So who’s really to blame for the underfunding crisis in state and local pensions? Dean Baker, no fan of his fellow economists, says they need to man up and shoulder the responsibility:

The real culprits of the underfunded pension funds are the country’s leading economists. Economists from across the political spectrum told the country that we could assume that stocks would provide an average return of 10 percent a year even when the stock bubble was at its peak in 2000. This consensus included the center-left economists in the Clinton administration as well conservative economists. It was treated as absolute gospel in all the plans to privatize Social Security. Both the Congressional Budget Office and the Social Security Administration assumed that the market would give an average of 10 percent nominal returns in their analysis of Social Security privatization proposals.

Given the consensus within the economics profession, who could blame the managers of state and local pension funds for using the same assumption? After all, were they supposed to question the assessments of economists teaching at Harvard and M.I.T.?

And, it does make a difference. If the economists’ projections had been right, $1 billion held in the stock market in 2000 would be worth about $2.5 billion today. Instead, it is worth about $1 billion. In short, if the economists had been right, most of the troubled pension funds would be just fine today.