Michael,
Alas, perhaps you will be more willing to question and challenge Bob Walsh’s “Walshian Assumptions”, key of which is an ASSUMED 8.5% annual return on contributions into the Pension System.
As the graph clearly demonstrates, his silly 8.5% return assumption is garbage over the 50-60 year life of a contributor / pensioner.
But Bob Walsh could care less about the real returns, as he and his flock have ZERO Risk.
The taxpayers can eat cake, while real returns actually decline and his flock get COLA increases!
Sadly, guys like Walsh wreak havoc without challenge.
Indeed, as the Automotive and Steel industries apparently didn’t wake people up to the destructive and unsustainable nature of nutty Union ENTITLEMENTS, one need only look to Europe (Germany, France, Italy..) to see the future of what Bob Walsh and his Union bretheren are creating here in RI with their Union Nanny-State.

Monique,
What the graph means is that Bob Walsh’s “Walshian Assumptions” are bull-shit (that’s a techinical term).
Walsh depends on 8.65% annual growth, which the fool uses to support keeping the Public Employee Defined Benefit Pension Plans in place.
In fact, as the Graph demonstrates, over the last 48 years, we’ve had sustained growth over just 20 of those years (from 1981 to 2001). In all other years, we’ve actually had declines.
As Spengler noted: “Between 1981 and 2001, however, $1 invested in the stock market would have grown to $6 inflation-adjusted dollars. That was the greatest period of wealth creation in the past century of American finance.” During this period, the average annual growth rate was Walshian at about 9%.
But then it was ALL lost. And that is the problem with Walsh’s assumptions. His flock does not share in that RISK. The get their GUARANTEED benefit, even when the “growth” reverses itself as it did.
In fact, we’ve had no growth since 1998, as highlighted by Spengler: “After inflation, an investor who bought $1 worth of the S&P 500 in early 1998, just as the bubble was getting underway, would be able to sell this position and buy $1 worth of consumption goods today.”
And it is worse, as these are inflation adjusted numbers, where as Bob’s flock gets the automatic COLA increase, further exacerbating the reeming that Bob is applying to the taxpayers.
Bottom line, Bob won’t be sharing this anlaysis with the “Commission”.

On one hand, I’m an advocate of 401(k)s for new state hires (while still questioning the fairness of conversion for current workers in the pension system). On the other, after seeing my 401(k) lose about $2,000 in the first quarter, including my own and my employer’s contribution,…

To Clarify a few points:
John is correct. These are ABSOLUTE returns. They are Not “ASSUMED” or “hoped for” returns.
Bob Walsh wants to Assume that the Pension fund will return 8.5% EVERY year.
This Chart shows that for this asset class, which is typically a significant portion of a Pension fund, 8.5% returns every year do NOT happen, no matter how much you ASSUME or HOPE they do.
Some years, returns will be good. But often times, you end up giving those returns right back via losses.
For example, there are NO returns from 1998 to 2008, after adjusting for Inflation.
The point is that Bob Walsh’s “Walshian Assumptions” are just that, Assumptions. And they are rosy Assumptions. A Pensioner contributes over a period of 20-30 years and colects for 25 -30 years.
8.25% annual returns over 45 – 60 years do NOT easily happen. But, that is NOT Bob Walsh’s concern, as his flock gets their GAURANTEED benefit, regardless. They have ZERO Risk and all REWARD.

Andrew,
Death Valley was the period of massive INFLATION. Remember, “who needs inflation, not this nation…”.
The graph shows real returns, adjusted for inflation.
Paul Volker, Fed Chairman, broke the back of inflation in the 80s via big increases in interest rates.
We are going into a similar period now.
In the news a few months ago, I believe it was the City of Woonsocket, that lost something like $13m of value in their Pension fund due to the down-turn in the market. They said “Wooops, the Walshian Assumptions didn’t quite hold up.”
But again, for the precious Union, these realities are of no consequence. They don’t live in the real world. They get Guaranteed benefits, adjusted for inflation, regardless of what is happening in the Free Market.
They are kept artificially afloat by the taxpayers who must deal with the ebbs and flows of the free market.
And then you have the Bob Walsh’s shouting from their safe perch, “don’t worry, ignore the $5B Pension deficit my flock has saddled you with, it will all be gone in 22 years ….assuming my rosy Assumptions come to fruition …and if they don’t, no matter, we’ll have gotten what we are ENTITLED to”

Whether its a multiplier or additive (as you suggest), its pretty impressive if you hold long enough, say over the period of a private sector career of 40+ years. The problem remains that you can’t trust politicians – or companies – to manage defined benefit plans. In good times, when the returns are good, they short the contributions they make and in bad times, they short the contributions they make because the money isn’t there. And of course, the politicians buy votes by designing plans that would get an actuary sent to jail. Unsustainable even with sizable employee contributions.

Two points. First, $100 compounded at 5.25% real (8.25% Walsh nominal assumption less 3% annual inflation assumption) equals $167. Draw a line across the chart at 67% absolute real increase and you will see how often this was realized over the time period shown. Second, Rhody, (a) if you receive a pension, the underlying funds are invested and earn returns. In fact, if they consistently earned below benchmark returns, you would demand the investment manager be fired. Hence, I have no doubt that part of your prudently deiversified pension assets are invested in energy companies and/or commodities as an asset class. Therefore, like it or not, you are a member of the “investment class” you apparently hold in such disdain. (b) If you keep up with the financial and economic press and research, you would know that there is an ongoing debate about the cause of the current spike in oil prices. One argument is that it reflects changing supply and demand conditions, including the rising cost of replacing reserves which are now depleting more rapidly because of the incremental demand from China, India and other rapidly developing countries. A second argument is that it also reflects tight supply conditions (read: limited Saudi ability to raise production if unpredictable political changes cause a fall off in Venezuelan, Nigerian, Iranian or some other country’s productioin) in the face of still strong demand (though the latter may well fall sharply if and when the global economy follows the US into a recession). A third argument is that more investors choosing to diversify their portfolios to include an allocation to commodities has distorted futures market pricing, and fed back into the pricing of the underlying physical commodities. In reality, all three forces are probably at work, and it is analytically impossible to disentangle… Read more »

Rhody,
The latest data from the International Energy Agency show that the supply and demand for petroleum is still quite finely balanced, with little in the way of spare capacity. The most likely resolution is a fall in prices as the global economy slows and demand for oil products falls. To the extent that this forces leveraged speculative positions to be quickly unwound (e.g. due to an inability to meet margin calls) it will accelerate the price fall. In the meantime, however, I continue to conclude that the current price of oil primarily reflects supply and demand conditions, plus a further premimum caused by buyers building up reserves as a hedge against supply side disruptions. I just don’t see financial speculation as being anywhere near as important as these basic physical and political realities.