Daily Digest - March 20: The Safety Net - Government = ?

Mar 20, 2014Rachel Goldfarb

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The Voluntarism Fantasy (The Majority Report)

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The Voluntarism Fantasy (The Majority Report)

Sam Seder speaks with Roosevelt Institute Fellow Mike Konczal about Mike's new piece in Democracy Journal. Mike says the social safety net has always depended on the government.

The Tyranny of the On-Call Schedule: Hourly Injustice in Retail Labor (The Nation)

Michelle Chen explains the ways that retail scheduling has harmed workers' ability to plan their lives. On-call schedules mean not knowing how much you'll make or when you'll work, ever.

Journalists’ and Activists’ Strange Approach to Low-Wage Workers (WaPo)

Sarah Jaffe calls out the habit of representing low-wage workers as poor, unfortunate Others in need of our help. Any one of us could share the concerns and needs of low-wage workers.

Why Not Peg EITC Benefits to the Local Cost of Living? (PolicyShop)

David Callahan suggests President Obama could do better than simply increasing the earned income tax credit. For low-income workers living in high-cost areas, it would make a big difference.

Janet Yellen's Rookie Mistake: Speaking Too Clearly (Bloomberg Businessweek)

Janet Yellen, the new Federal Reserve Chair, needs to speak with less specificity, writes Peter Coy. Attaching a six-month timeframe to a vague written statement set off a market selloff.

The Key Question for Yellen: Is This Economy As Good As It Gets? (FiveThirtyEight)

Andrew Flowers considers the ways to measure economic potential, and what the Federal Reserve ought to do if we agree that the U.S. is still falling short.

Do We Need to Force People to Live in the Homes They Own? (Pacific Standard)

Real estate that isn't actually lived in may be a good investment, but it isn't good for a city, writes Kyle Chayka. He suggests that residency requirements could control rising rents.

New on Next New Deal

There's More to Fixing the Minimum Wage Than Just Raising It

Azi Hussain, Roosevelt Institute | Campus Network Senior Fellow for Economic Development, says that instead of tying the minimum wage to annual inflation, we should peg it to inflation over the business cycle to ensure flexibility.

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There's More to Fixing the Minimum Wage Than Just Raising It

Mar 19, 2014Azi Hussain

Increasing the minimum wage on a sporadic basis isn't the right way to help low-income workers or the economy.

Increasing the minimum wage on a sporadic basis isn't the right way to help low-income workers or the economy.

Support for a minimum wage increase is running high. What’s more is that there is strong support to tie the minimum wage to inflation, which is good news. Inflation has slowly chipped away at the value of the minimum wage since the late 1960s, so tying the minimum wage to inflation will ensure that its real value is kept constant.

Tying the minimum wage to inflation has another advantage. Currently, the minimum wage is increased sporadically and rarely, resulting in larger increases that are more harmful to employment. By tying the minimum wage to inflation, increases are smaller, regular, and predictable, and therefore less harmful.

However, tying the minimum wage directly to inflation is a bit crude. It means the minimum wage will increase every year by at least 1-2% (approximately the same rate as inflation). There are at least two situations where this could be problematic. The first is that during a recession, businesses would have to deal not only with decreasing demand and poor economic conditions, but also a rising wage. A minimum wage increase along with a recession would hurt employment above and beyond that of just a recession. On the other hand, during good times the minimum wage would still only increase by 1-2%, whereas the economy may very well be able to absorb a larger increase.

How can we design the minimum wage so that inflation doesn’t chip away at its value over time, while still giving it enough flexibility in increases to accommodate current economic conditions? The best way would be to tie the minimum wage to inflation over the business cycle instead of on an annual basis. The idea is that the minimum wage would increase during booms and would stay constant or may even decrease during busts. Over the course of a business cycle, the increases would offset the decreases enough so that the minimum wage would keep up with total inflation during that cycle. A good example of a similarly designed policy is Sweden’s balanced budget rule, which requires the government to run a budget surplus over the course of a business cycle. This allows the Swedish government to spend more than tax revenue during busts, but forces it to spend less than tax revenue during booms, so that the net result is a budget surplus.

Yet having flexibility in choosing an annual minimum wage means someone will need to decide how much it should increase or decrease. That “someone” should not include politicians. Rather, an independent board should be set up to make the annual decision. A great example of this in practice is the UK’s Low Pay Commission, an independent body that conducts research and makes the recommendation for the annual minimum wage change. This board could be set up with a mandate to tie the minimum wage to inflation over the business cycle.

Too often, great ideas are rendered less effective or even harmful as they are designed as policy. The upcoming minimum wage legislation, an important tool in the fight against rising inequality, could end becoming one of these policies. But designing it right could mean long-term success, for the betterment of low-income workers and our economy.

Azi Hussain is the Roosevelt Institute | Campus Network Senior Fellow for Economic DevelopmentHe is a junior in the School of Foreign Service at Georgetown University majoring in International Political Economy.

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Daily Digest - March 14: The Golden Arches Get Served

Mar 14, 2014Rachel Goldfarb

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Breaking: McDonald’s Workers Mount Class Action Suits in Three States (Salon)

The workers are alleging different forms of wage theft, such as unpaid overtime, in California, Michigan, and New York, at both corporate locations and franchises, reports Josh Eidelson.

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Breaking: McDonald’s Workers Mount Class Action Suits in Three States (Salon)

The workers are alleging different forms of wage theft, such as unpaid overtime, in California, Michigan, and New York, at both corporate locations and franchises, reports Josh Eidelson.

A Business Upside to Obama’s Overtime Move (WaPo)

Jena McGregor writes that since productivity starts to drop as workers put in more than 40 hours a week, employers who hire more staff instead of paying overtime should see productivity increase.

The Secret Benefits Of Paid Sick Days For All (ThinkProgress)

Bryce Covert looks at some of the less obvious changes that come with paid sick leave, such as increased employer trust in employees, employee retention, and morale and productivity boosts.

How We Built the Ghettos (The Daily Beast)

In response to Paul Ryan's recent comments on inner city poverty, Jamelle Bouie explains how housing policies in the mid-20th century, which excluded black homebuyers, created today's racial wealth gap.

UAW Appeals to NLRB Board to Keep 'Outside Groups' out of Decision on New Union Vote (Chattanooga Times Free Press)

Dave Flessner reports that United Auto Workers is pressing to keep the National Right to Work Legal Foundation and Southern Momentum out of upcoming arguments, and Volkswagen agrees.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch looks at why UAW's efforts in Chattanooga failed despite VW's support, and what that says about U.S. labor law.

The Battle for Chattanooga: Southern Masculinity and the Anti-Union Campaign at Volkswagen (In These Times)

Some of the union supporters at the VW plant in Chattanooga hoped a union would change the culture of self-reliance and working through pain that led to injuries on the job, says Mike Elk.

Some Jobless Facing Eviction After Loss Of Benefits (HuffPo)

Andrew Perez and Arthur Delaney report that organizations tracking stories from the unemployed have seen an increase in evictions since Congress failed to extend long-term unemployment benefits.

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Daily Digest - March 12: Political Influence Carries a Price Tag

Mar 12, 2014Rachel Goldfarb

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Ready for a Surprise? Money DOES Equal Access in Washington (WaPo)

Matea Gold reports on a randomized field study that proves the long-held belief that campaign donations buy attention from legislators and their staff.

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Ready for a Surprise? Money DOES Equal Access in Washington (WaPo)

Matea Gold reports on a randomized field study that proves the long-held belief that campaign donations buy attention from legislators and their staff.

Obama Will Seek Broad Expansion of Overtime Pay (NYT)

Michael D. Shear and Steven Greenhouse report that the president plans to use his executive authority to alter who is eligible for overtime according to their job classification, as well as the salary threshold.

A Modern Day ‘Harvest of Shame’ (ProPublica)

The 1960 CBS documentary showed the plight of migrant farm workers. Michael Grabell says that today, blue collar temp laborers are facing many of the same terrible working conditions.

Nowhere Close: The Long March from Here to Full Employment (EPI)

Josh Bivens explains how low demand is keeping the U.S. economy away from full employment. He also has suggestions for how to boost demand, including increased public spending and net exports.

Plan for Mortgage Giants Takes Shape (WSJ)

Nick Timiraos reports on a bipartisan plan to replace Fannie Mae and Freddie Mac with a system of federally insured mortgage securities. The Senate Banking Committee's liberal Democrats hold the power to move this forward or stop it.

A Conservative Meme On School Lunches: Work For It, Kids! (TPM)

What's wrong with free school lunches? Sahil Kapur says that the opposition combines the idea that people are mooching off the government with the claim that liberals don't value the dignity of work.

New on Next New Deal

The Story of Atalissa Highlights America's Long-Term Care Problem

Sarah Galli responds to The New York Times’s story about the abuse of Iowan men with intellectual disabilities by considering the nation's lack of options for long-term care for adults with disabilities.

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Daily Digest - March 7: Holding Banks to a Higher Standard

Mar 7, 2014Rachel Goldfarb

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What's the Deal: How to Make the Financial System Safer for Everyone with Mike Konczal (YouTube)

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What's the Deal: How to Make the Financial System Safer for Everyone with Mike Konczal (YouTube)

Roosevelt Institute Fellow Mike Konczal explains why banks need higher capital standards to prevent another collapse and discusses the economic reform issues that the Roosevelt Institute will be working on throughout 2014.

Obama's Budget and the Politics of Poverty (To The Point)

Mike Konczal speaks with Warren Olney about how the parties aim to split the budget for anti-poverty programs. The GOP would increase funding for some programs, but at the cost of others.

Paul Ryan Accidentally Makes the Case Against Means-Testing (MSNBC)

When Paul Ryan brings up a child who feels unloved because he gets free lunch instead of a brown-bag lunch, Ned Resnikoff sees an opening for giving all students free lunch.

Together, New Haven Activists and Leaders Strike Back Against Wage Theft (In These Times)

For the first time, local police brought larceny charges against an employer who shortchanged his workers. Melinda Tuhus says these steps will help to protect low-wage workers, including undocumented workers.

Unions and Job Security (PolicyShop)

Matt Bruenig counters a recent argument that unions can't provide real job security anymore. He says the point isn't absolute job security anyway, but safety from firing without cause.

The Foreclosure Nightmare Isn’t Over Yet (MSNBC)

Suzy Khimm reports on one family's five-year fight against foreclosure in Maryland. Policies requiring mediation have kept them in limbo, as have the mortgage servicer's repeated runarounds.

Democrat Says CFTC's Low Budget 'Sucks' (The Hill)

Rep. Sam Farr (D-CA) says that the Commodity Futures Trading Commission's lack of sufficient funding could be very dangerous if it handicaps enforcement, reports Tim Devaney.

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Daily Digest - March 6: Washington State Points the Way on Wages

Mar 6, 2014Rachel Goldfarb

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Highest Minimum-Wage State Washington Beats U.S. Job Growth (Bloomberg)

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Highest Minimum-Wage State Washington Beats U.S. Job Growth (Bloomberg)

Victoria Stilwell, Peter Robison, and William Selway report that Washington hasn't just shown higher job growth – it also has lower poverty rates, and the supposedly vulnerable service industry is growing.

Minimum Wage Raise Would Reduce Food Stamp Spending By $46 Billion Over Decade: Report (HuffPo)

A new report from the Center for American Progress analyzes how higher wages would reduce need, writes Dave Jamieson. Raising the minimum wage would decrease the "culture of dependency" that Republicans decry.

The U.S. Economy's Big Baby Problem (The Atlantic)

The American birthrate has hit a new record low. That wouldn't be a big deal, writes Derek Thompson, if our economy didn't rely so heavily on families' consumer spending.

Over 2 Million People Now Without Unemployment Benefits (MSNBC)

The number of long-term unemployed workers in the U.S. keeps growing, and Ned Resnikoff says it's looking less and less likely that Congress will reauthorize their extended unemployment insurance.

When Regulation Threatens, Bankers Predict Doom For Main Street (ProPublica)

Jesse Eisinger explains how banks are trying to chip away at financial reform by negotiating behind the scenes on little-known issues. Going after collateralized loan obligation rules doesn't get much public scrutiny.

Does America Need a Robin Hood Tax? (Pacific Standard)

Kyle Chayka says a financial transactions tax could raise enough money to fight many social problems. Focusing such a tax on high-frequency trading would also curtail the banks' worst excesses.

It’s Still Paul Ryan’s Party (WaPo)

Greg Sargent calls out Ryan's hypocrisy in claiming the president's budget contains no attempt at compromise. Ryan's budget seeks even less common ground, with absolutely no funds for Democratic priorities.

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Daily Digest - March 4: Want a Reason to Raise Wages? Here Are Seven.

Mar 4, 2014Rachel Goldfarb

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7 Bi-Partisan Reasons to Raise the Minimum Wage (Boston Review)

Roosevelt Institute Fellow Mike Konczal explains the most compelling reasons to increase the minimum wage, from poverty alleviation to civic republicanism. He says the political fight will center on fairness.

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7 Bi-Partisan Reasons to Raise the Minimum Wage (Boston Review)

Roosevelt Institute Fellow Mike Konczal explains the most compelling reasons to increase the minimum wage, from poverty alleviation to civic republicanism. He says the political fight will center on fairness.

A Public Option for Banking (AJAM)

Mike Konczal says that postal banking could function as a public option on the model of the Treasury Department's Direct Express program, which provides debit cards to Social Security recipients.

You Call This a Middle Class? “I’m trying not to lose my house” (Salon)

Conservatives spin poverty as a personal failing caused by lack of education or skills, writes Edward McClelland, but for many Americans, even education and experience aren't enough to make ends meet.

The Business Case for Paying Service Workers More (Atlantic Cities)

Richard Florida speaks to Zeynep Ton about her research, which links higher pay for employees to higher profits in the service industry. She says service-sector workers perform better when paid better.

We Do Not Have to Live with the Scourge of Inequality (FT)

Jonathan Ostry writes that according to his recent research, redistribution creates more equality and stimulates economic growth. That means it shouldn't be considered a dirty word in policy.

New on Next New Deal

The Simple Solution to Obamacare's Employer Mandate Problems

Roosevelt Institute Senior Fellow Richard Kirsch suggests employers should be offered a choice between providing health insurance for all employees or paying an additional payroll tax to cover the costs.

The Congressional Budget Office Should Serve the People, Not Politics

Roosevelt Institute Senior Fellow Jeff Madrick writes that when the CBO provides single numbers instead of ranges, it gives politicians what they want. But it shouldn't treat lawmakers as clients.

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Daily Digest - February 27: Raising Wages the Rooseveltian Way

Feb 27, 2014Rachel Goldfarb

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FDR Set the Terms for Labor Executive Orders (Reuters)

Roosevelt Institute Fellow Dorian Warren praises President Obama for following FDR's path with his recent executive order raising the minimum wage for federally contracted workers..

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FDR Set the Terms for Labor Executive Orders (Reuters)

Roosevelt Institute Fellow Dorian Warren praises President Obama for following FDR's path with his recent executive order raising the minimum wage for federally contracted workers..

This Is How You Fix Ailing Public Pensions (Time)

Rana Foroohar draws out some key points from the Roosevelt Institute's conference on the public pensions crisis, including the need for fewer high-risk investments and campaign finance reform.

  • Roosevelt Take: The conference showcased a forthcoming study by Roosevelt Institute Senior Fellow Rob Johnson, who wrote about additional possible solutions to the pensions crisis.

Christie, Scott Walker and the Assault on Workers’ Pensions (The Nation)

For Republican governors with hopes of the presidency, attacking public pensions under the specter of Detroit is a strategic key, write Bob and Barbara Dreyfuss.

Tom Perkins Is Winning: The Rich Already Vote More (TPM)

William W. Franko, Nathan J. Kelly, and Christopher Witko point out that voter turnout already has a class bias, which results in state governments that are less responsive to public opinion.

Stop Currency Manipulation and Create Millions of Jobs (EPI)

By ending currency manipulation, when countries shift exchange rates to influence the costs of trade, Robert E. Scott says the U.S. would not only create jobs but would also lower the deficit.

The Home Mortgage Business, Where Cheaters Always Seem to Prosper (TAP)

David Dayen explains how Ocwen, a mortgage servicer, has managed to build an entire business around harmful and sometimes even fraudulent behavior toward homeowners.

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Daily Digest - February 26: Public Financing Means People Speak Louder Than PACs

Feb 26, 2014Rachel Goldfarb

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Making Every Voter Equal (Reuters)

Roosevelt Institute Senior Fellow Jonathan Soros says Super PACs should be made irrelevant, and public campaign financing that magnifies the small contributions of ordinary voters is the way to do it.

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Making Every Voter Equal (Reuters)

Roosevelt Institute Senior Fellow Jonathan Soros says Super PACs should be made irrelevant, and public campaign financing that magnifies the small contributions of ordinary voters is the way to do it.

For Our Youth, Good Jobs Are Green Jobs (HuffPo)

Rocky Kistner speaks to Roosevelt Institute | Campus Network member David Meni about young people's desire to approach environmental issues from an economic perspective.

U.S. Lags Behind World in Temp Worker Protections (ProPublica)

Michael Grabell writes that the U.S.'s labor laws offer shockingly little protection to temp workers, which may lead to dangerous assignments, lack of training, and wage theft.

Where Have All the Workers Gone? (New Yorker)

The faceless nature of companies like Amazon allows people to forget the nature of the work involved in delivering goods and services, says George Packer.

American Cowboys Fight for Better Wages, Working Conditions (Fortune)

Claire Zillman says the workers, whose lawsuit will be heard by the D.C. Circuit Court of Appeals next week, oppose Department of Labor rules that set a wage ceiling for livestock herders.

Dems Ramp Up Pressure on Minimum Wage (WaPo)

The House Democrats will begin circulating a discharge petition on raising the minimum wage, which would force a House vote despite GOP opposition, reports Greg Sargent.

Stamp of Disapproval (In These Times)

Theo Anderson writes that the American Postal Workers Union says selling local post offices won't solve the Postal Service's real financial problem: being forced to pre-fund 75 years of retiree benefits.

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The Political Underbelly of the Pensions Crisis: What Broke the System, and How Do We Fix It?

Feb 25, 2014Robert Johnson

Roosevelt Institute Senior Fellow Robert Johnson will join Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz, Roosevelt Institute Senior Fellow Thomas Ferguson, former Lieutenant Governor of New York Richard Ravitch, and others today in New York City to explore the underbelly of the public pensions crisis. The following is adapted from Johnson's forthcoming paper on this topic.

Roosevelt Institute Senior Fellow Robert Johnson will join Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz, Roosevelt Institute Senior Fellow Thomas Ferguson, former Lieutenant Governor of New York Richard Ravitch, and others today in New York City to explore the underbelly of the public pensions crisis. The following is adapted from Johnson's forthcoming paper on this topic.

Since the beginning of the Great Recession, policymakers and reporters have spoken of a growing crisis in public pensions. Many state and local governments are struggling to meet their obligations to retirees, and the easiest explanation is that government workers are overpaid and their pensions are unaffordable. But the evidence suggests that the pensions crisis is both less pervasive and more complex than that. Beyond the economic crisis, which put enormous pressure on state and municipal budgets, a range of factors including poor decision-making and the influence of big money interests has led to the underfunding of some state and city public pensions. With a clearer understanding of the problem, we can begin to take steps to solve it and keep our promises to public workers.

Contrary to public perception, pension underfunding is not a widespread issue. There is wide variation in pension performance across states, and underfunding is concentrated in particular states (for example, Illinois and Kentucky) and cities (Chicago and Providence). Where underfunding does occur, it seems to stem largely from the internal problems of those governments, which existed well before the recent economic crisis put additional pressure on their budgets.

There is also little basis for the conclusion that state and local employees are significantly overcompensated. On the contrary, pay is comparable at lower skill levels, and private-sector employees are significantly better paid at higher skill levels. According to Alicia Munnell, Director of the Center for Retirement Research, “Pension and retiree health benefits for state and local workers roughly offset the wage penalty, so that total compensation in the two sectors is roughly comparable.” There are surely examples of extreme individual pension obligations that warrant scrutiny, but they do not appear to contribute significantly to the total level of underfunding reported by analysts.  

The evidence suggests that pension underfunding is at times associated with choosing an unreasonably high discount rate. The discount rate is the expected rate of return on invested pension funds. A lower discount rate means governments must provision more now in order to meet future liabilities. Politicians tend to prefer a higher discount rate, which reflects a better “expected” yield on assets in the pension fund, since it allows them to justify provisioning less for pensions now. Unfortunately, a higher yield also means more investment risk. If the pension fund loses money, the pension liability does not go away; instead, taxpayers are forced to make up the difference or the government defaults on its obligations. This approach may help to mask the true cost of providing public services, but it is the public financial equivalent of the Hail Mary pass in football: you score a touchdown or you lose.

This may explain why governments are increasingly attracted to investment alternatives that have a record of substantial returns and are not closely correlated with the stock indices. Alternative asset investments (primarily hedge funds, venture capital funds, and private equity) averaged just below a combined 5 percent share of U.S. public pension funds’ portfolios between 1984 and 1994, but they averaged nearly a 20 percent share from 2008 to 2011. These more volatile assets may provide substantial benefit, but in times of stress, it is unclear if “reaching for yield” is a prudent strategy or simply reflects desperation. It also raises ethical concerns due to a lack of transparency and the potential for “pay to play” schemes, in which placement agents offer financial incentives, such as campaign contributions, to the people responsible for making decisions about pension fund allocations. This appears to be a system prone to abuse, and significant reforms must be enacted to realign the incentives of pension officials with the incentives of taxpayers and pensioners. This could include immunizing some pension investment boards with financial compensation, requiring disclosure of all outside income, and prohibiting individuals and firms that manage assets for a particular government from making campaign contributions to local representatives.

Even when there is no direct corruption, big money can have a powerful influence over pension funding decisions. It becomes very difficult for the political process to defend the common interest when ambitious politicians are under pressure from concentrated interests. Policymakers may be reluctant to adequately provision for pensions if doing so requires them to raise tax rates on high-income individuals, cut corporate subsidies, or otherwise drive away capital. Just look at the case of Detroit, where restructuring pension obligations is on the table at the same time the state is approving money to build a new hockey arena. This is not antiseptic technocracy at work; this is politics.

Relief could come from reforms in the political systems to lessen big money's influence and empower small donors. To accomplish this, states could establish systems of public campaign financing. Maine, Arizona, and Connecticut already have such systems, as does New York City, and New York State is on the cusp. Though the mechanics differ, all of these systems would change incentives to make candidates responsive to average people, not just big donors. As a result, policy is more likely to be oriented to the public interest.

The pensions crisis has far-reaching implications for the future of the U.S. economy: the state and local government sector is about 14 percent of the American workforce. Failure to uphold the promises we’ve made to current workers and retirees would create a brain drain in the public sector, drive down private-sector wages, exacerbate inequality, and lead to more economic volatility. The good news appears to be that there are a large number of pension plans that are solvent thanks to prudent management. The real problem rests with the governments of a few states that have historically failed to provision adequately for their pension obligations and are increasingly turning to riskier investment assets. These problems can be solved, but it will require substantial reform and swift and collective action.

Robert Johnson is a Senior Fellow at the Roosevelt Institute.

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