The Myth of the Static Multiplier

Buck Consultants (Buck) screwed up again. This time it was the Teachers’ Retirement System of Illinois (TRS) where in May they did a study that projected savings of $130.74 billion from Senate Bill 1 but now they say the savings will really be only $106.25 billion due to “a mechanical error in the spreadsheet summarizing the results.” In a letter to the members of the First Conference Committee on Senate Bill 1 the Executive Director of the TRS threw Buck under the bus:

I sincerely apologize for this error. As noted above Buck has reviewed its other analyses and no change is required to any other information that you have received from TRS. TRS staff is working closely with Buck to ensure adequate quality control on their work, including adding an additional level of review. We value the trust that the General Assembly and this conference committee has placed in TRS to provide sound analysis. We will do everything possible to ensure that we continue to deserve that trust.

But who’s to say that Buck’s original estimate won’t turn out to be closer to reality?

Just because Excel allows you to create eye-glazing spreadsheets with little effort as long as you are comfortable assuming the rate of return (and all other factors) you will get in 2014 will be EXACTLY the same rate of return (and all other factors) you will get in 2045 and all years in between does not mean you are predicting the future accurately.

I don’t know enough about the TRS to offer examples of ignored factors in Illinois but, if this Buck study had been prepared for New Jersey, it would have been just as useless were it not to consider the:

  • 2015 hedge fund collapse with the New Jersey pension fund losing 43% of its assets
  • 2016 election of President Christie and the slashing of all government pensions
  • 2017 election of Governor Booker and the reinstatement of all New Jersey government pensions with COLAs, thirteenth checks, and a 15% gratuity
  • 2018 bankruptcy

Far fetched….maybe….but no sillier than assuming 7.9% interest growth in perpetuity.

4 responses to this post.

  1. Posted by Donald Campbell on August 27, 2013 at 11:25 pm

    I don’t trust TRS staff. They’re just slinging spreadsheets. They don’t know jack.


  2. Posted by eatingdogfood on August 28, 2013 at 8:38 pm

    CA CHING, CA CHING, CA CHING! YEAH, IT MUST BE THAT TIME OF YEAR AGAIN! My Union Boss down at the Town Hall emailed me yesterday and.
    Told me that this article was hitting the Papers today, and He told Me.
    to make it Look like I was Working till this Blows Over in a week. I
    know the routine! In a week, I’ll be back to my usual activity of.
    Collecting A Paycheck for Doing Nothing! Hey, Private Sector.
    Workers; You really gotta Pony Up more Taxes! I need at least a 10 %.
    raise! My Cabin Cruiser at the Dock behind my Vacation House in.
    Florida needs a New Engine. My wife has been after me for a new car.
    She wants a BMW X6 G-Power Typhoon S! I told her I can’t afford that.
    car. So then she says she will accept a Mercedes-Benz CL-Class and.
    Nothing else! I also got Private School Tuition of $ 40,000.00 due.
    in September. I got Credit Card Expenses coming out my AXX! That
    new 3000 sq ft extension on my house raised my property taxes $ 15,000.
    The maid and the housekeeper want raises. The gardener also wants a.
    raise. You see Bunky; It ain’t easy in the Public Sector! So come
    on Private Sector Worker; Pony Up and Pay More Taxes so I can afford to.
    live here! You See; Life Is Not Fair, and the DemoRats will take.
    care of Everything! HAPPY DAYS ARE HERE AGAIN!


    • Posted by bruce paterson on September 1, 2013 at 10:49 pm

      i liked the part where eatingdog noted his house extension raised his taxes $15,000.Wonder what those taxes go to pay?


  3. Posted by Eric on August 28, 2013 at 11:06 pm


    We have heard all of this before, and, as I have said, there is no difference between the democrats and the republicans. As Jim Rogers has said many times, a pox on both of their houses!



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