Detroit's present, our future

Great Debates
1

The bankruptcy of Detroit has gotten some attention focused back on America’s favorite, most pulse-pounding, sexiest political issue: municipal finances. For years conservative and libertarian sources have been warning about an upcoming budget disaster as state and local governments spend far more than they’re taking in. Now even liberal sources such as Huffington Post are starting to report on the same thing.

Government bankruptcies used to be very rare, but they’ve been increasing lately, with eight cities and counties filing for bankruptcy since 2010. That still represents a tiny portion of the country, but everyone who looks at the issue seems to agree that the number will continue growing, so it’s worth knowing why this is happening.

Let’s consider a city government as a game in the game theory sense, with three players. There are government employees, whose goal is to be paid as much as possible. There are taxpayers, whose goal is to pay as little as possible. Lastly there are politicians, whose goal is to get elected.

The politicians could please the employees by giving them enormous raises in pay and benefits. However, to do so they would have to raise taxes, displeasing the taxpayers. These competing interests should keep the politicians in line, preventing them from spending or cutting too outrageously. At least that’s how it’s supposed to work.

Now suppose a politician comes up with the following idea: “I don’t want to raise taxes right now, because then the taxpayers would vote me out of office. But the government employees want lots of money. Suppose I were to make a promise to the government employees that they’d get enormous amounts of money at some point in the future. Then I could get the support of the employees without raising taxes on the taxpayers. As long as I did it quietly and most of the taxpayers didn’t notice that I’d increased their future obligations, I’d get the support of both groups. By the time that taxes have to go up, I’ll be out of office and some other sucker will get the blame.”

Well, there is of course an easy way to make such a promise to government employees: pensions and medical care in retirement. In the past 20 years or so, salaries for government workers haven’t increased that much above everyone else’s, but the increases in pensions and medical benefits have been astronomical in some places. Not surprisingly, those are often the same places having financial difficulty: Illinois, California, and others.

Many other cities, and perhaps entire states, will end up looking like Detroit.

2

So when do waves of economic refugees start washing up in Windsor?

3

Most cities have a variety of industry and commercial tax base. That helps forestall the sort of implosion that took Detroit and any number of steel towns, as it did with northeastern oil towns fifty years earlier and farming towns throughout the Dust Bowl era. Even towns that have one base can change to a similar one without too badly stumbling (as in a general light manufacturing or office-based industry), but when your entire employment infrastructure is massive purpose-built facilities like auto plants or steel mills, you’re really screwed.

4

Can we surf these waves? I see a way to increase tourism!

5

Like Baltimore, or over here, Liverpool?

6

Waves of economic refugees have already fled Detroit. Two thirds of the city’s population has left.

(If a mod could correct the spelling error in the title, I’d appreciate it.)

7

Obviously the collapse of the auto industry played a role in Detroit’s problems, but look at other bankrupt cities like Stockton or San Bernardino. They were not devastated by a failing auto industry or any other failing industry. They were devastated by a government so big that they just couldn’t pay for it.

8

Well, since your hobbyhorse seems to be Crushing Government, I won’t point out that Stockton was at the epicenter of the entire residential overbuilding/overvaluing tsunami. A little government strong-arming would have gone a long ways towards blunting that attempt to reach the residential Chandrasekhar limit.

9

There is a fourth set of players here too, which you’ve not really mentioned though they are critical: The city’s residents. Many of them are taxpayers also, of course, but not all of them. In their role as residents, their goal is to have the best city services possible at the lowest cost. In order to get elected, the politicians have to please the residents even more than they have to please the employees.

10

I’m not aware that I’ve ever advocated “crushing government”. I kind of like living in places where the government runs smoothly and accomplishes the things it’s supposed to accomplish: preventing crime, putting out fires, keeping the streets in good condition, and so forth.

When a city government hits a financial disaster, it becomes unable to do those things well. The residents of Stockton and Detroit would surely testify to that.

Concerning Stockton and the real estate crash, I’m sure Stockton took a fall in revenue when the crash happened. However, they should have been prepared for it. A city government should establish its budget so as to be prepared in case a disaster hits. Intelligent planning and preparation are part of the government’s job. The city of Stockton completely failed to do so.

11

I think that the case of Detroit illustrates how obsolete and useless the American city government model is (Mayor, city council, appointees). First of all, it is highly inefficient-you have duplication at all levels. Second, corrupt political machines can buy votes and stay in power indefinitely-look at what the Daley regime was able to do in Chicago. There needs to be a new system that discourages incumbency and holds elected officials to performance goals-like a rotating city council and contracted city manager. Detroit has shown that a corrupt machine will destroy the city, as long as it can stay in power.

12

You expect a city government to be more financially responsible, than, say, a bank? Or an auto maker or an airline with 100,000+ emplyees?

13

Or the voters themselves?

14

Well, the system you refer to is voters. As long as that is how folks end up in office, then you’ll continue to run the risk. How do you convince voters to make wise decisions?

15

You’ve repeatedly blamed problems on a bloated government being the cause of specific problems. I don’t necessarily agree in either the general or specific instances.

Yes, government should always remain at a size supportable by a post-catastrophe economy. Anything else would be bloated and smother the poor citizens.

Of course, if Stockton and the other central California cities that swelled 100-1000 percent in housing had had governments NOT run by the developers, as they’ve been since about WWII, some of the problem might have been averted. Being ineffectual and greedy, they let crap housing spread like cancer. A case where “all government is too big” faw down go boom.

16

Ideally, yes. The American vision of government is that it’s always there to protect our rights, in good times and bad. Part of doing so is preparing for disasters.

Of course I’m also aware of the old saying about democracy giving the people exactly what they deserve. If the people choose to elect leaders and pressure those leaders to do short-sighted things and not prepare for disasters, the people will get a government that’s not prepared for disasters.

17

I’ll ask a question here that I asked in one of the Detroit threads. Can anyone point to a responsible city, municipality, or county that is running it’s finances in a healthy way? It is easy to point to Detroit as what NOT to do, but what are some good examples of cities doing the right things, in good times and bad?

18

It’s a small example, but the city of Citrus Heights, near Sacramento, is a textbook example.

The “city” was one of those formed out of sprawling suburbia about fifteen years ago, after ten years of effort. What they mainly wanted was (1) the tax base of the area’s then-largest shopping district (2 major malls plus other frontage malls) and (2) intense cop-centration on some really shitty cancer spots, which the county Sheriff would not provide.

As a resident, I was opposed to what I saw as a useless layer of extra government - my preference would have been full integration of city/county divides at the county level, which makes sense if you know the region. Dividing almost unbroken sprawl into arbitrarily-defined governmental splotches seemed like the wrong direction, and often was. Most new “cities,” including Citrus Heights, were just retail fronts for existing county services… and for years, settling problems with the “police” (re-badged Sheriffs, and mostly second-raters at that) or garbage meant you had to go through a sort of intermediary level that was a complete pain in the ass.

But… it got better. The city slowly took over all the services. They incorporated a real police department and fired the deadwood. They put garbage services out for competitive bid and kicked ass when the provider faltered. They “beautified” most of the major avenues with landscaped medians. They cleaned out a real pesthole, a street of cheap condos so ridden with drugs and crime that Sheriffs had gone in there only in fours… a very unusual and intractable situation for the area. They bought up a long strip of eyesore old duplexes and turned it into greenbelt. And they built a new community center, a $10M project, in the middle of the Recession… with cash. Most of it traces to a very savvy, very tight-fisted city manager who rode out some fairly inept elected councils. But overall, it proved me very wrong on my assumptions and stands as an excellent example of how good governance at the city level can trump really crappy entrenched thinking, a collapsing state and even the worst economic times of most of our lives.

So yeah. It can be done. And no, they didn’t do it by taxing everything in sight; a quarter-cent city sales tax did most of it.

We sold our house there in two weeks, within a hair of first asking price, in the middle of the housing collapse, even when Northern California was ground zero for the bubble implosion. Says quite a bit.

19

No, most of the year it’s Detroit; it’s only Detriot on October 30.

Anyway, here’s the solution.

20

This is definitely a problematic trend, but I disagree that it will continue indefinitely and lead to this sort of continued collapse. For one, employees who want increased benefits will start to realize that promises of future payment aren’t worth very much, which removes some of the incentive to try to use that as a way out.

I think the real question when looking at Detroit is how much the demographic collapse caused the fiscal and political problems and how much it was the other way around. Obviously, they’re intertwined, but I’m inclined to look at the collapse as the primary issue. I think even the best-run city with rational voters and thoughtful planners would have a hell of a problem handling an exodus of over half the population (especially the rich half).

Which means that I think the real caution of Detroit is not the mismanagement or the race relations or the over-promised public employee unions; it’s that if population and economic growth is slowing, then we are all going to have to get used to the fact that we can’t make assumptions of perpetual 5% growth solving our problems for us.