Re-Indexing Public Pensions


Robert Shiller takes a long time to get to the payoff here, but this seems like a smart idea to me:

But, basically, we can keep traditional pensions by changing how we compute them. We should use a formula so that guaranteed future income in retirement bears a fixed relationship to a state’s future ability to pay — as measured, for example, by that state’s economic output.

It is that simple: Just scrap the current indexing of pensions to the Consumer Price Index and replace it with a link to the state’s gross domestic product.

I don’t really want to propose revolutionizing the pension system based on one article I read in The New York Times, but I’d be interested in hearing more discussion of this idea since it makes sense to me. Thanks to RY for the pointer.