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Opinion

Opinion

Opinion: Entitlement mentality doomed Detroit

July 27, 2013

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— If there’s an iron rule in economics, it is Stein’s Law (named after Herb, former chairman of the Council of Economic Advisers): “If something cannot go on forever, it will stop.”

Detroit, for example, can no longer go on borrowing, spending, raising taxes and dangerously cutting such essential services as street lighting and police protection. So it stops. It goes bust.

Cause of death? Corruption, both legal and illegal, plus a classic case of reactionary liberalism in which the governing Democrats — there’s been no Republican mayor in half a century — simply refused to adapt to the straitened economic circumstances that followed the post-World War II auto boom.

Corruption of the criminal sort was legendary. The former mayor currently serving time engaged in a breathtaking range of fraud, extortion and racketeering. And he didn’t act alone. The legal corruption was the cozy symbiosis of Democratic politicians and powerful unions, especially the public-sector unions that gave money to elect the politicians who negotiated their contracts — with wildly unsustainable health and pension benefits.

When our great industrial competitors were digging out from the rubble of World War II, Detroit’s automakers ruled the world. Their imagined sense of inherent superiority bred complacency. Management grew increasingly bureaucratic and inflexible. Unions felt entitled to the extraordinary wages, benefits and work rules they’d bargained for in the fat years. In time, they all found themselves being overtaken by more efficient, more adaptable, more hungry foreign producers.

The market ultimately forced the car companies into reform, restructuring, the occasional bankruptcy and eventual recovery. The city of Detroit, however, lacking market constraints, just kept overspending — $100 million annually since 2008. The city now has about $19 billion in obligations it has no chance of meeting. So much city revenue had to be diverted to creditors and pensioners that there was practically nothing left to run the city. Forty percent of the streetlights don’t work, two-thirds of the parks are closed and emergency police response time averages nearly an hour — if it ever comes at all.

Bankruptcy, which will radically cut payments to bondholders and retirees, is the only chance to start over. Yet, if a Detroit bankruptcy succeeds, other cities will be tempted to follow suit. Dozens of other large urban areas have similarly massive pension and debt obligations, with commensurately denuded services and exorbitant taxes — leading to a vicious cycle of depopulation that makes everything worse. Detroit has lost more than 60 percent of its population since 1950.

The moral hazard increases if the federal government steps in to help. The Obama administration is therefore firmly opposed to any “bailout,” recognizing both the political toxicity of the word and the fiscal consequences of a Detroit precedent that invites other cities to line up with a tin cup. Washington cannot afford a nationwide federal bailout of insolvent cities.

However, under pressure of the public-sector unions, whose retirees will necessarily be victimized, the administration will likely offer “assistance” — which implies whatever kind of non-cash payments, indirect funds from other ongoing federal programs and enterprise-zone tax subsidies that it can get away with.

But Detroit is an object lesson not just for other cities. Not even the almighty federal government is immune to Stein’s Law. Reactionary liberalism simply cannot countenance serious reform of the iconic social welfare programs of the 20th century. Nancy Pelosi and Harry Reid are pledged to their inviolability. President Obama will occasionally admit that, for example, Medicare cannot go on as is, but then reverts to crude demagoguery when Republicans propose a structural reform, such as premium support for Medicare or something as obvious as raising the retirement age to match increasing longevity.

On the contrary. Obama added one enormous new entitlement (Obamacare) and, in his last State of the Union address, proposed yet another (universal preschool).

None of this is inevitable. In Wisconsin, Republicans showed that they recognize the perils of unconstrained government growth and will take on the unchecked power of government unions. Democratic Detroit, on the other hand, has for 50 years conducted a contrary experiment in myopia and the most imprudent passivity.

It doesn’t take a genius to see what happens when the entitlement state outgrows the economy upon which it rests. The time of Greece, Cyprus, Portugal, Spain, the rest of insolvent social-democratic Europe — and now Detroit — is the time for conservatives to raise the banner of Stein’s Law and yell “Stop.” You can kick the can down the road, but at some point it disappears over a cliff.

—  Charles Krauthammer is a columnist for Washington Post Writers Group.

Comments

Pheps 1 year, 5 months ago

Whomever ran the city, be they a party, a cult, a collection of equally paid workers, or demigods, they do not know how to raise people to be productive members of society.

I wonder if there are any other cities, states, or countries run like this?

There probably needs to be a blueprint that explains how to raise humans correctly to be productive. Something like a constitution. A pledge of some sort. To bad there isn't one that is being used.

Alyosha 1 year, 4 months ago

Fascinating that you believe it to be the role of "the state" to "raise people."

Your point of view has much in common with ancient Sparta and more recently the USSR and Nazi Germany.

Ken Lassman 1 year, 5 months ago

Hmmm....sounds to me like even Krauthammer is intimating the hazards of one party rule like they had in Detroit, China, Russia, Kansas--oops! Sorry about pointing out the obvious.

Alyosha 1 year, 4 months ago

Your use of the term "liberal" here strongly suggests you have no clear specific impartial idea of what it means.

You could always prove us wrong by defining "liberal" how you use it here. I doubt you can do that, though.

Sloppy thinking and the inability to accurately communicate or ethically argue a point is a civic ill.

Abdu Omar 1 year, 5 months ago

Our day will come when the people of Kansas rebel and create a new state. Most of us are tired of the same ol same ol and it will change. Mark my words.

Eileen Jones 1 year, 4 months ago

I'm getting out. Brownback is destroying everything. I don't want to be here in 10 years after the schools are destroyed and the Kochs thrive while everyone else starves.

And I'm sick of living where a majority of people support this kind of thing - almost always blindly. There is too much ignorance here.

The sooner I get a job on the West Coast the better. That economy is thriving. For good reason. They would never let a Brownback in the door there.

jafs 1 year, 4 months ago

There are, of course, other states on the West Coast.

Alyosha 1 year, 4 months ago

You seem to believe that the presence of debt is an ill in itself. You'll recall that the newly-minted United States took on the Revolutionary War debt of the original colonies. In your thinking, based on your comment, it seems that should have doomed the United States. And yet here we are, over 200 years later.

Strange how facts so easily undermine your beliefs.

jhawkinsf 1 year, 4 months ago

Oakland certainly will be. In five years. The city and the unions representing city workers just agreed to a pact that will make Oakland insolvent in 5 years. Of course, the mayor and several members of the city commission are up for re-election this year and will be out of office when the bill comes due. I'd be willing to bet the union leadership currently in place will be gone by then as well.

That's the problem with Detroit in a nutshell. Management and the unions made deals they both knew or should have known were nothing but a house of cards. Whether the house of cards falls yesterday, today or tomorrow, whether Democrats or Republicans are in power when the house falls, those are the only question. But the house will fall.

yourworstnightmare 1 year, 5 months ago

Again, Cabbagemallet is forcing things.

Thing I hate: entitlements.

Bad thing happens: Detroit declares bankruptcy.

Blame bad thing happening on thing I hate: Detroit bankruptcy is because of entitlements.

Childish and irrational ideological gymnastics I come to expect from Cabbagemallet.

kochmoney 1 year, 4 months ago

How about we blame it on the emergency manager who filed for it?

jhawkinsf 1 year, 4 months ago

Or we can blame the people and the policies that made the appointment of an emergency planner necessary.

kochmoney 1 year, 4 months ago

The appointment of an emergency manager was never necessary, nor was it the will of the people. State voters over-rode the previous attempt at an emergency manager bill and this one was tacked onto an appropriations bill to prevent another referendum.

jhawkinsf 1 year, 4 months ago

So you're saying that the policies that have been at play for the past several decades were fine and dandy and that nothing really needed to be done?

kochmoney 1 year, 4 months ago

You're strawmaning. I said that appointing an emergency manager wasn't necessary. Nor was it democratic. Nor was it inevitable. There were and are choices in every situation, including this one, even if none of those choices are pretty.

No doubt that they were/are in a huge mess. A mess caused by many different things including economic downturns, government mismanagement, and white flight. That doesn't mean that the only option was to file bankruptcy or to hire someone without any ties to the community to come in and slash and burn the place as if it were a large, failing business.

Tomato 1 year, 4 months ago

I'm pretty sure that guy didn't manage to bankrupt the city in the three months that he had the job. He just filed the paperwork after he was unable to convince creditors to cut the debt.

kochmoney 1 year, 4 months ago

Indeed he didn't, but bankruptcy wasn't the only way out of this mess. It was the way the governor wanted to take, so he appointed a bankruptcy specialist, and it's the easy way out a lot of other governments are hoping they can take. Responsibility would be paying for those obligations instead of discharging them all.

kochmoney 1 year, 5 months ago

Right. Entitlements are what killed Detroit. Well, just poor people entitlements. We know the rich never want to have it all without paying for any of it. We know the rich wouldn't possibly have allowed the inner city to rot while the outer ring of rich, white suburbs grew and where public services work just fine, thank you. (Median income in Grosse Pointe is 77,000)

The bankruptcy was due entirely to Democratic leadership, in spite of the fact that bankruptcy is being declared by a non-elected emergency manager appointed by the Republican state governor. (The same emergency manger is still giving the OK to spending hundreds of millions on a sports arena, which tends to make it seem like an ideological choice rather than a financial inevitability, but ignore that part. He's making the bold choices that people who actually live in the city, have a vested interest in its future, and represent the will of the residents would never make. Bold!)

Better to blame the teachers unions rather than the rich people who moved just outside the political jurisdiction. Better to blame the workers unions for wanting pensions rather than the auto industry for making bad business decisions. Better to blame the teachers than the state that wants to screw them over once they're retired. Quick, let's sell off all the museum's art pieces and tell the old retirees that they've got to lump it because Kwame, unions, entitlement, etc.

Alyosha 1 year, 4 months ago

Liberty275 shows he can craft a claim. That's the easy part. The hard part is actually thinking things through so that you could demonstrate with evidence and argumentation that the claim is actually valid.

You'll note that Libery275 does no such thing. No supporting impartial evidence; no attempt to persuade people that his claim is logical and likely to be the case.

Nope. Just a random statement that deserves zero respect from any rational citizen.

Seth Peterson 1 year, 4 months ago

We know it's not true, we also know your opinions on unions, their abilities, and the effects borderline on conspiracy theory and can't be taken too seriously.

Liberty275 1 year, 4 months ago

"Since Detroit declared bankruptcy on July 18, the city's crippling problems with corruption, unfunded benefits and pension liabilities have gotten the bulk of airtime. But equally at fault for its fiscal demise are the city's management structure and union and civil-service rules that hamstring efforts to make municipal services more efficient. I would know: I had a front-row seat for this dysfunction."

http://online.wsj.com/article/SB10001424127887323829104578623422748612116.html

Eileen Jones 1 year, 4 months ago

Corporate incompetence doomed Detroit. They built bad cars, and Japan built better cars. The corporate philosophy of sacrificing the future for the immediate bottom line - while the CEOs run away with the short-term profits and are long gone with their golden parachute before the company reputation and its business are destroyed - doomed Detroit.

The workers didn't destroy Detroit.

Alyosha 1 year, 4 months ago

Define "worthless liberal policy," with specifics, and perhaps your comment will be worthy of attention and consideration.

If you can't, or won't, your comment is worthless.

frank regnier 1 year, 4 months ago

Exactly correct! GM was playing checkers while Toyota was playing chess!

yourworstnightmare 1 year, 4 months ago

The sad fact is that both corporate mismanagement and unions destroyed Detroit, in a "Red Queen" race to the bottom.

The car companies wanted to maximize profit by building crappy cars and squeezing workers, so the unions fought back in a war of mutually assured destruction.

Car compnaies won, workers and Detroit lost.

jayhawklawrence 1 year, 4 months ago

Poor management and the failure of US political leadership to meet the challenge of globalization killed Detroit.

Read the "Betrayal of the American Dream".

http://www.publicaffairsbooks.com/publicaffairsbooks-cgi-bin/display?book=9781586489694

A much more throughtful understanding of what happened to Detroit might be found reading this book by Pultizer Prize winning authors.

Krauthammer is an idiot.

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