Our guest author today is David Cay Johnston, a distinguished visiting lecturer at the Syracuse University College of Law and a former Pulitzer prize-winning financial reporter at The New York Times. This article is adapted from his remarks to an ASI-sponsored conversation on the topic in March, which also included remarks from Chad Aldeman, Teresa Ghilarducci, and Dan Pedrotty. A video of this event can be found here.
So the question is whether there is a pension crisis. The answer is yes, absolutely. It’s just not the one that politicians always talk about.
Contrary to that you hear about on TV, in market economics, defined benefit pensions are the second most efficient way to provide for income in old age. The most effective way would be a national program that spreads risks to everyone. The least efficient way to do it is through defined contribution plans.
There is abundant evidence for this. Defined contribution plans work very well, but only as supplements for prosperous people such as me and my wife, who is a public charity CEO, they are not at all effective for most people. That’s be because defined contribution plans violate specialization, one of the most basic tenets of market economics as taught to us by Adam Smith, the man who first explained market economics.