This piece originally ran in the Huffington Post.

Within the next few years, China will surpass the United States as the world’s largest economy.

Anticipating the impact of this milestone on our national psyche, the US policy class has been assuring Americans that there is nothing to worry about. Hardly a week goes by without a major media story suggesting China is an economic paper tiger: its economy is imbalanced, its leaders are corrupt, its banks are over extended, etc. Anyway, the stories routinely note, it will be decades before China catches up to us in per capita income.

Yet in the balance of global power, size matters. Many countries have higher per capita incomes than the United States (e.g., Norway, Qatar, Singapore). It is the large scale of the American economy that has made us the dominant political power in the world. Our big economy supports a big military, foreign aid, and allows policymakers to use access to our huge consumer and financial markets to buy allies and votes in the UN.

Unfortunately, it has also allowed us to borrow from the rest of the world to finance a chronic trade deficit. China, with whom we have the largest deficit, is as a consequence our largest creditor, holding over $1.2 trillion in US IOUs.

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In a recent blog on the Detroit bankruptcy, I noted that Detroit’s Emergency Manager, Kevyn Orr, may have inflated pension liabilities by lowering the assumed return on pension fund assets. Because most of the cost of pension benefits comes from investment earnings, this can double or even triple the cost of these benefits (Orr quintupled the cost, which suggests other factors are involved).

Public pension fund actuaries use an expected rate of return rooted in historical experience—in practice, usually slightly lower than realized returns over the long run. Some financial economists are critical of this practice, and argue that, although expected returns on risky assets take into account the possibility of losses due to default risk and the like, they don’t factor in risk aversion—the fact that most investors prefer guaranteed returns over volatile ones even if the average expected return is the same in both cases. In the critics’ view, this means contributions to fund future pension benefits should be based on yields on “risk-free” government bonds in order to avoid shifting risk from current to future generations of taxpayers. (A variation of this argument, which seems contradicted by present circumstances, is that pension benefits are guaranteed and should therefore be discounted using a guaranteed rate of return.)

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Last week, House Speaker John Boehner said, “sequestration is going to remain in effect until the president agrees to cuts and reforms that will allow us to remove it. The president insisted on the sequester none of us wanted, none of us like it, there are smarter ways to cut spending.” It’s true that sequestration takes a meat ax to discretionary spending in the federal budget, indiscriminately cutting spending across-the-board and slowing the economic recovery. Of course, there are smarter ways to alleviate longer-term budget problems, most of which would not kick-in until after the economy recovers from the Great Recession. But what are the “smarter” ways House Republicans have offered?

One proposal, championed by House Majority Leader Eric Cantor and Chairman of the Committee on Agriculture Frank Lucas, is to cut the Supplemental Nutrition Assistance Program (SNAP) by $40 billion over 10 years. Some in the conservative Republican Study Committee would go even further and reduce SNAP by that amount per year—a reduction of over 50 percent. Using the Census Bureau’s Supplemental Poverty Measure (SPM), which allows for the inclusion of both in-kind government benefits and taxes in poverty analysis, I estimate that this latter policy could increase the number of people in poverty by 2.2 million. Almost one million of these people would be children.

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Detroit’s current citizens and the public employees who serve them are not the cause of Detroit’s fiscal problems. They are the victims of forces beyond their control, including globalization, capital flight and racism. No one can, with any seriousness, blame Detroit’s librarians, social workers, garbage collection workers or street cleaners for the city’s catastrophic loss of population and tax base, the long decline and near-collapse of the Big 3 auto companies, or the 1967 riots, which launched a frantic exodus of businesses, white residents, and money from the City of Detroit to the suburbs.

As the suburbs grew and new highways encouraged sprawl in the 1950s and 1960s, Detroit’s manufacturing employment base and population—and especially its white population—began to decline. As Thomas Sugrue has pointed out, between 1947 and 1958, the Big Three built twenty-five new plants in the Detroit metropolitan area, all of them in suburban communities, most more than fifteen miles from the center city. As the jobs moved away, so did the city’s residents.

From 1.85 million in 1950, the city’s population declined to 1.62 million in 1960 and 1.51 million in 1970. By 1980, white flight was nearly complete: whites, who made up 83% of the population in 1950, were only 34% of the population, one million fewer than in 1950. The terrible riots in 1967 accelerated the movement of white families to the suburbs, but a combination of opportunity and racism had spurred hundreds of thousands to leave Detroit well before the U.S. Army occupied it. The hostility of whites toward blacks, their fear, and economic self-interest as they understood it led them to refuse to live in integrated neighborhoods, spurring them to sell their homes and abandon the city.

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Here’s what we read today. Share what you’re reading in the comments.

• How She Lives On Minimum Wage: One McDonald’s Worker’s Budget (Forbes)
• Super Size the Minimum Wage (Slate)
• GOP’s Long-Predicted Comeuppance Has Arrived (Talking Points Memo)
  
• WATCH: The Daily Show pits Fox News against fast-food workers (The Week)

Originally published in the Current Newspapers, July 31, 2013.

The ongoing battle between Walmart and workers is about the role that workers play in our city and our nation. We need to ensure that workers also benefit when economic growth continues and corporations produce more profit, higher stock prices and ever-escalated CEO compensation. The fight over Walmart is not about a better minimum wage. It’s about livable wages, and the role of Walmart in the economy. We need profitable, efficient companies like Walmart to pay decent wages, and taxpayers shouldn’t be subsidizing them when their CEOs and other top executives are making hundreds of millions of dollars a year.

As America’s largest company, Walmart has a huge impact. Not just in Washington, D.C., but in every community with a Walmart. Walmart brings down wages everywhere. Its low wages require public subsidy of its workers, since Walmart workers make so little that they must rely on Medicaid and other public assistance programs to make up the difference between their insufficient salaries and what it really costs to make ends meet.

Walmart can afford to pay workers more. The Walton family has a combined wealth greater than the bottom 48.8 million American families combined — 41.5 percent of all U.S. families. One of Walmart’s closest competitors, Costco, pays an average wage of about $20 per hour. Walmart could pay its top executives less and pay workers more, or it could raise workers’ wages and still make plenty of money for the Walton heirs by passing costs on to consumers. Researchers at the University of California at Berkeley figured out that if every Walmart in the U.S. had a minimum wage of $12 per hour and passed the entire additional cost on to consumers without taking anything out of Walmart’s profit margins, it would increase prices by a mere 1.1 percent, or $0.46 per shopping trip for the average Walmart shopper.

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This past Tuesday, I had the opportunity to participate in a half-day workshop on immigration reform sponsored by the AFL-CIO and the Economic Policy Institute in Washington, DC. The focus of the session was on why a roadmap to citizenship for America’s undocumented residents was an essential component of reform, a topic that is increasingly relevant as certain House Republicans argue for creating a legalization process that would exclude citizenship as the ultimate endpoint.

Speaking at the event were Senator John McCain and Congressman Xavier Becerra (they were clearly the main draws!), as well as a selection of economists, activists, and business leaders. I was expecting a wonkish discussion about policy—and, as one of the two economists sharing our views, that was certainly my anticipated contribution.

Instead, it was an extremely moving event, particularly when Senator McCain’s eyes teared as he recounted a reenlistment ceremony for U.S. soldiers he attended in Iraq, one where some immigrant soldiers who were slated to receive citizenship that day were represented only by their empty boots, having just lost their lives defending a country they were still hoping to fully join.

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Now that the Senate has confirmed the appointments of a full slate of members of the National Labor Relations Board (the quasi-judicial body that decides labor relations cases and protects the right of workers to organize unions), the 18-month long fight over the president’s nominations looks ridiculous. Despite precipitating a mini constitutional crisis over the president’s right to make recess appointments, and coming close to the parliamentary equivalent of nuclear war in the Senate, the end result is little different than if the Senate had simply confirmed President Obama’s original nominees. On the other hand, a lot of damage has been done along the way.

For those who haven’t followed closely, Senate Republicans filibustered the nominations of two Democrats, Sharon Block and Richard Griffin, who strongly support the National Labor Relations Act’s mission of encouraging collective bargaining. They were targeted because Republicans sought to demonize the Board and President Obama over a case involving Boeing’s decision to open new facilities in South Carolina. In that case, the NLRB filed a complaint against Boeing because company officials had described the decision to locate the plant in South Carolina as punishment for the Machinists union’s exercise of its legally protected right to strike. Even though no Board member ever ruled on the case, which Boeing and its union eventually settled, Sen. Lindsay Graham and others made it a cause celebre and fabricated an election campaign story that President Obama was trying to prevent investment in right-to-work states like South Carolina. Sen. Graham even suggested that the NLRB should be put out of business.

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For the past three years, Washington policymakers have been fixated on reducing budget deficits. And currently, short- and medium-term deficit projections have plummeted, due both to changes in legislation as well as revisions due to technical factors. In May, for example, the Congressional Budget Office revised the deficit projections that it had released in February, reducing its fiscal year 2013 deficit projection by 24 percent, or $200 billion. Similarly large reductions apply in each subsequent year, reducing the ten-year cumulative deficit estimate by $618 billion. As a consequence of smaller deficit projections, the CBO anticipates that the federal debt held by the public will be 73.6 percent of GDP by 2023—1.5 percentage points less than it is this year, and more than four percentage points less than CBO’s previous forecast for 2023.

Both the revised longer-term outlook and the unexpectedly rapid reduction in the near-term deficit have prompted some to change their tone on the urgency of further deficit reduction. Earlier this week, the Center for American Progress brought together a panel of experts to discuss the shifted outlook and what it means for debt-reduction policies in the current climate.

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Detroit’s emergency manager, Kevyn Orr, claims Detroit owes $3.5 billion (pdf) to its public pension funds. This is more than five times the $640 million the funds’ actuaries estimated in 2011,1 (pdf) vaulting pensioners into the ranks of the city’s major creditors, which isn’t a good place to be. It also contributes to Orr’s claim that Detroit owes a total of $18 billion—half to retirees and workers—and that bankruptcy is the city’s only recourse.

Despite obvious socioeconomic explanations for Detroit’s woes—the Great Recession walloped a city already suffering from deindustrialization and a flight to the suburbs—it sounds plausible that Detroit’s wounds are partly self-inflicted. After all, this is a city whose former mayor can’t seem to stay out of jail. And there’s certainly a history of elected officials around the country neglecting pension contributions to avoid raising taxes to pay for public services. So the idea that Detroit lowballed its obligations to workers and retirees has the ring of “truthiness,” to borrow Stephen Colbert’s phrase.

But pension obligations don’t blow up in your face like airbags, and politicians can’t make reputable actuaries like Gabriel Roeder Smith cook the books. When politicians want to save money by shortchanging pensions, they just don’t contribute what the actuaries tell them to contribute. This may be irresponsible, but it’s fairly transparent.

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