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More on Detroit

I just can't help myself.

Some on the Left repeat their profound failure to learn from history. Case in point: David Sirota's "Don’t buy the right-wing myth about Detroit". Sirota, echoing arguments heard elsewhere on the Left but presenting them with more detail and brio, blames Detroit's mess on 1) NAFTA, 2) "what happens when large corporations are allowed to write macro economic policy and dictate the economic future of an entire city," and 3) corporate welfare, as in "After years of robbing those pension funds to pay for such giveaways, a crisis inevitably hits, and workers’ pension benefits are blamed — and then slashed."

The last point has merit. But what Mr. Sirota fails to mention--surprise!--is which political party has held the Detroit mayor's office for the last 50+ years. And which respected man of the Left was mayor for twenty years and who, like his successors, presided over a substantial amount of the "corporate giveaways"? Isn't there an enormous lesson in that? If even the Democratic Party and the Left can't stand up to crony capitalism--heaven knows we can't expect those sleazy, greedy, two-faced conservatives to do it--what hope is there for Big Government? 

Reasonable cases for "Causality is really, really hard to determine" are made by Barry Goldman in the Los Angeles Times and, even better, by Megan McArdle

But while there are undoubtedly a large number of potential causes, I think there is an irrefutable case that a substantial proportion of the blame belongs with Big Goverment, both for what it did and did not do. Justin Pope in The Atlantic asks an excellent, key question:

But what was distinctive about Detroit? Other cities struggled mightily to adapt to the decline of manufacturing. But only Detroit struggled mortally - at least in terms of municipal cash flow. Why do Detroit's troubles so vastly exceed not only those of Boston, New York, Philadelphia and Chicago, but Baltimore, Providence, Cleveland, Pittsburgh, St. Louis and Rochester?

Wendell Cox and two HBS folks (scroll to last entry) make interesting observations on the contrast with Pittsburgh.

Alex Tabarrok notes the high, city-specific tax rates in Detroit and concludes "Detroit is probably on the wrong end of the Laffer curve". Ilya Somin notes Detroit's long-standing abuse of eminent domain. Two Bloomberg reporters discuss a "litany" of bad real-estate deals financed by the city retirement system. (And yes, one could view these as all examples of Sirota's corporate welfare argument. But again note that big, out-of-control government is absolutely necessary for crony capitalism. Restrict government's powers and the problem diminishes sharply.)

A report in National Review Online explains the UAW's culpability. It presents some useful history on what happened to Packard. 

I don't know how Detroit's level of hostility to entrepreneurial activity compares to other big cities--surely someone has done a study, but I haven't seen it--but I think it's unlikely they're worse than what is described in "Why Detroit Won't Have a Second Act" and "How Detroit Almost Killed My Business".

John Stossel cites the the Detroit News for the fact that Detroit "in 2011 had around twice as many municipal employees per capita as cities with comparable populations". Walter Russell Mead offers an omnibus reply to the Left, "Note to Paul Krugman: It Took More Than Markets to Ruin Detroit".

Finally, what are some lessons for the future?

1. A huge problem for Detroit and other cities is unfunded health-care liability. See "Detroit: Coming to a City Near You" and "The Retirement Surprise in Detroit's Bankruptcy". This is yet another reason why Obamacare is precisely the wrong policy at the wrong time.

2. One thing we can do is insist government employees be paid up front. Defined benefit plans were thought to remove risk from employees. But they aren't risk free and they never were. And they are subject to terrible abuse. Pay the employees and let them manage the risk. See "Detroit's Bankruptcy Should Be A Warning To Every Worker Expecting A Pension, Or Social Security". And see also the fine piece by Harvard's Edward Glaeser, "Transparency for the Public Sector". 

3. The Left has had 50 years to govern Detroit. Why not try conservative ideas for a while? At this point, how much does Detroit have to lose?

And sell the art!!