“Save” Detroit?

Now that Detroit has declared bankruptcy, a number of unions are demanding that the administration “save” Detroit, by which they really mean use taxpayer money to save the wages and pensions of their members from the consequences of bankruptcy.

There is no doubt that this bankruptcy, if it is allowed to proceed (a state judge has ruled that Detroit can’t declare bankruptcy, so there will be a lot of court battles about this) will affect a lot of worker’s current and future pensions. That is unfortunate.

On the other hand, Detroit is a poster child for political excess. The former mayor, Kwame Kilpatrick, is in jail for massive corruption. Politicians for decades have cut cozy deals with public service unions to give them extravagant benefits and pensions in return for their votes. Just about any political abuse one can think of is represented in Detroit’s history. So the current situation was inevitable. That it came now is probably due in part to the current recession (or whatever we are calling it these days), but it would have come soon in any case

In fact, it is not clear that Detroit can be “saved” no matter what we do. Detroit’s main economic engines, the auto companies, have largely moved out of Detroit for more attractive locales with better and more competitive labor market conditions. And unlike some other cities, Detroit didn't work to find and recruit alternative businesses while it was still relatively healthy. The city’s tax base has shrunk dramatically, as has its population. City services are now so poor that new businesses have no incentive whatsoever to move in. “Saving” the pensions of retired city workers will address none of these issues.

Detroit is important because it represents a test case for lots of cities around the country. Many other cities have gotten themselves into this sort of mess – acquiring massive pension obligations that so strain their budgets that they can no longer afford to finance adequate city services like fire and police. The problem has always been the inevitable cozy relationship between city worker unions and the politicians who negotiate their contracts yet need their votes. Unfortunately, as seems to so often be the case, the politicians who made those unwise promises in the past are no longer around to suffer the consequences of their actions.

I assume President Obama knows better than to throw America taxpayer money into this bottomless pit, though he will no doubt feel politically obligated to make the appropriate liberal statements about the problem and show appropriate concern for the union workers. If he were to succumb to the temptation to throw federal money at Detroit’s problem, you can bet the next morning there would be a line outside the White House of other cities asking for the same sort of handout.