The iconoclastic liberal economist Dean Baker is famous for discovering the housing bubble years before better-known economists did so. Baker is the co-director of the Center for Economic and Policy Research in Washington. He visited Rhode Island on Thursday to speak at the Economic Progress Institute’s annual budget conference.
Baker sat down with WPRI.com after the event for a wide-ranging interview about the economic issues facing Rhode Island. (A previous excerpt discussed the Superman building and vacant properties.) In this section, Baker discusses why he thinks Rhode Island’s pension return forecasts are reasonable.
The transcript has been lightly edited for length and clarity.
When you testified in New Mexico recently, you said it would be “nearly impossible” for the state’s pension fund not to achieve the 7.75% long-term investment return it’s projecting. Rhode Island’s pension projection is even more conservative at 7.5% – I presume you think that’s even more reasonable. Why?
What most people are doing when they say you can’t get 7.5% is they’re looking back over the past, say, 10 to 15 years, where we’ve had two big tumbles in the stock market, and they go, “See what happens?” But you don’t look at the past; what you look at is the current market valuation – you look at price-to-earnings ratios. And that’s what I’m focused on.