Free Markets, Free People

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 “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.”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

59 Responses to Why is Detroit bankrupt?

  • “after years of budgetary restrictions”  So austerity is the problem.  Paul Krugman takes a victory lap.
    But in reality, one might wonder how one runs up $20 billion in debt after years of budgetary restrictions?

    • The unions have to come to grips with the fact that the 1950′s have been over for over 50 years and so has America’s unique position as the industrial base of the world that allowed workers a bigger piece of the pie without much effort.
      Now everything takes effort.

  • But we refused to throw in the towel and do nothing. We refused to let Detroit go bankrupt. We bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way.
    Pres. Snoop-Dog, Oct., 2012

    Gawd, I hope that is not a harbinger of what’s to come…
     
     

    • Detroit should send shutters down the spines of legislators in California

      • Shudders, too…  The shutters should be used to beat them over the head.

        • When things are bad … “There’s no need to fear, Barack Obama won’t be making an appearance”

        • “Open all the shutters on your windows,
          Unlock all the locks upon your doors
          Brush away the cobwebs from your daydreams
          No secrets come between us anymore”
          That is, unless Jay Carney is holding a press conference for Pres. Snoop-doggy!
           
           

  • There is nothing “moral” about buying into a myth, and feeling you can schtupp the taxpayers for your retirement.  Sad, yes.  I actually feel badly for people who were told those lies and believed them.  Sorry…  Reality bites.

    • The people who lied to people ought to suffer some comeuppance.
       
      Unfortunately, as I have previously lamented, one is now discouraged from suggesting people meet you on a field outside of town in the wee hours of the morning to settle the issue like gentlemen.

  • Makes a nice narrative about ‘blue’ government.  But it really is primarily just the classical city government corruption more than anything else that drove business and people out of the city a long time ago.
     
    Any other state would have had their state government step in to bust up the corruption.  But the state government was terrified of having the race card thrown in their face so they left it alone.  The Feds tried really hard to bust it up.  The first majorly corrupt mayor was Mayor Young.  The Feds busted everyone around this guy, his police chief, his son, his friends, but they could never get them to turn on him.  In order to even ask to do business in the City, you had to hire one of his ‘associates’ for $10,000 a pop to ask on your behalf.  In corruption like that, you have to leave at the first opportunity.
     
    The city council fought the Emergency Manager appointment which is a position the state has which has sweeping powers to try to straighten a city out to avoid bankruptcy.  The city council fought it at every turn.  It’s elimination was even put on the state ballot which failed.  This delayed the appointment.  By delaying it, they worsened the state of thing and made bankruptcy inevitable.  The key word is delay, delay, delay.
     
    The main reason is that the corruption would be exposed for sure by an emergency manager.  The city council is simply delaying to keep a good thing going and/or stave off jail.  They actually threw union pensions, salaries, and benefits under the bus to do it.  There is also a small chance it will land in a politically friendly (and/or corrupt) judge who will screw around for 2-3 more years allowing the situation to continue and/or worsen.
     
    If it was simply bad management they wouldn’t have resisted the emergency manager offers a soft landing which may have saved jobs and benefits at least for a while.  It is corruption pure and simple.  In fact, within 2 days, maybe 1, of Orr opening the books, a couple of investigations were launched.
     
    The blue politics that destroyed the city happened 50 years ago at the state level.  The state was offering some of the best welfare in the country and liberals lobbied to drop the state residency requirement because people were coming to the state and “risking starvation” waiting it out to qualify.  A move probably not unlike ‘immigration reform’ for the Democrats.

  • The phrase “chickens coming home to roost” keeps coming to mind.

  • Makes a nice narrative about ‘blue’ government.

    Why, yes it does, as you yourself note:

    The blue politics that destroyed the city happened 50 years ago at the state level.

    And the date the city repealed that was…when, exactly?
    http://www.fourwinds10.net/siterun_data/spiritual/pictures/news.php?q=1254861706

  • Only when ballot box voters reject the blue model of governance will it be dead. A lot of people (Detroit isn’t the 4th largest city in the nation anymore) voted with their feet, which indirectly voted — reducing income. But those that remained kept voting in the blue model. Let me know when we’ve figured out how to educate the remaining voters.

    • Well, Doctor, what have we got—a Republic or a Monarchy?

      “A Republic, if you can keep it.” — Benjamin Franklin

  • This is GREAT!
    They voted for this, now it’s time to maybe learn a lesson.
     
    Besides, no real Americans live there anyway. Blue city in a blue state. Eff ‘em

  • We’ve been ALL OVER this on Common Cents…
    http://www.commoncts.blogspot.com

  • Why does the line in old Dune movie, where the Guild Navigators threatening the Emperor that he will “live out his life in a pain amplifier” keep coming to mind

  • O/T but…

    Well.
    Now Pres. Snoop-Dog is out singing teh “Nobody knows the trouble I’ve seen…” blues about growing up on the mean streets of an exclusive, elite suburb of Honolulu.
    What a fraud.

    • Southeast Honolulu….why, it’s practically the south side of Chicago, only with a beach.

      • And millionaires.  Who aren’t gangsters.

        • I just read his sad story of how people avoided him, locked their doors, clutched their purses, because of his color…..by this I gather he means all us irrational ignorant fearful white folks.
          Good Lord, can’t he shut up?   As bad as this is, and he just can’t stop himself.  It can’t be about Trayvon, dammit!  It needs to be about Obama!
           
          Could have been his son, could have been him, boo hooo, poor Barry.
          Yeah, if Trayvon had been white, the Media wouldn’t have lied and distorted the evidence they presented to make the case racial.

          • IFFFFFF any of that happened to Pres. Snoop-Dog, I would submit it had nothing to do with his skin, and all to do with people being astute judges of very crappy character.

          • The bride at every wedding, the corpse at every funeral.

        • ARRRRGGGGGGGGGGHHHHH
           
          Could Travyon have ‘stood his ground?”  From what…Zimmerman following him?   Does the Dumbass of the United States understand what that law means?
           
          What a complete and utter asshat.

          • Yes.  He could have “stood his ground” and said, more or less respectfully, “Hey, my name is Trayvon, and I am staying with my Dad at number _______.  I am going there now.”
            Result?  Nada.

          • If Trayvon had stood his ground as opposed to homophobic attacking Zimmerman, he’d be alive today.
             

        • He’s making it worse, because he’s reinforcing all the false hoods the media spun about this case.
           
           

          • Funny how the more apparent the ObamaDoggle we call the “Affordable” (HA!) Health Care Act gets, the more Obama finds it convenient to be blacker and more divisive.
            Makes you wanna go….Hmmmmm….????

    • I wonder how he made out on Kill Haloe Day

  • It’s all about keeping the base riled up for the midterms.
    Pathetic. What a shell of a man. What a sorry excuse for a human.

  • Meanwhile a judge blocked it because it cheats the little people, and fails to “honor” the President who took Detroit’s automakers out of bankruptcy.
     
    What has the second one got to do with anything?

    • Even worse, this pig is going to send him a copy because “he’s bailed us out before”
      Like I said, no real Americans living there.

      • What of your oath to the king!  Is it to be so lightly cast aside!  Nay sir! Nay!  I will not stand for it.    You will honor your oath!  You will do your service and be grateful the monarch has bestowed his kindness upon you and yours!  Until every last bit of standing wood has rotted and fallen, each stone pile has tumbled down and overgrown with grass and flowers!  You WILL honor m’lord Obama!  Or you shall answer to me!

    • “I have some hostages, and they are tied up in a sack at the top of a flag pole. I’m going to blow them up at midnight, unless I get these three demands: ONE! I want a million dollars! TWO: I want a getaway car waiting for me! and THREE: I want the letter M stricken from the English language. See, you have to make one crazy demand, so if they catch you, you can plead insanity. Heh, heh, getaway car.” — Steve Martin

      Heh, heh, Dishonors Obama.

  • {sigh} You dense righties are just salivating at the prospect of Detroit falling apart. Because you’re sterile and inbred, and probably racists, especially those ex-military basket cases around here who live in the south.

    The solution is so simple. All the residents of Detroit have to do is focus their positive energies through non-local quantum entanglement, listen to the Dalai Lama, and use their mental perceptions to guide the future. Then it will be magical and joyful, just like it is for me with my new squeeze.

    And it’s not either just the fact that I’m getting laid for the first time in years that makes me wax so philosophical about spiritual things. Stop saying that. Well, it is a part, I guess. I was in a soulless marriage, and don’t start with how I couldn’t even keep a Russian bride happy. We just grew apart, that’s all. And the magenta caterpillars with Sarah Palin’s face, naughty librarian glasses, and ample bosom had nothing to do with it. Stop laughing.

    So you nasty righties need to join with me and the other wonderful, non-ideological moderate leftists in helping those poor people in Detroit instead of criticizing them. That’s just negative energy, and it makes things worse. That’s right, it’s your fault, you meanies on the right, that things are bad in Detroit. If you would just help them go all Deepak Chopra, things would be great in no time.

    So stop going on about those silly “scandals” you seem so obsessed about. There’s nothing there. I decree it. In the name of quantum spirituality, I declare it to be so. How can you argue with someone with an advanced degree and godlike powers of political science combined with knowledge of quantum physics? Not to mention a book on foreign policy stuff that isn’t either from a vanity press that suckers social science academics, so don’t start. Lot’s of people like my book. Why, when I ask colleagues, they all nod and smile and tell me of course they liked it.

    Anyway, the IRS thing is not a scandal because progressive groups were targeted too. Well, they were! Stop laughing! CNN said so! Or at least they said some Democrats said so, and that should be good enough for anyone.

    And shut up about the whole two hundred and something tea party groups to six leftist groups. It just goes to show how well funded the tea party is, probably by mean capitalists who wouldn’t give me a job doing anything but managing a pizza shop. Which, in my own joyful and magical way, I retaliated against by stealing pizzas.

    But thankfully, I got a doctorate in political science from a place with “advanced” in its name, which wasn’t either granted by the committee to get rid of me because they couldn’t stand me any more than you can. Then I was able to find the perfect job in a small college and a small town where life is magical and joyful.

    Except that I just don’t have enough people to whom I can spread my wisdom, magic, and joy. So I come here out of the goodness of my heart to educate you thick righties and guide you on the path to spiritual nirvana through quantum physics. Definitely not to find someone to lecture to so that I can validate my own mediocre career. Stop saying that. And stop laughing. I demand it, in the name of the spirit of quantum physics.

  • Our Fav Black Conservative – Zo of ZoNation “George Zimmerman is not white – unless you are a lib”

    http://commoncts.blogspot.com/2013/07/our-fav-black-conservative-zo-of.html

  • I was so expecting the mayor of Detroit in his new conference today to come out and just blame President Bush. It’s worked for the libs so well over the past ten years that I was dumbfounded not to hear it.

    • Those were the days, my friend

      • Yeah…and remember the next line:
        “We thought they’d never end”.
        Well, now it “BRING OUT ‘YER DEAD!!”.

    • The current mayor in this has been more realistic than past mayors and seemingly far less corrupt.  Its the city council and entrenched bureaucracy that’s the main obstacle at the moment.

  • The entire problem in a nutshell…on article about Detroit, someone said, paraphrased, that you can’t have police officers making 150,000 and 90% of that in retirement. And the next commenter complained that why can’t regular people have nice retirements.
    Government workers and their supporters have no idea that $150,000 pension is crazy for almost any level of employee. They don’t understand that its a high, high salary. They think its normal.
    I’m not sure how much is willful ignorance, cuz they always claim they could make more in the private sector but choose not to, but some of it must also come from reading headlines of wall street exec pay, Hillary making $200,000 per speech, Colin Powell being worth 45 million dollars, Anthoney Weiner getting fired and then getting huge consulting fees the next year for all of his insight…
    Now, those things are also crazy in my opinion, but people always forget its large volume craziness that is the most dangerous. A company that misprices one item in one store will be okay. A company that does that in a 1,000 store chain over and over is in trouble.
    I think this is also why many people on the left think there is more in taxes to be squeezed – if Hillary Clinton can pull in $200,000 per hour, or Colin Powell can find enough boards to sit on to accumulate 45 million dollars, then obviously the corporations and the fat cats have way too much money. See Al Gore selling his TV station…too much money pollution.

  • It’s sad that Detroit has come to this. Whilst corruption and inefficiency may well be major factors I would not ignore the gradual bleeding to death of the outdated car industry which meant money and employment was pulled out of the area.
    Whatever the reasons, which political party is going to roll up their sleeves and turnround this city?

    • It is sad, but neither political party will do even one-tenth of what would be needed.

      I doubt the GOP would be given a chance, and even if they did, almost everything they suggested would be greeted with shouts of “racisim!”

      The Democrats can’t/won’t do anything dramatic for the same reasons they have not done anything up this point, and probably the two biggest such reason are the unions and the endemic corruption.

      Notice that the unions played a large part in the decline of the auto industry as well. This does not surprise me. When I was younger, I was a member of a union for nine years. The typical union leader is a more fanatic, more selfish, and far more ignorant version of the typical ward-heeling politician. They don’t care what their demands do to the organization supplying jobs for their members. Finding the money to meet their exorbitant demands is somebody else’s problem. Their problem (as they see it) is extracting the maximum amount of money from the organization.

      Since the playing field has been tilted in favor on the unions in many place, that means the unions can basically extort money from the organizations. “Extort” simply means to gain money by threats of force, and that’s exactly what they do.

      For public sector unions, it’s even worse. The unions and the politicians can team up to extort money from the taxpayers.

      The end result is that unions can drive an organization into financial meltdown. I personally don’t think unions should have that much power, but they do.

      In the private sector, the meltdown can result in the financial rearrangements that cut the unions out. That’s why, to pluck an example from this week, we have Twinkies back on the shelf again. But if the union is big enough and powerful enough, it will find allies in government to continue extortion – see the government bailout of GM for the best example to date.  

      In the public sector, unions can drive a municipality or state into bankruptcy, and still have enough influence to avoid being cut out. Any “solution” must meet their unreasonable and impractical demands.

      • “In fat times and lean, the city’s pols and power-brokers chose to focus their energy, and the residents’ tax dollars on gigantic, big-ticket development scams while ignoring the basics that let cities thrive – or at least survive. Detroit’s leaders poured money into a never-ending assembly line of sad-sack projects such as the Renaissance Center, the Fox Theater, Comerica Park, Poletown, the People Mover, and Ford Field. . . . Detroit can stage its own comeback by reducing crime and picking up garbage; by freeing kids, parents, and property values from an abysmal school system; and getting the government out of everything that isn’t essential. In other words, Detroit’s leaders only need to do what they should have been doing for the past 50 years.”
        http://reason.com/reasontv/2013/07/20/the-tragedy-of-detroit-the-motor-citys-l
        Pretty much…

    • It would seem that way but Detroit became like it is while the employment in the auto industry was at its peak.
       
      The exodus from Detroit was first to the Metro area in a constant stream of middle class & white flight and the automakers then moved their facilities out of there as quickly as they could away form the anti-business city practices including corruption and taxes being shifted onto them.  It took longer because those aren’t trivial investments.  And they’re why the city didn’t bankrupt 20+ years ago.  They eventually mostly got out.  There’s more than enough auto industry left in the area if they didn’t need to flee the city, the city would be hobbling along.

    • Whatever the reasons, which political party is going to roll up their sleeves and turnround this city?
      >>> Well, the (R) Gov tried the merest of measures (appointing an emergency manager) and the Ds and most importantly the pigs people who live there yelled louder than screech owls.
      Look, here’s the main takeaway:  EFF DETROIT.  EFF THE PEOPLE WHO “LIVE” (if you can call it that) there.  All that city is – it’s a huge client base for the Dems.   Unions. Rank and file of the free sh*t coalition. Liberals. Not a single one of them has it in them to “roll up their sleeves and turn around the city” because of their very nature.  Leeches suck the blood, they can never replenish.
      Let Detroit burn. Let the residents suffer. Build a huge wall around it so they can’t leave and ruin the surrounding areas.
      This pleases me greatly. The proper people are going to suffer. Time for a large cool iced tea.

      • For incentives to work, there must be consequence. Because politicians have managed to push responsibility for their spending into the future and the voters are okay with that, the consequences have to be multi-generational and more in the form of “teachable moments.”
        Detroit must die a horrible death pour encourager les autres.

        • Nice to ring up the bill and then step out before the shop keeper demands his due ain’t it?

  • One of the key lessons of O-care is that taxes are Constitutional, and you can use them to coerce people into behavior that otherwise wouldn’t be legal.  Add an 30% surtax to all city of Detroit paid civil ‘servant’ salaries, pensions and benefits.  Add another 50% surtax to payees who are not full time residents of Detroit.  Add another 50% surtax to benefits over 2x the city average income, ~27k, so 2x is ~$54k.  Toss in a few other surcharge taxes as well (maybe another 5% surtax on pensions (not salaries) per year below age 65.)  Allow the retirees to abandon their pension and benefit claims when they realize that unless they live in the city, they have to pay more than 100% tax on them…making them better off abandoning their claim on the broke tax payers of Detroit.  Or at least keeping the money circulating in Detroit. 

    For the modest income, live in the city workers/retirees, a relatively modest 30% haircut.  For the retirees in Florida and Phoenix with phat pensions…they are screwed, but the they are the biggest reason the city is screwed.  The higher your pension, the worse off you are.  Retire at 43 with a $90k/year pension, screwed.  And if Detroit dramatically reduces the pension/health care obligations, it probably could avoid bankruptcy altogether.  Although it is probably worth it just to break the union contracts at this point.   

    And the lesson of the O-care ruling, you can Constitutionally coerce people with the tax code in to doing anything!