How foolish is the kerfuffle about the alleged blowout in our Accident Compensation Corporation liabilities? This is how foolish.

Suppose you and your spouse are in charge of a family of, say, three young children. That means you are legally responsible for bringing them up to school leaving age and morally responsible for helping them in further training or education after that.

So how much is this going to cost you? A lot. Let's say $10,000 per child per year through their school years; possibly more later at polytech or university. You'd better also allow for some inflation of education costs, just to be on the safe side - and this is all about your children. You do want to be on the safe side, right? And then those unforeseeable contingencies - need a prudent margin there, too.

It all adds up to many hundreds of thousands of dollars of expenditures. And just how are you planning to pay for this?

Well, you have a job, you say. And your spouse will be back in the workforce in a few years after the kids all get into school.

But that's simply not good enough. You can't guarantee you won't lose your job, can you? And as for your spouse's posited future contribution - well, how do you know present skills won't be outdated when the time comes, requiring further expensive retraining? No, you have these locked-in cast-iron financial commitments. You must match them with equally solid and secure income-earning assets.

You need to be able to show unencumbered funds of at least half a million dollars right now to guarantee the future income stream necessary to meet your obligations to your children.

And you haven't got that, have you? You've got about $20,000 in KiwiSaver accounts. You've a bit of equity in your house, but, hey, you can't bring up your children in a tent, can you? Let's face it. Strictly speaking, you are broke; busted; bankrupt. And so are several hundred thousand other New Zealand families just like you - billions of dollars of unfunded liabilities, in total.

It's the "biggest loss of any entity, public or private, in New Zealand history", to slightly paraphrase Dr Nick Smith on the $4.8 billion "loss" recorded last year by the ACC. If you think this is silly, then the ACC fracas is truly dumb. It's basically the same story writ large - the idea that future accident compensation payments are rigid "obligations" which have to be "pre-funded", as they say, along with some jiggery pokery with the projections of payouts and expenses. It's dumber because, of course, the Government's ability to raise revenue when needed is much more secure than any individual's future income, and also because, on the payment side, our ACC obligations are in fact rather more fluid than are the parents' obligations to do the best for their children.

So let's all be sensible about this. To me, the best thing about Sir Owen Woodhouse's great accident compensation scheme is the no-fault part - the removal, in most circumstances, of the right to sue for damages.

In America, in contrast, they've basically privatised the welfare state, with every man and his lawyer against every other man and his lawyer, in a contest for compensation from which the only long-term winners are the lawyers. We don't have that here now, thanks to ACC, and that's really good. We do have some problems with claims growth exceeding population growth. But we can deal with this if we aren't too squeamish about adjusting claim payouts to fit a total budget, which itself can be adjusted from year to year according to macroeconomic conditions.

We can have a pay-as-you go "Vote ACC" just as we have pay-as-you-go Vote Education and Vote Health in each year's budget. The key is to accept that accident compensation can only ever be a palliative, not a panacea.

Dr Smith's suggestion that a terminally ill person might choose to kill themselves to get the compo for their family may have been a bit tactless, but he actually has a point. ACC funds some things; not others. If accidents and suicides, why not illness? Why not compensation for marriage split-ups, which are apparently one of the most traumatic of all personal tragedies - possibly worse than losing a limb. No, enough already. The state can't compensate people in cash for all life's misadventures and it shouldn't try. We can help, but we can't make people whole again.

There are problems with ACC, but they very much depend on how the issues are framed. Truly, New Zealand can have a decent, efficient, state-run accident compensation system without breaking the bank. Don't fret about it. Get back to figuring out how you are going to pay for bringing up those kids.

* Tim Hazledine is a professor of economics at the University of Auckland.