Detroit’s Long Road to the Bottom

Understanding the Motor City’s path to economic ruin.

Californians frustrated by the state’s long-term fiscal situation sometimes throw up their hands and declare that things must get worse before they get better. Let the tax-and-spenders have at it, they say, and then voters eventually will wake up and change their ways. Unfortunately, “eventually” can be a rather long time, based on evidence from the municipal level.

Detroit has been in the national news after federal bankruptcy Judge Steven Rhodes last week froze three lawsuits challenging the decision by that city’s emergency manager to seek bankruptcy protection. The bankruptcy court has taken the exclusive jurisdiction to decide the matter. The judge’s freeze also applied to a lower-court ruling that rejected the Chapter 9 filing as unconstitutional because it would cut vested pension benefits for public employees.
Obviously, legally guaranteed benefits are, well, legally guaranteed. But when a company or municipality runs out of money, bankruptcy is the only option.

Detroit has an $18 billion shortfall, and no realistic way to dig out of its hole without being able to abrogate some of its pension and other debts. I recall the Scranton, Pennsylvania, mayor who cut his city workers’ pay to minimum wage. A court ordered him to pay their full salaries. He reminded the court that he would like to have the money to do so, but “I can’t print it in the basement.”

Detroit was a world-class city when World War II ended, but started fading soon afterward. As far back as 1961, Time published a feature article about the city’s declining economy, infrastructure, and public services.

These days, Detroit more closely resembles the dystopian movie The Road Warrior than it does a modern American city. Detroit doesn’t have urban sprawl. It has “rural sprawl,” remarked Michael LaFaive, a scholar with the Midland, Michigan-based Mackinac Center for Public Policy, a free-market think tank. Such large swaths of Detroit have become vacant that people are farming blocks from downtown. Forty percent of the traffic lights in the city aren’t working and it takes 58 minutes for police, on average, to respond to a call in the crime-plagued city, he added. The median square-footage cost for a house in Detroit is $13 (compared to around $350 in San Diego). Many neighborhoods and public streets are abandoned.

Things can get really bad and voters will not necessarily wake up. The bankruptcy court’s decision to allow the city to proceed was met with protests – mostly by city workers eager to pick what’s left of the bones of the city’s carcass. Even in Detroit, emergency measures are controversial.

LaFaive says the mess – caused by bad public policy – has been decades in the making. He points to crushing tax burdens, debt that is always at the legal limits, terrible misspending, and poor services that cause taxpayers to move to other places.

The main issue in Detroit’s bankruptcy is the same one in California’s municipal bankruptcies, in Stockton and San Bernardino. Can vested rights – i.e., pension benefits promised to employees by contract – be reduced even when a city runs out of money?

Stockton officials want to stiff the bond holders that provided the pension-obligation bonds that allowed them to prop up the system the last time the city ran out of cash, while continuing its pension payments to the California Public Employees’ Retirement System (CalPERS). A federal bankruptcy court will decide if the bondholders take a hair cut while sparing pain to CalPERS and pensioners.

San Bernardino had stopped making those CalPERS payments – prompting the pension system to seek legislation to make it easier to put a lien on city assets. (In Detroit, debtors want the city-owned Detroit Institute of Art to sell its priceless works of art, LaFaive noted.)

Both California cities are impoverished. Both have significantly cut back public services. One Stockton council member reminded the bankruptcy court that city workers didn’t receive Cadillac-style health care, but “Lamborghini-style” plans. Overspending on public-employee compensation remains the heart of the problem.

And it’s a problem throughout California, even in places where urban decay remains unimaginable. California is a long way from Detroit, but its desperate straits show that voters won’t necessarily wake up. It’s a long way down to hit bottom.

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  • Bo Cara Esq.||

    On a television show I recently watched a Detroit newspaperman argued for a bailout for Detroit by noting that Detroit acted as the 'arsenal of the US in WWII.' This led me to wonder how much of Detroit's spiral may have begun when Detroit became a center of government largesse sparking a dependency or simply unrealistic mindset. Has anyone heard this idea entertained before?

  • SweatingGin||

    Eh, I'm not sure how much of it is related to WWII.

    The city does tend to have a culture of "we need a hero to come in and save us". The people (at least the political culture) flops from one thing to the next that will save the city. Casinos, another bridge to Canada, urban farming, etc.

  • anon||

    I vote they just go with building more roadz and bridgez. It "worked" for Obama!

  • Bo Cara Esq.||

    My thought process there was that a sudden, dramatic influx of government largesse given to the city and then after a decade cut back on would have fostered a culture of dependency and unrealistic strategies for the city. When the money left they were accustomed to these unusual and unsustainable parameters and had perhaps forgotten how to do things themselves with more modest resources.

  • Bo Cara Esq.||

    This hypothetical scenario might make the case better: imagine if the federal capital suddenly relocated away from DC, how would DC do?

  • Sevo||

    The difference is that Detroit really did have an industrial base; DC has none.
    Pretty doubtful you can make a realistic analogy.

  • anon||

    The difference is that Detroit really did have an industrial base; DC has none.

    Wrong; DC is the world's top manufacturer of bullshit.

  • Sevo||

    "Wrong; DC is the world's top manufacturer of bullshit."
    In "Post War", Tony Judt argues that E. Germany's major export was bent statistics. I found that amusing.

  • Wizard4169||

    True, but, once upon a time, Detroit made things people were actually willing to buy. The only people "buying" DC BS are those convinced someone else will foot the bill.

  • Robert||

    I would think the people would move with the capital.

  • ||

    The ONLY problem in Detroit was they abandoned free market principles and turned to a policy of providing citizens with free shit to buy votes.

  • Bo Cara Esq.||

    I don't disagree, I'm just trying to locate why they went that route, and hypothesizing it had something to do with the federal government dumping incredible amounts of money, with the corruption and mismanagement that always comes with that, into the city during the war.

  • anon||

    Did you miss the "providing citizens with free shit to buy votes" part?

  • ||

    I'm just trying to locate why they went that route

    Same reason all socialist/communist nations go that route. Divide and conquer.

    Shitbag politicians eventually realize they can get elected if they have a scapegoat to blame their problems on. They convince 51% of the population that their destitution is because the rich have greedily and illegitimately taken their shit and we shouldn't feel bad at all about stealing "our" money back. And I'm just the guy to pass the laws that will get "your" money back from those greedy bastards.

    The formula works again and again.

  • Bo Cara Esq.||

    -Did you miss the "providing citizens with free shit to buy votes" part?
    -Same reason all socialist/communist nations go that route. Divide and conquer.

    I don't disagree but how does this answer the question 'why Detroit?' The potential for what you're talking about exists everywhere.

  • ||

    Unions.

    It's a domino thing, I think. The proliferation of unions in an industrial based town breeds the attitude of "take it back from the man". Then politicians cater to it.

    I've said it before, I'd love to see a study done that compared the prosperity of union towns vs non-union towns (or states, for that matter). I'm fairly certain it would be telling.

  • Doctor Whom||

    Other cities with "give us free ponies" cultures have come perilously close to becoming Detroit. I believe that Baltimore would be Detroit without the largesse coming from the state general assembly. DC under Boss Barry gave even Detroiters something to which to feel superior.

  • Marshal||

    Bo Cara Esq.|8.2.13 @ 1:11PM|#

    I don't disagree but how does this answer the question 'why Detroit?'

    I think Franciso is correct but incomplete with "unions", "cartel" should be added. Both Unions and the Big Three Cartel created an anti-capitalist constituency within capitalism that subverted the free market in a way an external force could not.

    Could government WWII spending have fostered the Big Three Cartel and unionism? Absolutely.

  • MikeC711||

    My understanding is that in 1960, they had the highest per capita income of any city in the US ... and that is the year they started the progressive revolution including involvement in President Lyndon Johnson's "model cities" program. As with anything, central planning was a colossal failure and taught all that entitlement was good (what our founding fathers and others thru the years have warned us about). 52 years of unchecked progressive-ism, and all MSNBC can say is that it is the fault of conservatives. I'm NOT a republican, I am an independent, but while I argue with republican chair-borne rangers on war issues, I find myself more often amazed at "progressives" who Himler would have been proud to have in his propaganda campaigns.

  • ||

    who Himler would have been proud to have in his propaganda campaigns

    Dr. Göbbels was the Reich Minister of
    Public Enlightenment and Propaganda; Himmler was Reichsführer-SS.

  • R C Dean||

    I'm honestly not sure how much of the "arsenal of democracy" was repurposed civilian industrial capacity, and how much we federally-financed. My vague impression is that it was mostly the former, but I don't know.

  • Sevo||

    ..."My vague impression is that it was mostly the former, but I don't know."

    From my reading, the majority was, but there were projects like Ford's River Rouge plant to build B-24s.

  • DRM||

    Which is in River Rouge, not Detroit.

    The City of Detroit is bankrupt, not the area. The Metro Detroit area is not in awesome shape, but it's muddling through reasonably well. Theories that would implicate the whole area fail because they explain too much.

  • Robert||

    My thought is that that was so long ago, how could it be affecting people's ideas now? How many of them were even alive then, let alone living there at the time?

  • Anonymous Coward||

    The most immediate cause of Detroit's downfall was the administration of one Coleman Young. Young littered City Hall and the City Council with his cronies. Signed off ridiculous pensions for city workers. Used racial division between suburban Detroiters and urban Detroiters to maintain his power.

  • Mainer2||

    So one man really can make a difference.

  • Anonymous Coward||

    Yes, one thief in the right place can rob a city blind.

  • ΘJΘʃ de águila||

    Anybody remember mayoral candidate "Walkin' John" Mogk?

  • MikeC711||

    The whole concept of municipal unions is tragic. Union funds campaigns ... so the negotiations have union reps on both sides of the table. The answer is always yes and only the taxPayers get scr-wed. I have family who retired at age 48 after 30 years with a state institution and their retirement is FULL pay + COLA for life + benefits. They will cost the state far more in retirement than in their career. And these "Lamborghini" retirements will be funded by those of us who worked for private business and are getting Chevette retirements.

  • AmandaGalbreath||

    my friend's ex-wife makes $74 an hour on the computer. She has been without a job for 7 months but last month her income was $15442 just working on the computer for a few hours. Read more here,,,
    www.Rush60.com

  • Rich||

  • anon||

    But always for pussies!

  • Rich||

    It'll be a *lot* better when the pre-cogs are implemented in earnest.

  • UnCivilServant||

    Can we get some post-cogs too, to find out what we done did wrong, while we're in the business of abrogating responsibility.

  • anon||

    I should clarify: I meant that both terrorists and the people that use terror attacks as catalysts for "MOAR SECURITY!" are all pussies.

  • Sevo||

    Which dog is getting wagged this time?

  • ||

    See? Teh Snowden'z traitorous activitiez haz made teh chilrenz unsafe.

  • Sevo||

    I'm guessing a 'small' announcement late enough to miss the Friday evening news cycle. Maybe something about the IRS. Maybe Obozocare.

  • ||

    "The most important thing we have to do is protect American lives,"

    I thought the most important thing was living up to our principles?

    But, on the other hand, I am pretty scared.

  • MikeC711||

    I'm scared any time gov't sees a crisis ... because they take long-term action for short-term problems. long-term action that inevitably destroys liberties.

  • Sevo||

    G. F. W. on Detroit:
    "Detroit’s death by democracy"
    ..."apart from decades of voting to empower incompetents, scoundrels and criminals, and to mandate unionized rapacity — no one is responsible for anything."...
    http://www.washingtonpost.com/.....story.html
    Some of the comments are amusing; 'it's the darn capitalists who stopped investing in D-town - has nothing to do with unions!'

  • Anonymous Coward||

    A sample:

    mcafla
    8/1/2013 2:08 PM CDT
    Has George never heard of deindustrialization the sending of jobs overseas for cheaper wages?? Nice attempt to create a reason to vote for Rs. However, the way the GOP has been behaving lately that isn't likely to happen. As for the unions to quote capitalist Henry Ford " manufacturers can not sell if workers can not buy". George et al think that workers should be happy with coolie wages and working conditions. while the industry pollutes the environment and pays its CEOs ridiculous sums of money.

    I'm sure there was an argument somewhere in that swamp of talking points.

    YTymish
    8/1/2013 5:09 PM CDT
    Way more involved than just politicians. Hundreds of thousands of people contributed to this problem. It's just easy and convenient to point the finger at one thing rather than think through the complex logic that led to this.

    "Stop blamin' muh TEAM!"

  • ||

    Has George never heard of deindustrialization the sending of jobs overseas for cheaper wages?

    By this "logic", all US cities should be drying up and blowing away. But they aren't. Hmmm? So what's the difference between those that are and those that aren't?

  • Doctor Whom||

    A reading of the comments for any Washington Post article shows that there will never be Peak Stupid.

  • Baron Von Weinermobile||

    I honestly don't know how someone hasn't staged a heist of the DIA yet. With the location and the lack of credible police response I figured some daring team of criminals would've chanced it by now.

  • R C Dean||

    Their collection is too good to steal. Fending world-renowned masterpieces ain't easy.

  • Geoff Nathan||

    And besides, the Detroit Police aren't responsible for the area around the DIA. The Wayne State University police are, and they are actually damn good, and do not have a reputation for either corruption or violence, nor are they under a federal consent order. Unlike the other police force in the city.

    [disclaimer: the WSU police chief is a colleague/friend, and a genuinely nice guy]

  • Robert||

    I had to puzzle over this a while trying to figure what people would want to steal from the Defense Intelligence Agency. It didn't help that "DIA" was preceded by "the".

  • Robert||

    Double damn! When I wrote that, I thought, d'oh, of course, Detroit Int'l Airport. Then on reading subsequent comments I see I was wrong twice, and the "the" was righteous.

  • Jayburd||

    Who is Wayne?

  • Gene||

    Hmmm, the Thinker would look nice in my garden.

  • Invisible Finger||

    I was watching Yes, Minister last night and the thought occurred to me that Detroit was like that except with the civil servants laughing instead of the audience.

  • Geoff Nathan||

    Forty percent of the traffic lights in the city aren’t working

    Actually this is not correct. It's rare for traffic lights to be out of order. He probably meant street lights, and a lot of them really aren't working.

  • NeonCat||

    Goddamn union street lights…

  • Dave Krueger||

    Capitalism is such powerful producer of wealth and is so capable of persevering even with the obstacles thrown in its path and burdens hung around its neck that people think they can keep squeezing it for more and more. This is true, not just of Detroit, but the entire country. Given current tax rates, regulatory burdens, political corruption, and central banking practices, you can only be amazed that the entire system hasn't collapsed around our ears decades ago.

    Of course, someday it will collapse. And most people will still be surprised and demand that the government continue to fulfill their promises as if reality has no right to interfere with their plans for the future.

  • Sevo||

    "Capitalism is such powerful producer of wealth and is so capable of persevering even with the obstacles thrown in its path and burdens hung around its neck that people think they can keep squeezing it for more and more."

    And when a market finally get so distorted it can no longer function, those distorting it claim "market failure!" See, oh, 2008 and funny loans.
    It would actually be easier to 'sell' if it were 'way less robust.

  • Geoff Nathan||

    There's another factor that is very rarely mentioned: the state of the Detroit Public Schools. If you can imagine a libertarian's nightmare of the worst possible school system, union-strangled and riddled with corruption, you wouldn't get anywhere near how bad they are.

    There are exceptions, such as the Detroit School of the Arts and a couple of similar specialized schools, but the vast majority have horrible graduation rates and their graduates have trouble with basic GenEd classes in local universities.

    That's one of the reasons for the fact of white (and also black, for that matter) flight, and the reason that the hot, up and coming areas of the city are populated by twenty-somethings and empty-nesters.

  • Tomblvd||

    If you want a simple anecdote to demonstrate how dysfunctional the Public School system is in Detroit, it is the fact that the president of the Detroit school board, Otis Mathis, is functionally illiterate, and not only admits it, but is proud of it.

  • Sevo||

    ..."but is proud of it."
    Truly pathetic.

  • Tomblvd||

    Sorry, I forgot to add "former" to his title. He is no longer president of the school board, he is, IIRC, serving probation after pleading no contest to charges that he was fondling himself for 20 minutes during a meeting with former superintendent Teresa Gueyser.

    Onward and upward!

  • Flemur||

  • Flemur||

    According to a new report, 47 percent of Detroiters are ”functionally illiterate.”

    http://detroit.cbslocal.com/20.....cant-read/

  • Frank_Carbonni||

    Detroit has more than its share of problems.

    But I find that somewhat hard to believe that Detroit has a lower literacy rate than many African countries and barely higher than Haiti.

    PS: Detroit is still fucked up.

  • Eric Bana||

    I read this from the DemUnderground:

    "Otis Mathis obviously is highly intelligent and inspires confidence and trust in those around him.

    Our appointed president, George W. Bush, had degrees from Yale and Harvard, but could neither think nor inspire. He was emotionally and morally defective. We'd all be better off if we had elected an Otis Mathis instead.

    There is a simply reason Detroit's school system is failing, and it has nothing to do with Otis Mathis; it has to do with the fact that there is so damn little money for education in our country."

    You can imagine how it continues. *Sigh

  • coma44||

    I say put a fence around the whole city leave it to the looters left with in it.

    Then let it be a shinning example of what happens when Progressive hacks are at the helm.

  • Wesley Mouch||

    Is there a fence big enough to go around California? Hey - great jobs program for the Obama administration - making fences around failed liberal. economies.

  • ||

    He points to crushing tax burdens, debt that is always at the legal limits,...

    You mean they actually had debt limits? There's your problem right there: austerity.

  • larry hammond||

    Winner.

  • AmandaGalbreath||

    my friend's ex-wife makes $74 an hour on the computer. She has been without a job for 7 months but last month her income was $15442 just working on the computer for a few hours. Read more here,,,
    www.Rush60.com

  • Kawliga||

    Nary a mention from Greenhut of the elephant in the room: race.
    I was born in Detroit. My family left in 1965. The race issue already had legs. It reached fruition under the criminal mismanagement of the city by Coleman Young. He and others touted Detroit as a black city. They got what they asked for. Total ruination. Sad.

  • Flemur||

    Nary a mention from Greenhut of the elephant in the room: race.

    Eric "My People" Holder would approve.

  • Robert||

    But how did it get so black?

  • Jayburd||

    Kellen Moore will save Detroit.

  • Carlee021||

    I basically make about.........$6,000k-$8,000k a month online.......... It's enough to comfortably replace my old jobs income, especially considering I only work about 10-13 hours a week from home. go to this site home tab for more detail .... http://goo.gl/2ZOiTN

  • DeloresJGilliam||

    my buddy's step-sister makes $72 an hour on the computer. She has been laid off for 8 months but last month her payment was $12918 just working on the computer for a few hours. Here's the site to read more,,,,
    http://Rush60.com

  • ||

    It is more than distinctly possible that Detroit is not actually bankrupt and that the whole story has been created by creative accounting with some sort of bias. You may wish to read this before you leap to any conclusions.

    http://www.businessinsider.com.....tcy-2013-8

    Is it possible that albeit, as screwed up as things are in Detroit, this has more to do with some political agenda than is readily apparent from the bankruptcy filing?

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