Detroit, Greece and West 41st Street

Last week Detroit’s pending bankruptcy was in the news.  In the last sixty years, Detroit has gone from being one of the richest cities in the world to one of the poorest in the United States.  I read a pull-no-punches article from Forbes blogger Louis Woodhill, The Big Lie That Drove Detroit Into Bankruptcy Was Liberalism Itself, which makes some compelling points, I think.  In short, Woodhill notes that unions use monopoly power to drive up wages, which ends up destroying the ability of heavily-unionized industries to compete in global markets.  Defined-benefit pensions inevitably become under-funded, because they rely on exact assumptions about a future that is inherently unpredictable.  General Motors’ reported earnings were essentially false, because the company was not funding its contractual pension and health-care obligations.  And one of the central consequences of the Great Society, what Woodhill calls the “no-parent family”, has wrecked the social fabric of most inner cities.

You may agree or disagree with Woodhill’s analysis, but it is hard to fault its form of argument.  This thing happened, it had this direct consequence, and now we are here. He paints an understandable picture of Detroit in historic context, with its crime, corruption, falling incomes, and broken families.  One may disagree with his particular attribution of cause and effect, as I do in several respects, but he does clearly attach action to consequence.

Next, I read a post from Paul Krugman of The New York Times, titled  Detroit the New Greece.  Krugman is worried folks will draw the wrong lesson from Detroit, just as they have from Greece, observing that, “Now, the truth was that Greece was a very special case, holding few if any lessons for wider economic policy — and even in Greece, budget deficits were only one piece of the problem.”

Krugman goes on to disassemble the conventional explanations for Detroit’s dissolution.  There isn’t actually a public pensions funding crisis, since nationwide such benefits are only underfunded by $1 trillion; as Krugman says, “Not a big deal.”  And bad municipal government in Detroit was not the cause of the bankruptcy, either.  So what was the cause of Detroit’s descent from dominant, wealthy city to bankrupt post-apocalyptic chaos?  “Market forces.”

Who knew?  And exactly why did these market forces not similarly compromise the public finances of New York, Phoenix, Tokyo or Shanghai?  Is Detroit uniquely market-sensitive? Krugman makes a vague comment about buggy whips, ignoring the fact that automobiles, Detroit’s stock-in-trade, are the dominant mode of transportation for an ever-growing share of the world’s population.

Krugman has long argued that Greece spending money it didn’t possess wasn’t really a problem.  The fact that it had borrowed large sums of Euros it could not repay was not the problem either.  The problem was the failure of Greece’s lenders to maintain the flow of unserviceable loans once the Great Recession hit.  (Indeed, Krugman believes Greek spending should have gone up, not down.)

In Krugman’s world, the problems of Greece and Detroit were not caused by the behaviors of the people who lived there, nor by the governments that ran that country and that city, nor by the policies pursued by those governments.  Both entities are somehow the victim of vague, exogenous forces.  Maybe Germans.  Maybe Harvard economists.  Maybe technological change.

The most interesting thing about any Krugman column is the comments, most of which reliably touch on one of two themes (many reference both):

  • Krugman is the smartest and most honest guy on the planet, a rare voice of reason at a time when Faux News and the Koch brothers dominate public discourse.
  • Everything wrong with the world is the fault of Republicans, who are more evil than they are stupid, or vice versa.

Reading the comments after last week’s Detroit blog, I learned that the problems of Detroit, a city run for generations by unions and African-American politicians, were actually caused by (wait for it), Republicans.  This is the sort of obvious nonsense you can believe only if you are smart and highly-educated.  Anyone who lives in a cause-and-effect world must find it baffling.

After a valiant effort in recent years to claw my way back to the political center, I find myself trending more and more conservative again.  A large part of what drives me away from contemporary liberalism is its denial of agency — its belief that action does not have identifiable consequence, and that people are not responsible for what they do.

Read Woodhill and Krugman, and let me know your thoughts, and whether you find the two explanations equally persuasive.  (Mostly, whether you find Krugman’s post an explanation at all.)

2 thoughts on “Detroit, Greece and West 41st Street

  1. Do financially successful cities eschew defined benefit, or any of the other sins of Detroit? That they don’t should leave you rejecting these as the “cause” of Detroit’s failure. If these “causes” only make Detroit fail, and not New York or Los Angeles or Chicago, then they are NOT the causes.

    And Greece’s mistake is the same as Germany’s mistake and indeed most of Europe’s mistake. You don’t form a tight economic union that has both New York and Alabama in it unless you have the federal cojones and/or structure to subsidize the one from the other. Either you put the money where the people are, or the people come to where the money is, or you put up walls with soldiers on them. Germany knew this when they reintegrated East Germany, and it looks like they know it again now that we are not hearing of the Greek crisis every day any more.

    I don’t think your drift back to “good conservatives evil liberals” is a good one. It might be made good for the blog if you thought how on the margin to convince with evidence people on the margin to move one way or the other. But as long as you seek out liberals to hate on and conservatives to admire, you shift in the direction of a cult of infotainment. Not that there is anything wrong with that, per se, but I prefer the “lets find where we disagree and talk through that” form of policy discussion myself.

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    • In fact, under-funded defined benefit plans are crippling state and municipal finances nationwide. In the wake of the Great Recession, cities around the country have declared bankruptcy, with pension payments in many cases the largest line-item in municipal budgets. The state of Illinois alone has unfunded liabilities of more than $100 billion, twice the state’s annual budget. Moody’s has down-graded Illinois bonds four times in the last three years.

      Greece’s problem is one of spending versus taxing, a problem Germany shared (though to a lesser degree) until the early 2000s, when Social Democratic Chancellor Gerhard Schroder led a broad reform of Germany’s work rules, entitlement structure and tax code. Membership in the EU, which brought with it an official commitment to a set of financial benchmarks that Greece systematically violated, concealing the true numbers with the assistance of U. S. investment bank Goldman Sachs. Were Greece independent, it would have the ability to devalue and recover international competitiveness, at the expense of Greek living standards. That would not, however, give Greece the ability to support retirement for public sector workers at age 52, in a population with 1.3 births per woman.

      I don’t believe I said anything about “good conservatives bad liberals.” I referenced two articles, one by a libertarian and one by a jerk (Woodhill and Krugman), and noted that I found Krugman’s singularly devoid of causality. The title of Woodhill’s article blamed liberalism for Detroit’s ills. The idea that Republicans and conservatives are to blame for all of the world’s ills is a constant theme of Krugman. “It is all the fault of Republicans” could be a sub-title for Krugman’s blog, right below its actual title, The Conscience of a Liberal. I find Krugman uniquely problematic, because of the position he occupies in the liberal imagination. For exammple, in the article to which I linked, he offers that the public pensions crisis is a trivial $1 trillion number. The total of all unfunded liabilities, of which state and local pensions are but a part, is persuasively somewhere between $87 trillion (Bill Clinton pal Mort Zuckerman) to $238 trillion (Harvard economic historian Niall Ferguson). Both numbers are two orders-of-magnitude different from Krugman’s. I don’t think Krugman’s readers have a clue about the dimensions of the problem, yet I am confident they consider themselves extremely well-informed. (For an example of a liberal who shares Krugman’s Keynesian views, yet is honest about entitlements, see this Op-Ed by Larry Summers.)

      There are liberals I find interesting (Michael Kinsley, Larry Summers), and conservatives whose discourse I find wearying (Sean Hannity, Glenn Beck). Overall, I find a variety of perspectives interesting, and don’t find much that is wholly persuasive in any partisan viewpoint. All that said, I am a conservative who was once a liberal, and sometimes a particular issue reminds me of why I evolved. The decline of Detroit, from the richest city in North America to one of the poorest, over the course of my lifetime, seems to me persuasively linked to specific liberal policies.

      As I said, I don’t fully agree with Woodhill, but I found his piece intelligently provocative. I remain curious about what my (few and often silent) readers think about his views.

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