public employee pension system.

Under fairly reasonable assumptions, the authors calculate that the net present value of unfunded liabilities is between $3.2 and $4.4 trillion. While that might seem small compared to the unfunded liabilities inherent in Medicare and Social Security, it is still a massive number compared to either the size of the economy or state budgets.

The authors do not offer a set of policy proposals. They simply give us a reasonable estimate of the size of the problem. Needless to say, this is a problem that isn’t going anyway and will only get worse the longer we refuse to address it.