This is the Cato Daily Podcast for Monday, July 22nd, 2013.

I'm Caleb Brown.

What drove Detroit, one of the most prosperous cities in America into bankruptcy.

And what options stand before the once great city as it tries to escape obligations

it simply cannot pay.

Emily Washington is a policy research manager for the Mercatus Center.

We spoke earlier today.

Conservative commentary has focused, I think, largely on the pension issue related to Detroit and how underfunded they are and trying to essentially say

underfunding of pensions means you're in necessarily much worse shape.

What share of the problem that Detroit has would you

ascribe to pensions? Before Kevin Orr was appointed as the emergency financial

manager, Detroit's pensions as appointed as the emergency financial manager.

Detroit's pensions, as reported, were looking very good,

nearly fully funded.

Then or appointed a private consulting firm to do an analysis of the city's debts and they knocked off one percentage

point of the discount rate that Detroit was formerly using.

So that means that it's going to make the obligation look larger than it did when the

city was using an 8% assumed return on its pension assets.

So using instead a 7% return, the consulting firm uncovered what it said was a $3.5 billion unfunded liability.

Using market valuation, which many economists insist is what's necessary for a defined benefit pension.

The unfunded liability looks much larger at about 18 billion.

So they didn't really uncover pension obligations so much as they used math that was

...