Once the automobile manufacturing capital of the world, the fourth most populous city in the United States and with one of the highest per capita incomes, Detroit is now bankrupt. That is, the politicians in charge of the fictional entity known as the City of Detroit, those who had accumulated $18 to $20 billion in debt in mere decades running deficit after deficit, have been so grossly incompetent at – if not downright uninterested in – managing its finances that they have saddled Detroiters with this huge debt.
While deceitfully promising voters all sorts of government handouts that realistically could never be paid for under the pretense of wanting to provide for their constituents, these so-called “leaders” and their mental attachment to cushy government jobs drove the once-thriving Motor City into the ground. Their policies chased out productive members of society with constant tax hikes, boosted violent crime rates while police response times to call-outs spiked to nearly one hour (if they showed up at all) and left emergency services scrambling for resources to deal with the soaring demand for their services. Moreover, the already bloated city workforce was allowed to keep on growing even as the population fell, creating a $3 billion gap in the budget in unfunded public employee pensions. The latter, by the way, is not unique to Detroit by any stretch; there are currently 19 cities in the U.S. that have more public workers per resident than “Motown”.
The largest city bankruptcy ever in the history of the United States sheds a very different light on president Obama’s proud proclamation that “we refused to let Detroit go bankrupt”. Contrary to Obama’s statement at the time, he did not “bet on American workers and American ingenuity”, neither did his bet “pay off in a big way”. This should come as no surprise, though, because what the president really bet on was corporatism, or crony capitalism, which always leads to disaster. A disaster the size of some $25 billion in taxpayer money flushed down the toilet, in this case.
Yet political rhetoric should not distract us bystanders from reality. Tying the fate of Detroit to the existence of the Big Three, however important for the local economy, is short-sighted and an oversimplification of the situation – and, in that sense, the kind of statement that is to be expected from a politician. Even a thriving automobile industry likely could not ultimately have prevented the city from succumbing to decades of deficit spending. It might have masked the symptoms of the disease in the short term and postponed the death of the patient, but its suffering would only have been prolonged.
Those who would argue that the Detroit bankruptcy is somehow proof that free-market capitalism does not work clearly either have no clue what they are talking about or are willfully propagating lies to further their own agendas. After all, weren’t the ones who ran out of other people’s money despite jacking up taxes as high as they could and borrowing hundreds of millions of dollars to the point where city bond ratings were deep into junk category, on the government payroll? Weren’t they democratically elected to “represent the people”? Isn’t this a consequence of this system called democracy that we’re all supposed to love and support?
Had these same people made the same promises that they could not keep, but as businessmen, they themselves would have suffered the consequences. Unless, of course, they could have been classified “too big to fail”; in that case politicians undoubtedly would have sought to steal yet more money from the tax payer to bail them out. That is the system we have today, and as has been detailed before on this blog, it is a far cry from capitalism.
A return to free market capitalism without (or with very limited) government intervention, on the other hand, is the only way for Detroit to find its way back to prosperity. Just ask the people of Singapore or Hong Kong or a member of the growing Chinese middle class. Even if they are not necessarily able to explain the intricacies of how freedom leads to prosperity, they will at least be able to relate their enjoying the fruits of it, just like people in the Western world used to.