Fairfax County is a rich county. While it is on top, it should fully fund the pension plans for teachers, bus drivers, school staff, etc. This applies to other public employee pensions, firefighters, police, etc.
The Golden Age of Productivity ended in the US in 1973. Since then total factor productivity has grown around 0.5 percent a year as against two percent or more a year before that. The large increase in title one schools, currently half the public schools in the country, creates a risk that as older workers are replaced that total factor productivity might stop growing or even decline.
In some subperiods in the last twenty years, total factor productivity has grown at close to a zero rate. So this could dip below zero for some subperiods.
We don’t want to go into a long term decline in total factor productivity with the pensions underfunded at the start of that period. So we should make sure they are fully funded now.
Keeping the total factor productivity growth rate positive is imperative. We really need it at one percent or higher. This is now difficult to achieve on a sustained basis. This is why math and science education along with computer programming and data science skills are so important in public schools.
Positive TFP growth is also needed to keep Medicare funded as well as Social Security. The periods in the last twenty years when TFP grew at zero percent are a wake up call that we have to focus on these numbers. We can’t just keep drifting along.
I talked to Greg Mankiw after a panel at Brookings a few weeks ago. He considered the best estimate of TFP growth going forward to be .5 percent. He said there was a very large margin in either direction. That includes going negative.
It will be very difficult to maintain state and local pensions, military pensions, Social Security and Medicare if TFP were to grow at a negative rate for a sustained period. But this is a risk from the huge pipeline of title one schools in the US. This is why we have to treat total factor productivity as a crisis. We have to stop things that push it down and work together to bring it up.
Total factor productivity bonds may be a way to restore TFP growth. These could save state and local, military pensions and Social Security and Medicare. But we have to use evidence based solutions that actually grow TFP itself. These can not be restricted to right or left ideas or conservative or liberal or one party over another.
