Free Markets, Free People

Daily Archives: July 19, 2013

Why is Detroit bankrupt?

Well there are a lot of contributing reasons, but Brad Plumer hits on the major one:

Detroit is sagging under decades of bad governance. “The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” Orr wrote in May. “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.” (Detroit has been a one-party city run by Democrats since 1962.)

Now I didn’t write that or suggest that.  In fact, it comes from Ezra Klein’s “Wonk Blog” in the WaPo.  Some things just can’t be denied or spun.  Detroit is and has been the exemplar of the blue model city for decades.  And this is the result.

Of course, Detroit isn’t the only blue city in dire straits.  It’s simply the one in the worst shape of all.  It has literally imploded.  It’s population dropped as people fled the exploding crime and high taxes.  78,000 buildings have been abandoned or have become blighted. Unemployment is rampant.  And, uncooperative unions and huge pension debt doomed any recovery.

Over the past few months, Orr has tried to convince the city’s various creditors, including the city’s unions and pension boards, to take far less than they were owed in order to restructure the city’s finances (in some cases, pennies on the dollar). But he was unsuccessful, so now the city is filing for bankruptcy protection.

So now they’re all at the mercy of the bankruptcy court, assuming the Obama Administration’s misnamed “Department of Justice” doesn’t try to take a hand in the restructuring as it did in the auto bankruptcy proceedings.

Looking back at the first cite,  Kevyn Orr, the city’s temporary emergency manager makes an interesting point – he claims it is time to move government into the 21st century.  Doing so would also include much less power for unions and much less generous payouts for pensions, if a city is to have a chance at fiscal solvency.  Not that Detroit is going to get there easily:

“But city retirees, facing the prospect of sharply reduced benefits whether in bankruptcy or under Detroit’s restructuring proposal, think they stand squarely on the moral high ground because despite the poverty of many current and retired members, they have already offered big concessions.”

You can stand on the highest “moral ground” you can find, but reality says if there’s no money, it really doesn’t matter, does it?

That is, of course, unless the fed tries to involve itself in the mess and subsidize pensions and unions – something not at all far fetched. 

Detroit is the canary in the coal mine of blue model governance.  How many other cities will fold before it is finally kicked to the curb?

~McQ