Following up on Jay Inslee’s proposal for the state to invest a small part of pension funds in start-up companies, Erik Smith examines the issue at Washington State Wire. We’ve been skeptical of the idea in the past. The simple, singular goal of the investment board is, well, Smith has a good quote from the board’s executive director:

“I think oftentimes people confuse economic development with investing,” said director Theresa Whitmarsh. “Our primary duty is to invest at a prudent amount of risk, maximizing return at a prudent level, and so we are not in a position to take into consideration collateral benefits like economic development in our investment decision-making process.”

Makes sense. I’m quoted in the story. And while we’re talking about pensions,Harvard economist Edward Glaeser has a great column on how to make state systems solvent in Bloomberg today. No, he doesn’t recommend using them as venture capital.

Moving forward, the natural solution is to switch to defined-contribution 401(k)-style plans. The biggest virtue of these plans is that their cost is immediately obvious, which eliminates the hidden cost bias that pushes toward excessive pensions.

Washington, as we’ve noted previously, is in relatively good shape compared with many states. But the shift to DC plans makes sense here as well.