23.7.13

SHARING THE RISKS.

Paul Krugman channels his inner regional economist to call for sensible responses to Detroit's municipal bankruptcy.
Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens.

True, in Detroit’s case matters seem to have been made worse by political and social dysfunction. One consequence of this dysfunction has been a severe case of “job sprawl” within the metropolitan area, with jobs fleeing the urban core even when employment in greater Detroit was still rising, and even as other cities were seeing something of a city-center revival. Fewer than a quarter of the jobs on offer in the Detroit metropolitan area lie within 10 miles of the traditional central business district; in greater Pittsburgh, another former industrial giant whose glory days have passed, the corresponding figure is more than 50 percent. And the relative vitality of Pittsburgh’s core may explain why the former steel capital is showing signs of a renaissance, while Detroit just keeps sinking.

So by all means let’s have a serious discussion about how cities can best manage the transition when their traditional sources of competitive advantage go away. And let’s also have a serious discussion about our obligations, as a nation, to those of our fellow citizens who have the bad luck of finding themselves living and working in the wrong place at the wrong time — because, as I said, decline happens, and some regional economies will end up shrinking, perhaps drastically, no matter what we do.

The important thing is not to let the discussion get hijacked, Greek-style. There are influential people out there who would like you to believe that Detroit’s demise is fundamentally a tale of fiscal irresponsibility and/or greedy public employees. It isn’t. For the most part, it’s just one of those things that happens now and then in an ever-changing economy.
The small nitpick is that Pittsburgh is surrounded on all sides by rivers and mountains, while there are miles of alluvial plain to the north and west of Detroit to aid the job sprawl.  The greater nitpick is that now and then has been ever-changing for over fifty years.
As almost always happens in booms, people began thinking it would never end. The Big Three let labor costs climb until by the end of the decade the average car's price had tripled from two decades before. Two-car families began to look for a cheaper, no-frills purchase for that second car.

Their solution came in a funny-looking but economical and reliable German car, the Volkswagen Beetle. By 1960, annual foreign car sales in the United States jumped tenfold to nearly 500,000 as Detroit exports fell by 100,000. The loss of those sales to foreign competition gave the auto industry its first jolt in a decade. Detroit lost 50,000 jobs by 1960. Smaller domestic manufacturers like Packard and Hudson went under.

Even the Big Three were affected. The workforce at Chrysler's four Detroit plants dropped by half to 23,000 by the end of decade. The boom was over.
More precisely, Packard and Hudson became part of American Motors, with George Romney attempting to differentiate his company's products from the Big Three's gas-guzzling dinosaurs, but that company never had the funds to build a proper assembly plant on a Wisconsin cornfield rather than make use of cast-off mattress factories and Nash plants.

More recently, Representative John Conyers has merited mention in my Rogues Gallery of ward-heeler politicians who cast the blame everywhere else, rather than address the root causes of their constituents' misery.  He's still at it.
Conyers warned long ago that free-trade policies would devastate American cities, and he’s been a steady advocate for investment in urban America. But now, he says, Congress needs to recognize and respond to the risks that arise when municipalities are in crisis.
In particular, the nation-state becomes the new fiction by which everyone attempts to live at the expense of everyone else.
Conyers is interested in examining the role that financial distress and bankruptcy pressures play in assaulting pension rights and in hastening the privatization of essential public services. As Conyers notes, the pressure to privatize is often at odds with the public interest in transparency and the long-term stability of communities.

There are already plenty of politicians stepping up to say what Washington can’t do in response not just to Detroit’s needs but also to those of hundreds of cities and counties nationwide. But that’s austerity talking, not common sense. Common sense says that the federal government, which has played a part in undermining the economic prospects of American cities, needs to start playing a useful role.

No matter what that role is, there will be those who call it a “bailout.” In reality, it’s a smart investment not just in cities but also in the American people. After all, as Congressman [Dan] Kildee reminds us, “While you can dissolve a corporation through bankruptcy, you cannot simply ‘dissolve’ a place where hundreds of thousands of people live, work and raise their families.”
Perhaps not all at once, but the dissolution, particularly where productive people are concerned, has been going on for years.
Those cities which have heeded the call of the Times and other downtown papers and maintained a commuter tax (such as Philadelphia, Newark, Detroit), continually number among the worst performing and most consistently bankrupt urban areas in the nation. Philadelphia was in fact the first city in the country to impose a commuter tax, back in 1939, and it has not been a notable success there.
I got into a little trouble at Wayne State suggesting (deviating from the party line) that a city referendum to raise the commuter tax, and only the commuter tax, while leaving the residential income tax rates the same, was the unproductive people voting themselves benefits at the expense of the unproductive people. The city's rationale was that commuters availed themselves of police protection and the like while they were working in town.  Today, there is no police protection, and there are fewer productive commuters to tax.
The city rewards anyone who can’t escape its boundaries — more than a million people have since 1950, when it had 1.8 million residents — with stifling taxes in a futile attempt to keep up with spending. It has the highest per capita tax burden in Michigan, despite the low per capita income of its residents. It can’t even collect its taxes well. An Internal Revenue Service audit called its tax system “catastrophic.”

None of this is the product of the “creative destruction” of capitalism; it is the destructive destruction of corrupt statism.
That's the same city tax system that paid staffers to recalculate to the penny tax returns submitted with figures rounded to the dollar. I think that netted them 31 cents on the final return I filed there.  It is difficult to review the evidence and not agree with Via Media.
Progressive politicians, wonks, and activists can only blame big corporations and other liberal bogeymen for so long. The truth is that corrupt machine politics in a one-party system devoted to the blue social model wrecked an entire city and thousands of lives beyond repair. The sooner blues come to terms with this reality, the greater chance other cities will have of avoiding Detroit’s fate.
It is difficult to be optimistic when the ominous signs have been accumulating for half a century.

2 comments:

William Bruce said...

"...was the unproductive people voting themselves benefits at the expense of the unproductive people."

Is that a typographical error, or are you making a point that I fail to appreciate?

Stephen Karlson said...

Fixed. Thanks for catching that.