In short, the reason why the unfunded liabilities of state and local pension funds are so much higher in 2016 than 30 years ago isn’t because the overall stock market performed poorly. Instead, it’s a grim story of mistiming the moves in the market (rather than just being steadily invested throughout), trying out alternative investments that didn’t pan out, not putting enough money aside in the first place, and overpromising what benefits could be paid. I have a lot of sympathy for the retirees and soon-to-be retirees who were depending on a pension from a state or local government, and are now finding that the money isn’t there to pay for the promises. But when blame gets assessed for this grim situation, it’s worth remembering that those who have been making the decisions about state and local pensions had a very favorable situation 30 years ago–that is, unfunded liabilities near zero, with a period of strong stock market growth over the next three decades coming up–and they messed it up.
That is from Timothy Taylor. I would add that those decisions too are fiscal policy. One reason many of us are often skeptical of government fiscal policy is because we see it being messed up so much, not because we are “aggregate demand denialists.” I would note that automatic stabilizers often do not have these problems to the same degree.
Similarly, I have seen highly intelligent people calling for fiscal stimulus for Brazil. I would (rather desperately) favor some new infrastructure spending for Brazil, but overall I see a country whose government has been spending far beyond its means for decades. Brazil is a middle-income country, yet in terms of a percentage of gdp it basically spends as does the United States, and not very effectively. They need less government spending, not more, and clearly their problems are structural and long-run in nature and closely related to the low quality of governance.