What Doomed Detroit

Kevin D. Williamson

• Publisher: Encounter Books
• Year: 2013
• ISBN:
  9781594037474
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

Many cities have struggled with the decline of key industries, from Philadelphia’s shipyards to New York’s textile industry, but Detroit—which is now in bankruptcy—is both a victim of the decline of the Michigan automobile industry and a cause of it. A city with a history of civil disorder—it is the only American city occupied on three separate occasions by federal troops—its poisonous blend of race-based politics and union domination has left it impoverished and diminished. Once the fourth-largest city in the country, it is today smaller than Fort Worth. Once the nation’s most prosperous city, it is today the poorest. Even in its reduced state, it is the largest U.S. city ever to file for bankruptcy—and yet its city payroll maintains twice as many government employees per resident as does San Jose. More terrifying is the fact that the imbalance between public-sector consumption and private-sector production that helped make Detroit what it is today is by no means limited to the Motor City—in fact, there are four large U.S. cities that are in arguably worse shape. Detroit is not just a case study, but a portent.

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Table of Contents

Cover

Broadsides Series Page

Copyright

“Better to reign in Hell than serve in Heaven
JOHN MILTON, Paradise Lost

IN THE SPACE of a single generation, Detroit managed to ruin itself. Some of the factors that led to the immolation of Detroit are unique to the city and its politics, but some are not. As the nation watches the city descend into insolvency and chaos, the question is: Is Detroit an outlier, or is it just ahead of the curve?

The proximate cause of Detroit’s bankruptcy is its inability to make good on debts owed to the funds paying out pensions and health care benefits to current and retired city workers. Those obligations make up the great majority of Detroit’s $20 billion or so in outstanding debt. While the city’s population has been plummeting since the 1950s, its public sector has continued to grow relative to the size of its population. In 2011, it maintained nearly 13,000 city employees, or one municipal employee for every 55 residents, twice the number of larger cities such as Charlotte and Fort Worth. (That one may write “larger cities such as Charlotte and Fort Worth” speaks volumes about what has become of Detroit.) When staffing reductions have been proposed, both the unions and city officials resisted. When modest reductions were proposed in 2011, city Finance Director Tom Lijana protested, “You can’t do this in one year…. I’m going to be picking up your garbage once a month. I’m only going to turn on power to your house every once in a while. You just can’t do that.” Yet the city of Austin, hardly a Spartan outpost of small-government skinflintery, manages to provide what are generally conceded to be very good municipal services with far fewer city employees per resident than Detroit. San Jose does so with half the per capita municipal workforce that Detroit maintains.

Detroit is an extreme example of the fact that public-sector employment has become in effect a supplementary welfare state, with salaries and benefits – and, above all, pensions – entirely disconnected from legitimate municipal purposes. Unionized public-sector employees with a high degree of political discipline fortified by narrow financial self-interest become an unstoppable constituency, and the government becomes its own special-interest group. But while salaries more or less have to be paid out of current revenue and therefore impose at least a measure of pain on taxpayers, promised future benefits need not be backed by anything more than good intentions. While there were areas in which the city proceeded responsibly – as late as 2011, its police and firefighter pension fund was being adequately provided for – many future obligations were not funded at all, or funded to only a tiny degree of the liabilities accruing. A 2012 Kennedy School study found that Detroit had set aside less than half of what it would need to fund its pensions and was attempting to fund its health-insurance and life-insurance plans on a pay-as-you-go basis, resulting in unfunded liabilities amounting to a massive $5 billion.

Detroit is an extreme example of the fact that public-sector employment has become in effect a supplementary wel...

Table of contents

• Cover
• Broadsides Series Page
• Copyright