This writer has long taken an interest in Maryland's pension funds. Recently, while investigating the adventures of Gov. Martin O'Malley, who recently acquiesced in the removal of any percentage limit on the compensation of hedge fund managers, I came upon pension fund adventurism in Gov. Sarah Palin's Alaska.

Alaska has an $8.6 billion defined benefit pension deficit, arising from a plan since abolished. This is astonishing for a small state -about $10,000 for each Alaskan. Palin was not responsible either for the deficit or for Alaska's wise shift to defined contribution plans. However, she in April signed a plan by which the state will try to gamble its way out by issuing $5 billion in pension bonds. The first tranche of these bonds comes to market next month, safely after the election.

The way governors and presidents deal with liabilities like pension and Medicare deficits says whether they are hit-and-run politicians or men and women who plan for the future; whether they are shallow opportunists or persons with a thought- out political and fiscal philosophy.

Pension bonds have been characterized by Gov. Jon Corzine of New Jersey as "the dumbest idea I've ever heard. It's speculating the way I would have speculated in my bond position at Goldman Sachs." Various readers of the Juneau Empire paid their respects to the proposal while it was before Gov. Palin for signature: "When you are in debt borrowing more money to gamble with is not an adult way to deal with your financial obligations"; "this smells of Enron, no?"; "a state as rich as Alaska with huge budget surpluses shouldn't be playing this shell game"; "makes me think of the sub-prime mortgage mess, given the volatility of the world markets makes me grit my teeth"; "the fund managers will make money regardless."

Pension bonds rest on the notion that funds can out-gamble the market, while paying underwriting fees and commissions to fund managers, and can make large profits to fund existing obligations, while also paying off the bonds, with interest. Several governments, including New Jersey under Gov. Christine Todd Whitman, have cause to regret their use. To be sure, every defined benefit fund makes investments. But it does so out of flows of contributions, not from the proceeds of borrowing. Trying to fund deficits through borrowing is essentially a game of double or nothing.

Even conventional pension funds are weighted down by hordes of rent-seekers: Brokers; advisers obtaining commissions, both fixed and contingent (annual commissions of 2 percent of capital and 20 percent of earnings are common for hedge fund managers); advocacy groups like Jesse Jackson's Wall Street Project seeking preferences; campaign contributors seeking investments in in-state projects; neo-conservatives seeking boycotts of disfavored foreign countries (Gov. Palin in her debate boasted of her submission to these pressures). For this reason, America already has several hundred billion dollars in unfunded pension liabilities.

Some funds provide examples of ‘crony capitalism' that has been the curse of Russia and of Mexico. Alan Greenspan observed of proposals for direct federal investments in private markets, "with such financial leverage at the government's disposal, I could readily imagine the abuses that might occur." The Alaska fund has recently invested $229 million in 41 parcels of agricultural land in 15 states, including orange groves in Florida, farmland in 15 states, and pistachio groves in California. There may be a piece of Alaska near you. Such investments lack liquidity, accountability, and transparency, nor do their managers work for free.

Alaskan public finance has a third-world flavor. The state distributes surpluses derived from energy taxes in per-capita payments, largesse falling equally on local patriots and benefit migrants, the sober and the inebriated. The pension deficit has not inhibited these festivities, Gov. Palin casting herself in the role of Lady Bountiful, or, as she put it in her inaugural speech, Nanook of the North.

Yet Alaska is a high-cost oil producer whose production peaked in 1988; price fluctuations can leave it high and dry. Its rainy-day Permanent Fund does not approach in magnitude those of Norway and Alberta, who have wisely paid down pension obligations.

When Gov. Palin goes to the casino, she uses mighty large chips. Not for her is the fiscal conservatism of a Robert Taft, who, when he departed the Ohio legislature for Washington, left behind a system of bond referenda that made Ohio a low-debt, low-tax state for decades. It is said that Sen. Taft's favorite recreation was not moose-hunting or shooting wolves from aircraft but rather family picnics, at which five-cent chocolate bars were distributed as favors. The favors to be distributed at Gov. Palin's pension party are apt, alas, to be more lavish.

George Liebmann is volunteer executive director of the Calvert Institute for Policy Research in Baltimore and co-author of "Maryland's Unfunded Liabilities for State and Local Retirees," recently released by the Maryland Public Policy Institute and the Calvert Institute.