How Detroit went broke
freep.com
freep.com
It's just a few blocks outside of what is considered 'downtown' Detroit. It's not an overly fancy or even large hotel but it has the weirdest vibe to it, it's as if you're in this dystopian movie about the future where there's a 1:1000 difference between the haves, and the have nots.
Inside the hotel there's food, booze, gambling, and bright lights. As you leave the hotel you see security forces (hotel security as well as a fairly large presence by the Detroit PD). But once you're outside, that's it.
Barren wastelands. Empty city blocks, fields of grass and weathered concrete, and the ruins of entire neighborhoods. Exactly what you see when you Google 'Detroit slums'.
In the daytime you'll see people walking around like zombies, carrying grocery bags, walking between stores (despite what you read on the internet, there are grocery stores in Detroit). You'll see them talking to each other on the corner, sitting under trees, or hunched over on a curb.
They have nothing. They do nothing. There is nothing for any of these people to do. There's nowhere for them to work. There's nothing even for them to have. Everything is gone or destroyed.
At night time you won't see anything. Almost all of the streetlights in the city have been turned off, because Detroit can't pay the bill! The city is pitch black at night. You can drive around with the highbeams on. You can't see the roads, you have to make sure you don't run over anyone who's in the street, it's incredibly unsafe but it's just so dark it's unbelievable.
And then in the midst of the darkness you see the multi-colored lights of the hotel, and you know you're back to your version of Detroit. The police let you back in, you park your vehicle in the guarded garage, and you walk back to your room to eat $4 bags of M&M's and $5 bottles of water.
And once you think about how fucked up that is, you almost lose your appetite.
Or if you have ever visited Tenpenny Tower in Fallout 3:
Just had a look on Google Maps satellite and street view in an area near the Motorcity Casino and - wow. There's a lot of nothing there.
Where did the grassy vacant lots come from? Did someone (the city?) bulldoze abandoned buildings? All of the grass is neatly trimmed. Is that the city too? Or does the casino keep their immediate neighbourhood looking neat?
Very odd indeed.
In reality, USA 2013 the disparity is much, much bigger than 1:1000.
In order to be in the top 1% of income your household needs to have earnings of around $380,000 a year. Unless your definition of "haves" excludes households like that, there is an upper limit of $380 a year for "have nots" in order for your statement to be true. There aren't very many, if any, US households with income of less than $380 a year.
Of course, on HN I wouldn't be surprised to hear that $380k/year is working poor.
What do you think the net worth of the people he is describing is?
[1] http://www.nasdaq.com/article/americans-have-relatively-poor...
1,000,000 (one million) / 1,000 (one thousand) = 1,000 (one thousand) not 100,000 (one hundred thousand).
The average income in the US in 2013 is $52k.
The "haves" are not the arbitrary top 1% which starts at $380k, no, the "haves" are the people with millions or BILLIONS of dollars. It's not about yearly income, it's about net worth.
The difference between someone making $52k a year and someone with BILLIONS of dollars to their name is far more than 1:1000. Assuming just $1 billion to $52k the difference is about 19,230:1.
And that's assuming the people with $52k income "have" $52k. But they don't really, they're probably in debt.
You don't seem to have any grasp of why this is a problem, let alone how to begin to deal with it.
On the other side of the line that 52k $ is arbitrary. Why is "average income in the US" the relevant #? I bet the average income in Detroit is lower. Or what about average african american income which is surely lower than that? I bet there are people in Detroit who earn essentially no money? Surely that number is relevant when talking about a wealth disparity ratio.
I was just saying that there are much much much better measures of wealth disparity than the #s you came up with.
Just to be clear, the city may be able to pay the electricity bill, but not the bill to repair the light or the copper wire which has been stolen by scrappers.
Lighting is just one of those things you probably take for granted. When you don't have it, and your kids need to walk between abandoned homes with no street lights in the darkness to get to their bus stop, it becomes an essential public safety requirement.
Freep.com covered how the lack of public lighting really puts kids in danger in a good piece last year.
There was a story not too long ago where an older guy won 5,000 and on their way home someone followed him, ran him off the road, killed him and took the 5,000. Doesn't beat the pizza delivery guy murders here in Flint, but it paints the correct picture.
http://www.mlive.com/news/flint/index.ssf/2013/09/flint_stil...
http://en.wikipedia.org/wiki/Blind_men_and_an_elephant
You were so conditioned to what you'd find that everything you saw fed the template in your mind. Here's a counter story from an outsider:
http://www.forbes.com/sites/techonomy/2013/09/16/venture-for...
Detroit is the perfect entrepreneurs city. Tremendous opportunities along with tremendous risks. I've waited my entire life to see progress in Detroit's long downward slide. Sadly now that it is here few can see it.
Well, the smart money will see it first. And entrepreneurs. The rest will eventually follow the herd, well after the money is off the table.
a lot of people and a lot of history have been here a long time. rebuilding a city takes time.
I've also been around Baltimore, not the worst parts, but still, it isn't that much different.
I don't know where this Detroit people == zombies thing comes from. That can describe how a lot of people in the ghetto look.
How much time? Detroit began its decline in the late 1960's, and the current financial crisis started in earnest in ~2004 when they lost a bunch of Federal funding[1]. The Tigers abandoned Tiger stadium (which was demolished in 2009, and the land remains undeveloped) and the Lions abandoned the Pontiac Silverdome in 2000 for the Comerica Park / Ford Field as part of the push to "revitalize" downtown Detroit. The Casinos were brought in because it would bring people downtown, and to generate tourism. To this day there are multi-level abandoned buildings just down the street from the Comerica Park / Ford Field complex[2][3]. Sorry, "it takes time" is a hollow answer in my book. If people really were working to turn the city around, that might hold some weight, but there are a lot of people looking to mooch off of it on the way down, while the suburbanites migrate further and further from Detroit-proper.
[1] The population fell below 1 million in the 2004 US Census. For comparison, the population of Detroit was around 2 million at its height. [2] http://goo.gl/maps/oMzfZ [3] http://goo.gl/maps/n7MIm
> If people really were working to turn the city around...
people are working to turn the city around. people are migrating to the city to fix it and making progress -- but, i guess you may have missed that looking up stats on wikipedia and census.gov and google maps. the people of detroit are aware of the history of detroit.
Although my evidence is only anecdotal, I can see with my own eyes when I'm in and around Detroit (I live about an hour west) that people are working incredibly hard to turn the city around. But the statistics may not show this at first glance, and it could take many years for all of this hard work to even register on the national radar.
If we're here looking for simple answers, the only simple answer would be to let Detroit continue declining, and forget about it and deal with the blowback, whatever it may be, for however long it may last. Every other answer is hard.
I'm genuinely curious.
People say how bad the city is, and yet there's a brand new Whole Foods. There's a lot of new construction happening. Rolling down Woodward, you'll see new restaurants and new stores.
There's no weird vibe in Motor City Casino - maybe it's just you. It's very nice in there and everybody is having a good time. The dealers are all very nice. The vibe there was much better than Atlantic City - now that's a sad place.
How the heck is Motor City the 'true Detroit experience'? The 'true Detroit experience' is staying with friends that are Detroit natives. 1515 Broadway, Green Dot Stables, Centaur, Circa - plenty of gems.
My friends ride their bike up and down Woodward and John R many nights. I rode with them multiple times after DEMF. There are street lights for miles.
Detroit has a lot of run-down areas, but it's not 'dystopian'. My first visit there I walked down the Cass Corridor - that's bad, but not as bad as areas I've been in cities like Atlanta or the Bronx or even Brooklyn.
And, the electronic music scene is very much still vibrant. The people of Detroit have such a love for the music.
Those are people. They may live a life very different from yours, but I feel pretty confident that they care about the things they have, the people they know, where they live, and so on. Your narrative sounds terribly dehumanizing and dismissive. Nor do I understand how that the geographical location of a casino represents...anything at all, much less a 'true' Detroit.
As others have said, the Detroit dystopia thing has played out. As a Torontonian I love taking a drive down to Detroit and catching a game. The city truly feels like it is on a slow rise from the depths, having quite firmly hit rock bottom.
Does it have bad area? Absolutely. But then so does every urban American city.
Retiree benefits are essentially "loans" and should be (but aren't) included in all the debt graphs.
My point? I think they should be included because the government failed to take them into account, or ignored the looming problem.
That's one of the main differences between public finances and private finances - administrators who over-promise in private space get audited and corrected, administrators who over-promise in public space get financed and elected.
Also I don't understand why the state or the union help this city. Having a city with so much citicies living in misery is a failure of the entire country. Detroit is in this situation because the laus of the country let it be.
The statute of limitations has probably run, but I wouldn't be surprised if the pension trustees acted contrary to law. Grossly negligent if nothing else.
A good example is California's public retiree system. If CALPERS didn't estimate an 8% ROI the fund would be underwater. I don't know anyone who actually thinks you'll be able to get 8% over the next 20 years from pension-quality investments. On the other hand, I'm not ready to say the people in charge are doing anything illegal.
Defined benefit pensions are ripe for corruption. Politicians get to buy votes with taxpayer money that doesn't need to be accounted for while they're in office. So you promise a bunch of unions some benefits, the union leader wins, the politician gets elected, in a few years he moves onto the state senate or wherever, rinse repeat. This is all great and easy to cover up when you have a growing tax base (i.e. large young population), but it starts to fall apart when the balance tilts the other way.
There's a pretty easy way to fix this, and that is to ban governments from making pensions. They should pay their employees in cash only, the employee can then purchase an annuity if they like for the amount of pension they have earned. Of course, they won't be able to, because it's not affordable for anyone unless the government is hiding the costs of pensions in the ridiculously high investment return assumptions.
The only silver lining is that there is a pot of dumb money sloshing around chasing higher and higher returns, so in my field it makes it a little easier to make money (heads I win, tails you [taxpayers] lose).
The GAAP says to assume a totally unrealistic rate of return; then when it's not met, to depreciate those losses over decades. Neither makes any sense at all.
If there's any gross negligence going on, it's shared by the entire profession and the Governmental Accounting Standards Board.
And there very well may be. Except it's probably beyond 'gross negligence', in the sense that the ridiculous standards served some financial firms and their pocketbooks very well. Not so different than other crazy shit banks and financial firms got away with in the last decade, and nobody's held responsible because, after all, everyone was doing it, so it was 'best practices'!
Some accountants have been sounding the alarm about this for years, and been ignored by 'the establishment' until fairly recently, when issues like Detroit made it impossible to ignore.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ancIi... (lacking a dateline, but based on a phrase in the article about 'drag on into 2004', appears to be from 2003, 10 years ago)
http://dealbook.nytimes.com/2013/07/19/detroit-gap-reveals-i...
http://capoliticalnews.com/2013/09/10/pensions-are-still-mak...
The Real Story Behind the Decline of Detroit … And Yes, Great Things Are Happening There Too
http://www.alternet.org/economy/real-story-detroits-economy-...
TL;DR: Detroit was set up to fail.
An example:
"One dramatic example of the cost of racism born by Detroit is this: Detroit has an income tax on those who work within the city limits. The two-tier tax is lower for those who work in the city but live in the suburbs. In enacting the tax, the state legislature required employers based in the city to collect the tax via payroll deduction as they do with federal and other taxes. Suburban based employers are not required by the law to collect the tax. Most of them don’t. The revenue lost to Detroit per year is estimated to be as much as $142 million."
... The nation's 10th largest city was set up to fail? Did the Illuminati do this, or was it an inside job?
So any story about Detroit has to explain that. There are systemic things at work and there have been for over 60 years, although I agree "set up to fail" has a rather conspiratorial tone to it.
Sure.
By default or by design, intent is unknowable and unactionable. I only judge outcomes.
My apologies.
I was laboring under the impression that it doesn't take great insight to see how defunding and defrauding and disempowering Detroit created the circumstances which led to them declaring bankruptcy.
Forgive me for not singling out individuals to blame, though there is plenty to share. Nor playing along when trolls use imagined conspiracy theories to dismiss objective reality.
What measure of proof do you require?
(You didn't read them, did you? Be honest.)
Illuminati? No conspiracy needed. Taxation without representation is sufficiently (self) explanatory.
One danger is the categorization of Detroit as an exception, that it couldn't happen elsewhere. I am not saying it will, but I try to avoid that label unless there is strong evidence to prove (rather than an explanation after the fact) a situation is unique.
You're right about "set up to fail" being a loaded phrase. I didn't anticipate how it'd be interpreted.
I have a Jared Diamond view of this. In Guns, Germs, and Steel he talks about the deforestation of Easter Island. What was the person thinking as they cut down the last tree?
How could all these smart people do such stupid things? Over decades. Was it structures? The processes? Larger societal forces (white flight, depopulation, drugs, jobs disappearing)? Is there a fundamental flaw in the human psyche? All the above?
I just don't know.
The example you bring up, Detroit city income taxes, was explained in the Free Press article. Originally put in place by the Detroit city government they were then increased in an initative approved by Detroit voters. So, at least in this example, if anyone set Detroit up to fail it was the elected government and voters of Detroit. The article also notes the higher resident versus non-resident rates are typical for city income taxes in Michigan.
Or you can just stick with an ideological analysis and always get the answer you like ;)
That is eerily, if not disturbingly, parallel to our national problems. Though, hopefully, we have a bit more time to fix the national problems.
Currently, Americans are renouncing their citizenship at record levels due to FATCA[1] and emigration from the US is at elevated levels since it spiked in 2009[2].
[1] - http://money.msn.com/now/post--more-americans-are-renouncing...
No, it is not useful. As someone with an economics degree I can tell you with authority that comparing the finances of a city to the finances of a nation is absolutely and utterly asinine.
You see similar memes on the Internet, made by conservatives, comparing the national economy to a household budget. It's just laughable.
Regardless, there are certainly economists with more than an undergraduate degree in economics who have held out Detroit as a warning for the US debt problem. Do you have more authority than Rachel Greszler who has a masters in Economics from Georgetown? I know, you'll disregard her because she works for an conservative group. Just be honest and acknowledge that this is about a political difference, not an authoritative truth.
http://blog.heritage.org/2013/08/05/morning-bell-learning-fr...
No, but Paul Krugman does. He's a Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University and a Centenary Professor at the London School of Economics. Oh, he also won the Nobel Prize in Economics back in 2008. Suffice it to say, he has more than a simple Master's degree from Georgetown. Here's what he has to say on the subject.
http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-und...
In light of your high-horse comment, I found this part especially funny.
"Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!"
>>Edward L. Glaeser is a professor of economics at Harvard University, a City Journal contributing editor, and a Manhattan Institute senior fellow.
Ah, yes. The Manhattan Institute. Why am I not surprised?
http://en.wikipedia.org/wiki/Manhattan_Institute_for_Policy_...
It's kind of funny how both economists you have cited so far can have their ideologies traced to some economically ultra-conservative think-tank. These are people who believe strongly in small government (in other words, are strongly political) and write countless articles that are anti-government spending so that they can "starve the beast."
Other posters say Krugman is largely an opinion writer now and you reject the economists others mention as they hold political beliefs you don't like.
This is pretty much why most political and economic discussions are a waste of time, particularly on the internet.
I have to disagree. It was meandering and had little to offer in terms of evidence, facts or actual policy prescriptions and was instead filled with anecdotes that somehow ended up supporting policy positions already supported by the Manhattan Institute. The author jumps from charter schools to federally funded highways in a span of a sentence right at the end. Not a lot of evidence is offered that local regulation is somehow strangling entrepreneurship nor is his idea of denying federally supported bonds to over regulated entities ever elucidated in any fashion. (Maybe because sticking local communities with higher taxes is rather counterproductive in the first place). So basically he spends most of piece talking about the 'entrepreneur' as a mythical entity that deserves to be supported by a verifiable buffet of policies that aren't really explained. So the Think of the Children!! argument rehashed.
The article reads exactly like a lot of cookie cutter political writing these days that say absolutely nothing about anything of concrete importance but are just couched to ideological compatriots that enjoy light reading from authors who will appeal to their political vanity while safely holding all the 'bad' ideas at arms length by appealing to the most simplistic possible explanations of problems; while you the reader are serenaded for easily understanding what your political 'enemies' cannot.
Yeah, I was being sarcastic when I said it is "interesting." You're spot on in your analysis.
But he's correct. It's one of the most ridiculous arguments perpetuated. Comparing a city (or a household) with an entity with the capacity to print the currency in which its debts are denominated is nonsensical. Solvency and bankruptcy are a not an issue for the United States. The constraint is inflation.
The whole country can't stop spending at once. The sooner people realize that public deficits create private financial assets, and hence are necessary during recessions, the better we'll all be.
As far as your article, anyone who considers "unfunded obligations" to be debt is not worth listening to.
The goal is to avoid a debt crisis entirely. Detroit and the US are both spending themselves into a debt crisis. That different solutions apply once the crisis is reached is true, but the analogy holds when you are looking at the cause and hopefully avoiding the crisis.
Do you have any data that the US is on its way to a debt crisis?
It sounds to me you're just repeatedly and wrongly assuming that we're somewhere near a point where paying our bills is an issue. Like Detroit. Except Detroit is bankrupt, and the US is growing.
There is no similarity between "debt issues" of Detroit and the US. None.
$16,744,814,606,837.32
Or how about a quotations from our president:
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.
That does not point to a crisis.
>>Or how about a quotations from our president:
When you grow older (snicker) you might learn how to distinguish rhetoric from fact.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/11/w...
Many of the points distinguishing a household from the federal government also apply to the task of evaluating how much the later is like a municipality.
What does "escape" mean in this context? Bankruptcy means that bondholders and other investors get stiffed. That's a rather one-sided view of the outcome, and will itself have economic consequences beyond The City of Detroit.
There is no "escape". Bankruptcy, while necessary, picks the wrong winners.
The US needs to run larger deficits until we are at full employment. A simple way to do that is to eliminate the payroll tax both on employer and employee side. This will stimulate demand, and demand is the name of the game in this era of high productivity.
if you're a debt/deficit hawk, please read this: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
"Bankruptcy" is just the sovereign conditionally permitting a debtor to repudiate (some or all of) its existing debt, and is only relevant because, in the absence of bankruptcy, the sovereign would instead be enforcing the existing debts.
As a sovereign state, the US doesn't need bankruptcy; if it chooses to repudiate its debt, it just does so, it doesn't need to ask a higher sovereign for permission or terms (it might choose to negotiate with other creditors to maintain good relations, but that's something any debtor can do short of bankruptcy.)
Default has rarely been considered an act of war except when the default was on debts incurred as part of a peace settlement, and its not like anyone is in a position to take much substantive action because they "consider" a US act to be an act of war.
> Things would have to be very, very bad for things to go that far.
Well, its not going to happen in practice in any case, because the US debt is dollar denominated, and if it was necessary, it could be monetized (not that it would have to be: creditors would probably prefer to allow the US to restructure debt rather than encouraging monetizing it, since many other debts are dollar denominated, and for most creditors it would be better for the US debt to be devalued through restructuring than for all USD-denominated debts to be devalued by monetization.) Sovereign default is mostly an issue with countries whose debts are denominated in something other than their own national fiat currency.
However, it's worth pointing out that the idea of national-level bankruptcy isn't _entirely_ meaningless. The other thing the bankruptcy process does is provide an orderly means of distributing what funds are available amongst creditors, directed by a theoretically neutral third party.
There is sometimes discussion of creating an inter-national (ie, between nations) bankruptcy process, to make defaulting on national debt a more orderly (and, at least in rhetoric, a more fair and just) process.
They haven't gone anywhere for a variety of reasons, and even in proposal it would have to be a pretty different process from ordinary bankruptcy, because indeed sovereign entities are so different in their relationship to debt and financial equity than non-sovereign entities as you note.
(And possibly because the idea of the _liquidation_ of a nation state has rather terrifying implications for democracy, but I don't think that actually puts much pause in the those who run things.)
(And, then, as you mention, there's the fact that the US's debt is in it's own currency; AND most of our creditor's debts are in _our_ currency too. Which puts the U.S. in a unique class of it's own, even among sovereigns. And generally, means nobody anywhere actually wants the U.S. to 'pay its debt'.)
I don't know of a way around this.
But that would be an exponential increase, an increase without bound that would sweep past 100% as if it was standing still.
If a candidate won a substantial majority in one election, that rule might decrease his chances to be re-elected because the stakes would be raised in the following contest. So being popular would count as a handicap.
More to the point, he would have to be 5% more popular each time he ran. That's not likely. And eventually he would have to win more than 100% of the vote.
Not necessarily; it depends entirely on how much capacity you have to absorb the extra spending.
Runaway inflation has not occurred because something like $3TT in wealth evaporated from the balance sheets of (mostly) the shadow banking system during 2007/2008. That's massively deflationary. The printing of money has filled that void.
If you go belly-up and can't pay your debt, then the financial asset disappears from the other balance sheet as well. Poof.
Picture owning $100,000 in bonds of a company that goes bankrupt. One day you have a net worth of $100,000, the next day it's gone.
Imagine that lots and lots of people own shares in the mineral rights to various oil fields. Oil is at a really high price, all those rights are being traded for tons of money, and they're assets collectively valued at billions of dollars.
All of the sudden, the value of oil plummets to a fraction of its former price. So cheap, in fact, that it costs more to get the oil out of the ground than you can sell it for. So all these mineral rights aren't worth anything anymore, there's no more income coming in from selling the oil, the fancy drilling and exploration equipment is being auctioned off for pennies on the dollar, and all the people depending on that money go broke. Then their employees, accountants, lawyers, dentists, real estate agents, grocery stores, furniture stores, and everyone else that depended on that cash flowing go broke. And, of course, a lot of people bought those oil rights or that expensive equipment on borrowed money that they can't pay back. So now the banks go under, and hurt anyone depending on those banks. That's a brief synopsis of how billions of dollars vanished in the blink of an eye in the Texas oil boom collapse (and then the Savings and Loan collapse) in the 80s.
The real estate thing is more or less the same thing, but with mortgage backed securities. Once it turned out that people couldn't pay back all those ridiculous mortgages they'd been getting, suddenly the right to collect those mortgage payments was worth a fraction of what it had been. And all the high-flying companies that were getting rich off of owning, trading, and packaging those securities suddenly were left holding little pieces of paper that went from being worth billions to being worth a tiny fraction of that. Because it turned out that those mortgages were worth way less than everyone had thought they were worth, all that money effectively just vanished.
Whether that money goes into buying groceries or buying other securities, I assume most of it will continue to circulate in the economy. If it doesn't, then it's pretty much a failure as a quantitative easing.
>If it doesn't, then it's pretty much a failure as a quantitative easing.
It doesn't do much of anything, true.
Your example is ridiculous and contrived, but if there is enough massage capability because everyone has the free time to do so and everyone decided that's what they wanted to spend on, then yes.
Yes the example is contrived but it illustrates you are wrong.
Also, people aren't going to buy 100 trillion in massages, that is fucking ridiculous, if you start from a ridiculous set of circumstances, you're going to arrive at a ridiculous ending point -- it's not instructive of anything.
What is the problem with a toy model in extreme to illustrate the absurdity of your position?
>What is the problem with a toy model in extreme to illustrate the absurdity of your position?
It's not illustrative of anything, other than a contrived absurd example.
If there was capacity to absorb 100 trillion in massages (equally absurd), then prices would remain stable.
Think of it like this: we hit a recession, orders drop and companies lay off workers and produce less output. From one day to the next the capacity for a certain level of output remains the same, but on the second day less is produced.
So are you arguing that the amount of money in an economy should remain constant over time?
The purpose of the Federal Reserve is to set inflation in a way that is optimal for the economy. That does not mean providing the government with cheap loans. In fact, one reason the Fed is independent from the government is so that it cannot be used for this purpose.
At the end of the day, people are able to borrow only because people are willing to lend to them. There is no magical trick the federal government can use to get around this constraint.
That said, I don't believe that the analogy is useful, but for different reasons: the federal government has completely different responsibilities from the city government. Each issue should be judged on its merits not by some crude analogy.
Meant to write "... in bankruptcy court, so far." or something similar.
It's mathematically impossible for Chicago and Baltimore and a couple others not to join Detroit in the near future in bankruptcy court. I donno about the finances of Providence RI.
I'm only aware of one tech company in Detroit which is a place that makes what amounts to a small Xylinx FPGA dev board on a DIP-64 PCB so it just plugs into a circuit board or breadboard. I own one and haven't used it much but so far its a good product. But its the only tech company I'm aware of based in Detroit. There may be others who spend even less on advertising, donno. Cool as that place may be, I don't think it makes up for the collapse of auto industry employment and lack of mobility. Most of the unemployed people in Detroit originally came from the South because there were no jobs in the South, but there were jobs in Detroit. The "real problem" is there's no where better to go than Detroit for those people. If they had jobs in Minneapolis, there wouldn't be a problem with unemployment in Detroit, but there are no jobs, anywhere, for anyone not in tech, so, they sit, expensively, in Detroit.
Why isn't this the case?
If you're not afraid of the locals (have a CCW permit and a shotgun), it's not the most ideal of locations.
There's also Compuware and Quicken Loans, as well as a lot of startups through Compuware Ventures, Detroit Venture Partners, Bizdom, and other investors.
Also, Detroit Electric: http://www.detroit-electric.com/
And I'm sure there are lots more I haven't mentioned.
I don't know about Baltimore, but Chicago's fiscal problems are fixable without bankruptcy court. It will be messy and politically difficult, but I don't think anyone currently sees it as a foregone conclusion.
It doesn't matter if your municipal tax bill is 0, if you don't have a job.
Think of it as a typical parent - would you want your kid to go to school in Detroit? (The same school that Balanced Budget politics is more then willing to defund.)
According to his analysis of the 51 metropolitan areas with more than 1 million people, the primary cities in those metros grew an average of 1.1 percent, compared with 0.9 percent growth in the suburban areas of those metros between July 2010 and July 2011.*
http://www.theatlanticcities.com/neighborhoods/2012/06/urban...
Census City Metro Region
1940 1,623,452 2,544,287 2,911,681
1950 1,849,568 3,219,256 3,700,490
1960 1,670,144 4,012,607 4,660,480
1970 1,514,063 4,490,902 5,289,766
1980 1,203,368 4,387,783 5,203,269
1990 1,027,974 4,266,654 5,095,695
2000 951,270 4,441,551 5,357,538
2010 713,777 4,296,250 5,218,852Total tax was $1800 on $210k
Shrinking is always going to be a painful and not easy process, but the raw numbers suggest that it was doable.
http://www.freep.com/graphics/financial-history/detroit-bank...
This begets the downward circle the article refers to, i.e., that because of lower property tax revenue, they have to raise other taxes which in turn cause further decline, etc.
Warren and Stephanie Kelton on "governments are not households": http://www.youtube.com/watch?v=ba8XdDqZ-Jg
current "net financial assets" (national debt) are not sufficient for our current level of productivity as evidenced by our unemployment rate.
Tags: strawman, appeal-to-authority
The federal government cannot default.
http://www.aim.org/newswire/obama-sequester-ii-treasury-says...
there is 0% chance that the US will be forced to default on the debt.
We could choose to do so, just as a person trapped in a warehouse full of food could choose to starve, but we could never be forced to. This is not a theory or conjecture, it is cold, hard fact.
http://www.forbes.com/sites/johntharvey/2012/09/10/impossibl...
That might be relevant if someone on the thread had claimed such a thing.
It's extremely relevant to the argument at hand.
In case you didn't read the article, it's about Detroit going bankrupt, to which other commentators have drawn an analogy to the country that makes no sense. That's what we're talking about here.
But I'm glad you feel good pride in finding something tangential to the real topic so you can say, "Nuh-uh! You're wrong!". Yes, we can decide tomorrow to cease paying interest on our public debt, which would put us into default. Brownie points for you.
Of course the feds would inflate debt away with QE rather than defaulting. The real tangent is to claim that this makes such a world of difference that we don't need to worry about the federal debt.
BTW: Although your statement that "the federal government cannot default" was literally false, my response to it was overly pedantic.
You're pointing to the debt ceiling as an argument? It's political posturing. You know, to scare the plebes. Apparently it works.
The article is referring to a "default" because of some artificial cap placed on spending, which proposed spending would surpass. It's a technical default, by choice, not from inability to pay.
You can argue until you're blue in the face about the risk of default. It's wrong-headed.
The guy who replied to you is correct, as everyone who paid attention in Econ 101 is aware: there is no reason for the US Federal Government to default, ever. It dictates the literal amount of its monetary units that exist on earth (another thing carefully defined and explained in Econ 101) by extending credit. It extends this credit with no collateral, no limits and no need for leverage. They create money when they want to for any reason, and they don't when they don't want to for any reason. They can, tomorrow, instruct the Fed to create $17T (roughly the national "debt") and credit it to whoever they want. The key difference between a central bank and all other entities: when it extends credit, it does not create a matching liability in the government's accounting. The central bank, or rather something with the power of a central bank, is the only entity in a society that can do this. That's what the "sole power to dictate the supply of money" means.
Any logic developed while thinking about debt carried by people, companies, cities or states, all of whom must add liabilities to their accounting books when they take on debt, does not apply to the entity that controls the central bank for the monetary units in question. Anytime anyone expresses concern about the national "debt" as if it wasn't something Congress could wave away with a pen in 15 minutes, they're being ignorant at best and disingenuous at worst.
It is absolutely critical that you read up on and understand this. It puts the lie to a lot of the national dialogue about austerity, belt-tightening, and service cuts.
Whether Congress have the power to do this is not the issue. The issue is whether they can do it without serious negative consequences. I'm curious to know why Argentina had to institute currency controls if waving a pen is such a trifling matter.
Because Argentina's debt is largely foreign-currency denominated, not local-currency denominated, meaning that Argentina, lacking the ability to print, for instance, (non-counterfeit) US dollars, can't just monetize its debt. (And, because it can't just monetize its debt, its not in as good a position to negotiate restructuring of its debt as it would be if it could monetize it.)
http://en.wikipedia.org/wiki/Kwame_Kilpatrick
The guy went to jail for f's sake. I wonder how much graft and embezzling went on that nobody was ever charged with?
This is high up in the article:
> Adding the last straw — Kilpatrick’s gamble: He’s best known around the globe for a sex and perjury scandal that sent him to jail and massive corruption that threatens to send him to prison next month for more than 20 years. The corruption cases further eroded Detroit’s image and distracted the city from its fiscal storm. But perhaps the greatest damage Kilpatrick did to the city’s long-term stability was with Wall Street’s help when he borrowed $1.44 billion in a flashy high-finance deal to restructure pension fund debt. That deal, which could cost $2.8 billion over the next 22 years, now represents nearly one-fifth of the city’s debt.
And then there's a whole section headlined: "Kilpatrick’s award-winning deal turns into a financial disaster"
Kilpatrick is quite famous for his sex and corruption. But are you arguing that those had more of an effect on Detroit's long term viability than a pension deal that blew up the city's obligation to swap holders from $770 million to $1.95 billion in four years? You could argue that only a corrupt bastard would make such a deal, but that deal was talked about at the time...and, the Freep notes, even its own editorial board approved of it. It was a politically expedient and irresponsible gambit, but let's face it, the corrupt don't have a monopoly on irresponsibility.
There's this idea that a mega-rich politician will be incorruptable. I'm not sure that's ever been true. The system is bigger than just one guy making decisions and even the head of an organization needs to keep a lot of people happy.
And I have no doubt that New York City's government has corruption, but comment I was responding to specifically referred to mayors.
I get that the head of an organization needs to keep a lot of people happy and the executive may need to needle and cajole, but as I said, that isn't corruption that's politics.
That's not an argument that he doesn't give deals to his friends and do other corrupt things, its an argument that to the extent he does it, its because its out of desire for the, e.g., helping a friend, and not desire for kickbacks from helping someone with money to gain. Both are corrupt. Even, if you accept the "rich = uninterested in money" argument, which I will address next...
> With a net worth of 27 billion it's unlikely that anyone could offer him a monetary bribe worth looking at.
Alternatively, getting to a net worth of $27 billion is the external evidence of a consistent, dedicated, long-term behavior pattern of not missing an opportunity to milk every last drop of financial return out of any opportunity.
To your second point, virtually all of Michael Bloomberg's wealth comes from 'Bloomberg' the company. 'Bloomberg' the company has one business -- terminals on traders' desks. Everything else they do is a loss-leader to advertise the terminals. For the past 20 years every bond trader in New York and London has paid BBG around $3000 a month and will continue to, until some young whipper snapper from HN disrupts the industry and dislodges them from traders. Reuters came close, and is currently mounting a new challenge, but I wouldn't hold my breath.
There's a fairly serious principle-agent problem in elected government; I'm not sure how you get around things like e.g. Detroit's pension fund throwing the 13th check around, or US Representatives trying to force the US Treasury into default, given that the incentives for more long-term thinking just aren't there.
Seems to be an open question if the cause and effect is failed states result in corrupt administration, or corrupt administration results in failed states. Probably a lovely intense feedback loop. But it takes more than just one crook.
I'm not willing to move into or closer to the city just for the couple more jobs there, as living in the city proper is not so great, and just another place in the suburbs would be a lateral move.
I strongly suspect that many who live in the Detroit suburbs feel the same way.
It's interesting - but certainly not the first thing I would suggest if I was a congressman
I would expect they've been reporting on the various aspects of the problem all along -- that's what local papers generally do year in and year out. It's just no one cared about consuming in one big report like this until it became a notable event.
Council members at the time — Maryann Mahaffey, Barbara-Rose Collins, Sharon McPhail and JoAnn Watson — blocked the original pension certificates deal for months. They warned it was too risky because of the stock market’s volatility and accused Kilpatrick of political gamesmanship.
The Free Press editorial page in February 2005 also applied pressure, calling the reluctant council members “heads-in-the-sand” politicians who “have become a threat to the stability of the community.” The editorial described the transaction as a “sound deal” that was “akin to refinancing a mortgage.”
No matter the municipality, the "smart" money will always be in favor of the most outlandish deal the market could possibly bear. After all, it's the general public's money at risk. In 2005, you could refinance your mortgage at a drive-through window. I doubt they would have used that language in 2009.
Refi once, you might be fine. Refi twice, you might be fine. Keep going, and you'll lose your house.
Local activists and even the CBC point to Pittsburgh as basically Hamilton's to-do list, and former mayor Tom Murphy in particular.
Basically, his approach was this: cut spending brutally, raise taxes (especially parking tax, which improves revenue, cuts traffic, and gets more people into bikes and buses), call in favors from philanthropists, bulldoze the steel mills into profitable waterfront land.
Too late for Detroit to make those changes, though.
And Pittsburgh has not had an insurrection in living memory.
You could, of course, attempt to disprove Daniel_Newby's contention that demographics is at the bottom of this. All that you need to do is provide a single counterexample by pointing out an instance--just one will suffice for our purposes--of a city that became richer or that economically speaking at least held its own even as the percentage of blacks comprising its population grew. This seems like a simple enough task.
1950 - 16% black 2000 - 81% black http://historydetroit.com/statistics/
Detroit used to be prosperous because blue collar Caucasians and Africans are damn valuable in a world without robots. Now they are cognitively obsolete.
P.S. Bill Gates decided that the problem was that not everybody in our world of shameful inequalities could get a world-class university prep education. He paid out of his own pocket to make the pilot project happen. The result was ... almost no improvement.