At today’s Bloomberg LINK Cities & Debt Briefing in TriBeCa, Arizona Treasurer Dean Martin moments ago offered a different perspective on why public-pension funds should perhaps ease up on trying to achieve 7-8 percent annual returns. 

Leaving aside the drier academic argument over whether 7-8 annual return targets are unrealistic or otherwise actuarially inappropriate going forward, Martin offered a more visceral argument: he’s personally seen the effects of desperate return-seeking institutional investors, including public pension funds, on his home state.

Martin noted that during the housing bubble, institutional investors, trying to get out from under tech-bubble losses, blindly funding bubble-era real estate projects in Arizona and thus contributed to the enormous property boom and bust that has whipsawed the state.

Martin’s basic argument here — that aggressive return targets push investors to take too much risk — isn’t new, nor is the problem of too much institutional money chasing the same few opportunities all at once a new one, either.

But the idea that public officials could reconsider pension targets partly because the institutionally driven quest for high returns is bad for their constituents is a new one (at least to me).

A while back, it was faddish for public-sector pensions to make “socially responsible” investments in avoiding, say, tobacco firms. But maybe the socially responsible thing for public-sector officials to do would be to lower the return targets in the first place.