Hurricane Annie-Get-Your-Gun

Florida gets more than its share of natural disasters, and its state legislature is working hard to guarantee the safety of Florida residents in time of crisis. A bill that recently cleared Florida’s House of Representatives would permit gun owners to carry concealed weapons without a permit whenever an emergency is declared.

I know you’re thinking: wow, streets filled with freaked-out rednecks; frightened and confused survivors roaming in search of food, water and medical attention; hot, humid, overcrowded shelters; people angry, frustrated, confused, distraught – how better to perk up spirits, bring hope and speed recovery, than with an infusion of firearms! As a conservative will readily explain, every problem facing America today can be cured with a little extra paranoia and a high-capacity magazine….

This is among the most absurd examples of conservative fantasies about individual empowerment. Disasters are the archetypal case in which individual action is of limited usefulness – when people in the affected area largely depend on an organized response from outside. One can only wonder at the enthusiasm of first-responders as they venture into a newly-minted free-fire zone…. And never mind the fact that typical responses to natural disasters use curfews to diminish the threat of looting – now Florida’s legislature would guarantee the right to bear arms to roving bands.

A conservative in his application of the concept of personal liberty is much like a five year-old who’s discovered a pistol in his dad’s desk drawer. No matter its utility In the hands of a sound-minded adult, the young and-or developmentally impaired will find a way to kill himself with it.

 

Refs:

http://www.reuters.com/article/2014/04/11/us-usa-florida-guns-idUSBREA3A1UF20140411

http://rt.com/usa/florida-guns-disaster-riots-044/

 

 

Three Time Loser

Paul Ryan’s latest sham-budget follows in the conservative tradition of Reagan and Bush Duh, each of whom gifted generous tax cuts to the rich, while leaving the nation with giant deficits and tepid growth for a decade after. And so it’s useful to revisit why Reaganomics, in its would-be third iteration, is still stupid.

We’ve all become revoltingly familiar with Job Creator – the idol behind the conservative altar. When mighty Job Creator is appeased with tax cuts on His Ginormous Income, He favors His people with jobs. Indeed, Ryan’s latest supplication to Job Creator bestows fully half of its tax cuts on people making more than $620k/yr – AKA the one percent. People with incomes over $1 million would enjoy an average tax cut of over $200k/yr.

While it’s true that if you let the investor class keep ever more of its absurdly large fraction of national income, they have to park it someplace – the problem is WHERE. Since capital is free to roam in search of its best return, tax cuts on the wealthy are as likely to create jobs in Asia and Latin America as they are in the US.

And that’s why trickle-down economics is (still) stupid. It’s created millions of new jobs in Asia and Latin America, and greatly enriched America’s already stupendously wealthy, but it’s done squat for Americans who weren’t already members of a yacht club. And it’s a bit curious how conservative enthusiasm for free trade extends only to one production factor: capital. They’re less keen on porous borders for labor.

There’s a much more efficient way to stimulate the US economy via fiscal policy. The lower your income, the greater the fraction of it that you consume (as opposed to save or invest). And consumption is primarily done locally – through rent, groceries, gas, etc. So when you give ordinary working people a tax cut on their wages, that little extra in their take-home is almost certain to go into the local economy, to boost aggregate demand, to which firms respond by hiring.

Ryan couldnt be satisfied with giving away the farm to the very rich – he does it by taking money out of the pocket of people who really would spend it locally: students, the working poor and the elderly – by cutting Pell Grants, EITC, Food Stamps, Medicaid and Medicare. As a bonus, he’d also cut Head Start and public investment in renewables. Ryan one-ups Reagan’s dumb with dumber.

This aint rocket science. Because their 30 year-old fantasies have been so utterly discredited, conservatives have to come up with ever more elaborate fictions – like Job Creator’s faithful servant, the Confidence Fairy – to obfuscate the true basis of their fiscal policies. Conservatives seek to cut taxes on the wealthy as an end in itself – the rest is lipstick for the pig. Reagan and Bush Duh’s big tax cuts led to weak deficit-fueled recoveries, compared to the tax increase on the rich that kicked off the Clinton Boom and surplus. The other great post-war boom occurred during the 1960s, when marginal tax rates on the wealthy were over 70%.

The good news is that Ryan’s budget has zero chance of becoming law. We might be thankful that conservatives in Congress content themselves with empty partisan gestures – Ryan’s latest offering to a make-believe deity is of the same species as the House’s 50th vote to repeal the ACA. That the Tea Party’s economic illiteracy is exceeded only by its parliamentary ineptitude is a happy coincidence for which we all should be grateful.

 

Refs:

http://www.politico.com/story/2014/04/paul-ryan-budget-medicare-health-care-105234.html

http://mediamatters.org/research/2014/04/02/fox-touts-paul-ryans-new-budget-plan-ignores-ec/198715

http://ctj.org/ctjreports/2014/04/another_ryan_budget_gives_millionaires_average_tax_cut_of_at_least_200000.php

http://www.huffingtonpost.com/leo-w-gerard/gop-budget-the-anti-robin_b_5142770.html

HAPPY EASTER !

CVrcaSP.jpg

 

 

 

 

 

 

The Self-Interested Liberal and Trickle-Up Economics

Too often liberals base their policy arguments in social justice. We should give poor kids a chance, we should take care of the old and sick, we should ensure that workers are treated fairly by their employers. While these are noble sentiments, people differ in their notions of justice, and about how much one should sacrifice for other people. Arguments based in social justice require that others subscribe to a similar set of moral principles, and as a consequence, they are often unpersuasive.

But liberal positions neednt be based on altruism, nor justified by “the greatest good for the greatest number.” The reason we should gladly pay more in taxes so poor kids have better schools, for example, is because the sum total of such investments will substantially and directly improve our own lives. The reason a job should come with mandatory paid maternity leave, vacation time and workman’s comp, is because more people will want to work, and in the aggregate that will raise our own income. Subsidizing healthcare and education for the poor isnt about sacrifice – it’s about self-interest. You might call it “trickle-up” economics.

All conservative economic policies are based on the myth that small government is the recipe for economic success. Despite their fairy tales, our humble planet has yet to see a rich country in the absence of a large government directing investment into sectors that the markets neglect (health, education and insurance). Back in 1900, when the US government was one-quarter its present size, the US was as poor as present-day Paraguay. The US government was still small in 1928, when US per capita GDP was about the same as present-day Botswana. By 1932, the Great Depression had brought the US down to the level of present-day Turkmenistan.

Of course these are unfair comparisons. Present-day Paraguay is a much nicer place to live than 1900 America:  life expectancy in Paraguay is 25 years longer, infant mortality is one-fifth, and literacy is much higher too. The best things ever got in the small-government pre-war era was pretty crappy. The divide – between where we were then and where we are now – was only ever bridged with a big government. The notion that it could have happened otherwise – well hey, anything’s possible. But in all of human history, it never has.

Should you overhear a conservative waxing nostalgic over pre-New Deal America, you might ask his feelings about the 15 recessions and 3 depressions that occurred between 1865 and 1930. The answer to the question, “When was the Golden Age of Capitalism?” is “You’re livin’ it now, baby!” Before 1928 – when US government spending was less than 10% of GDP – 50 year growth rates in per capita GDP were generally under 150%. Since World War II – with a government three to four times larger – 50 year growth rates have been greater than 175%, and frequently north of 200%.

Or just ask a conservative: if small government is so awesome, why isn’t the world teeming with small-government juggernauts? Why isn’t there JUST ONE such country? Why is it that every rich country on Earth has a large government – and only became rich with that government in place? Conservative belief in the wonders of small government is simply that: naked belief, unsubstantiated by a scintilla of evidence, much less a single case history.

And so when liberals advocate for generous social insurance, universal public pre-K and single-payer healthcare, it isnt out of kindness – it’s because the long-term consequence of liberal policies have made the fortunate residents of western democracies the healthiest and wealthiest people the world has ever seen.

 

PS: It’s Spring Break at the Field Guide – and our staff (cough) has been turned loose for fun and frolic! While reserving the right to take a few gratuitous swipes next week, all-out two-fisted conservative-thrashing activities will resume on Monday, April 21st.

 

Refs:

http://www.nber.org/cycles/cyclesmain.html

http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy

http://en.wikipedia.org/wiki/List_of_countries_by_infant_mortality_rate

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita

US in 1900:

http://demog.berkeley.edu/~andrew/1918/figure2.html

http://www.ssdan.net/content/infant-mortality-rate

http://www.measuringworth.com/index.php

 

Texas, Messed

Texas is fairly described as a state for the young and hungry. Among US states, it has the 2nd lowest average age, and the 2nd largest under-18 population. It also has among the highest rates of child poverty and food insecurity.

Frequently trotted out as a national exemplar of conservatism, Texas does indeed have a small state government, and has seen excellent economic growth since the Great Recession. But prosperity is not shared – Texas also has one of the worst rates of income inequality, the country’s highest fraction of minimum-wage and sub-minimum wage workers – and is afflicted by social ills at rates typical of much poorer states.

We begin with poverty – Texas has the 5th highest rate in the country, which is striking because Texas is not an especially poor state. The states near Texas in poverty rankings – Mississippi, Louisiana, Alabama, Arkansas, New Mexico, Oklahoma, West Virgina – are all among the bottom 10 states for median household income and per capita income, so their poverty rates are not surprising. Texas is the odd man out, ranking 25th and 30th in those same income measures. While the other 7 states are very poor by any measure, Texas is a middle-income state that has a lot of poor people because its income in unequally distributed.

With its tiny state government – ranking near the bottom for both per capita tax collection and public spending – Texas does little to ameliorate the plight of its many poor. Texas isnt even willing to spend OTHER PEOPLES’ money to help them! Of the state’s 5 million uninsured, fully 1.5 million of them would be insured, if only Texas signed on to Medicaid Expansion, the cost of which would be borne by the Federal Government. Texas declined.

Texans’ health plight only begins with its national-worst rate of health insurance coverage, and its second-worst rate of children’s health insurance coverage. Texas teenagers have the 3rd highest pregnancy rate and the 3rd highest birth rate. Texas children are in the bottom 10 for food insecurity. Life expectancy is in the bottom half of US states.

Remarkably, Texas is the only state in which workers’ compensation is not mandatory – employers are free to opt out – and about 40% do, leaving injured employees to fend for themselves. As you might expect, Texas has among the worst records for workplace injuries and fatalities. When a fertilizer plant blew up a year ago, killing 15 people and injuring 150 more, we learned that Texas has no state fire code. Neither was there a county code where the plant was situated.

While crime has dropped in recent years, Texas is among the nation’s top 5 for incarceration rates, and has the second highest execution rate. Some conservatives point out that if Texas were its own country, it’s economy would rank 14th in the world, just ahead of South Korea. They rarely mention that if Texas were its own country, it would rank 8th in executions – just ahead of North Korea.

Environmentally, Texas has some of the worst air quality in the US, with Houston and Dallas among the 10 worst cities for ozone pollution. Texas coal- and oil-fired electric plants release more CO2 than the next two largest states combined. Rick Perry has come a long way since working for Al Gore’s 1988 presidential campaign – as Texas Governor, he’s slashed the state environmental protection budget, and sued the EPA to prevent it from regulating greenhouse gas emissions.

A few factors advantaged Texas relative to the rest of the US since the Great Recession hit in 2007. Because Texas experienced a smaller run-up in housing prices, the housing crisis left the state with a relatively small fraction of distressed properties. Also, the high, sustained price of oil over the past several years has brought windfalls to oil producers, and rescued the state from the huge budget deficits it was facing. Texas rates of unemployment – good for about 17th best in the US, about 1 pct. pt. better than the national average – fail to convey that Texas jobs come in quantity, not quality, with the largest fraction of minimum wage and sub-minimum wage workers in the country.

And so people should take notice of Texas – as a cautionary tale. From extreme inequality, to the sad state of its children, to its miserable environmental record, to a disregard for workers and workplace safety – what prosperity Texas has recently seen has been enjoyed by the few, amidst widespread poverty, and the swelling ranks of the working poor.

 

Refs:

poverty/income:

http://en.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate

http://datacenter.kidscount.org/data/tables/43-children-in-poverty#detailed/2/10-19,2,20-29,3,30-39,4,40-49,5,50-52,6-9/false/868/any/322

http://en.wikipedia.org/wiki/List_of_U.S._states_by_income

health/hunger:

http://www.huffingtonpost.com/2013/06/19/us-child-hunger-rates-by-state_n_3460942.html#slide=2587846

http://247wallst.com/special-report/2013/09/05/states-where-the-most-people-go-hungry/3/

http://kff.org/other/state-indicator/teen-birth-rate-per-1000/

http://www.livescience.com/27417-teen-pregnancy-rates-by-state.html

http://www.npr.org/templates/story/story.php?storyId=113042669

http://www.politifact.com/texas/statements/2013/dec/19/kathleen-sebelius/texas-has-highest-uninsured-rate-and-most-uninsure/

http://en.wikipedia.org/wiki/Workers%27_compensation#United_States

environment:

http://www.nytimes.com/interactive/2011/09/29/us/politics/texas-air-pollution-compared-to-other-states.html?ref=politics&_r=0

http://www.stateoftheair.org/2013/city-rankings/most-polluted-cities.html

http://scorecard.goodguide.com/ranking/rank-states.tcl?how_many=100&drop_down_name=Total+environmental+releases

crime:

http://www.deathpenaltyinfo.org/state-execution-rates

http://en.wikipedia.org/wiki/List_of_U.S._states_by_incarceration_rate

government:

http://kff.org/other/state-indicator/per-capita-state-spending/

http://www.governing.com/gov-data/State-Expenditures-per-Capita-2009.html#

http://en.wikipedia.org/wiki/State_tax_levels_in_the_United_States

http://taxfoundation.org/article/state-tax-collections-capita-fiscal-years-2007-2011

economic measures:

http://en.wikipedia.org/wiki/List_of_U.S._states_by_unemployment_rate

http://en.wikipedia.org/wiki/List_of_U.S._states_by_Gini_coefficient

articles:

http://www.huffingtonpost.com/bob-burnett/texas-americas-dream-or-n_b_3515896.html

http://www.bloomberg.com/news/2011-05-11/texas-taxpayers-finance-formula-one-auto-races-as-schools-dismiss-teachers.html

http://www.huffingtonpost.com/christopher-brauchli/perry-and-the-poor_b_3398827.html

http://www.huffingtonpost.com/2011/10/17/rick-perry-environment-epa_n_1015273.html

 

 

 

 

 

 

A Tale of Three Crises

Conservatives like to pooh-pooh the US economy’s recovery from the worst downturn since the 1930s. But because the Great Recession is so singular, it’s difficult to judge recent economic performance, and the effectiveness of the government and Fed response. No downturn since World War II compares. Both for the conditions that triggered each, and their severity, the closest and nearest-in-time comparisons we have are the Great Depression and the Panic of 1893. And the US economy did much better this time around.

The Great Depression remains the worst of them all. GDP fell 30% and unemployment got to 25%. The Panic of 1893 saw GDP drop 5 to 10%, and unemployment peak at 12 to 18%. (Measures for that period remain crude.) The Great Recession was less severe: US GDP dropped 4.7% and unemployment topped out at 10%.

The key to our escape from what might have been a replay of the Great Depression was massive, directed spending on the part of the federal government, and perhaps more importantly, a commitment on the part of the Federal Reserve to pump cash into the economy, to prevent deflation. By one measure, US GDP in 2010 was 13% higher than it would have been in the absence of Fed and fiscal action.

It is not generally appreciated that the initial drop in economic activity during the 1st 3 quarters of the Great Recession during 2007-08 was in fact STEEPER than 1929-30. In other words, at the outset, the US was on track for a 1930s-style depression. The difference, according to the best research on the subject (cited below), was aggressive fiscal and monetary intervention.

Financial bubbles happen when banks continue to pour money into an economy, even as asset prices inflate. When banks collectively get cold feet and stop lending, asset sellers quickly outnumber buyers, and prices collapse – as they do, a lot of money vanishes. It doesnt merely change hands – it ceases to exist – no longer available for borrowing, investing or buying. In 1893, the asset bubble was concentrated in railroads. In the Great Recession, it was housing. In the Great Depression, the bubble wasnt specific to a particular industry. In all three, the crash was preceded by a massive run-up in private-debt, followed by a prolonged economic malaise, in which banks were insolvent, and personal savings was wiped out – there was no money left in private hands to buy anything.

Getting out of such a funk takes time. With the Panic of 1893, real per capita GDP needed 6 yrs to get back to 1892 levels. And even after it did, unemployment (which lags behind other indicators) was 12% – the economy wouldnt get back to full employment until 1900, 7 yrs after the bubble burst. The Great Depression was worse: real per capita GDP didnt get back to its 1929 level until 1937, and full employment wasnt achieved until World War II.

By comparison, real per capita GDP after the GR needed 5 years to get back to its 2007 level. Full employment (which is not well defined) may be achieved next year, which would make for a 7 to 8 year recovery. Not quite 5 1/2 years since the GR began in Dec 2007, unemployment today is a manageable 6.7% (though labor force participation remains quite low). 5 1/2 years after the Panic of 1893 and Great Depression, unemployment was still in double-digits.

The relative shallowness of the Great Recession – both in unemployment and GDP contraction – can be directly attributed to a policy of deficit spending by the federal government, and aggressive action by the Fed to shore up banks and maintain money supply. The aim of these policies at the time was to take the edge off – and they succeeded. In 1893 and 1929, prices collapsed soon after asset values. During and after the GR, the US teetered on the edge of deflation but never succumbed – this alone may have halved the depth of the contraction.

The short of it is that financial crises dont make for ordinary recessions – the recovery that follows has always been slow, and is beset by persistent unemployment. But the US economy has come a long, long way since the dark days of 2008, thanks in large part to aggressive government and central bank action.

 

Refs:

https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf

http://www.britannica.com/EBchecked/topic/243118/Great-Depression#toc234439

http://en.wikipedia.org/wiki/Panic_of_1893

http://en.wikipedia.org/wiki/Great_Recession

great source for historical macro data: http://www.measuringworth.com/

help wanted: i’d be very grateful for a historical graph on private debt for the US that looks like this one for Australia: http://www.creditwritedowns.com/wp-content/uploads/2011/11/Australia-private-debt-to-GDP.png

http://www.multpl.com/unemployment/table

 

 

 

 

Detroit: A Conservative Disaster Story

Detroit’s bankruptcy is exceptional – but its decline is part of a larger trend. Between the 1950 and 2010 censuses, St Louis lost 63% of its population, Detroit lost 61%, Cleveland lost 57%, Pittsburgh and Buffalo lost 55%, and Cincinnati lost 41%. Considering the 30 most populous American cities in 1950, Milwaukee did the best in the midwest, shrinking 20% since its population peaked. Even Chicago lost 25%.

When you eliminate the effects of the Great Recession and look at population loss between 1950 and 2000, the pack gets even tighter, and Detroit drops to 4th place: St Louis lost 59%, Pittsburgh 52%, Buffalo 50%, Detroit 49%, Cleveland 48%, Cincinnati 34%.

Remarkably, while every big midwestern city has lost 20-60% of its population since 1950, the population of their surrounding metropolitan areas are all larger today. People left town, but they didnt going very far. The fact is, before the advent of the automobile and highway, US cities were geographically tiny. Detroit was among the biggest in 1950, at almost 140 square miles. St Louis, Pittsburgh, Cleveland and Cincinnati were and are about half that size – Buffalo only one-third. Leaving town is often a five-minute drive or a ten-minute walk.

While all of these cities maintained their pre-war city limits, others in the region annexed their suburbs, which is sensible, given that the automobile and other 20th century technologies allow a much larger area to function as a cohesive whole with an integrated infrastructure.

Columbus, for example, sprawls across 220 square miles, making it the same size as Chicago, with one-quarter the population. Kansas City at 320 square miles is now larger than New York – and Indianapolis is even bigger. Louisville lost 35% of its population between 1960 and 2000 – then it annexed its entire county. Now it spans 1000 square miles – more than triple the size of New York, with less than one-tenth the population.

The old city limits of rust belt cities are artifacts of history, serving only to isolate poor minorities in ghettos of crumbling roads and failing schools. Not coincidentally, among large cities, Detroit has the most people living in poverty (42%); Buffalo, Cincinnati, Cleveland, St Louis and Milwaukee are all in the top 10. Consider that the Detroit Water and Sewerage Department serves four times as many people OUTSIDE Detroit as inside it! These cities long ago spilled over their nominal boundaries – the forces that keep the city limits fixed in place are political.

Often around MLK Day, children In grade school are taught that Plessy v. Ferguson legitimized separate-but-equal in 1896 – but that in 1954 Brown v. the Board of Ed. overruled it. They dont learn that in 1974 Milliken v. Bradley nullified them both, and that separate-and-UNEQUAL has been the law for Detroit and many northern cities and states for decades. Plessy, with Dred Scott, is commonly cited as the single most deplorable decision ever issued by the US Supreme Court. But if it were decided today, it would IMPROVE the quality of education for many.

Milliken dealt large midwestern cities their worst blow of all, making it possible for states to segregate poor, black students into poor, black schools; away from middle-class white students in well-funded white schools. Under the rules of Milliken, this is readily accomplished as long as black and white share different municipalities. Decades of redlining had already deeply segregated city and suburban neighborhoods – Milliken validated ethnic and economic variation between school districts and across municipal boundaries, and created a perverse incentive to maintain antiquated political divisions.

A city begins as an area of concentrated human activity, whose boundaries are naturally delimited by that activity. Old American cities have extended their infrastructure far beyond their 19th century perimeters, and their political borders should expand to reflect that reality. Western cities that grew up alongside modern highways and water/sewer systems are more likely to have borders that bear some resemblance to actual life, industry and infrastructure. Austin and El Paso, e.g., are almost as large as New York – Dallas, Fort Worth, and San Antonio are all larger – and Houston is twice New York’s size – but the six of them combined have fewer people than New York. This isnt a testament to Texan vanity, but to modern urban planning.

Maintaining fictional cities as island-ghettos at the center of modern metropolitan areas is wasteful and regressive. The cure is for these urban agglomerations to reclaim their historic center through incorporation. Suburbanites’ fear of being dragged down by inner-cities is baseless, given that the suburbs are now far more populous. Detroit today is a city of 700,000 in a metropolitan area of 4 million. St Louis is 300,000 among 3 million. Buffalo is 260,000 among 1.1 million. Cleveland is 390,000 among 2.8 million.

So the next time a conservative tells you that Detroit is the victim of liberal policies run amok – inform him that Detroit is in fact the archetypal conservative disaster story: the real world changed; and disaster ensued because of a conservative clinging to the status quo; and a failure to progressively change the system to keep up with the facts on the ground.

 

Refs:

http://www.biggestuscities.com/1950

http://en.wikipedia.org/wiki/List_of_United_States_cities_by_area

http://www.dwsd.org/pages_n/about_dwsd.html

http://en.wikipedia.org/wiki/List_of_the_poorest_places_in_the_United_States#Large_cities_with_a_high_percentage_of_low_income_residents

http://en.wikipedia.org/wiki/Detroit#Demographics

http://en.wikipedia.org/wiki/Louisville

http://en.wikipedia.org/wiki/St._Louis#Demographics

http://en.wikipedia.org/wiki/Milliken_v._Bradley

http://carltonthurman.me/2014/03/28/segregation-new-york-style/

http://en.wikipedia.org/wiki/Shrinking_cities_in_the_United_States

http://en.wikipedia.org/wiki/Largest_cities_in_the_United_States_by_population_by_decade

http://www.salon.com/2013/07/12/white_people_killed_detroit/

http://en.wikipedia.org/wiki/Redlining

http://en.wikipedia.org/wiki/Demographic_history_profile_of_Detroit

 

 

 

 

Why Detroit Went Broke

According to conservative myth and lore, liberals got control of Detroit, and through profligate spending and waste, that glorious city was brought down low. The reality is quite different. Detroit ran budget surpluses during the Clinton Boom; and when 90s prosperity gave way to the Bush Duh doldrums, successive mayors aggressively downsized the government. Their efforts might have kept the city afloat, but in the end Detroit was bankrupted primarily by the state of Michigan, the Great Recession’s ravaging of the US auto industry, and a shady refinancing deal that benefited Wall Street more than the city it was intended to serve.

Bankruptcy is about lacking the revenue to cover obligations. And so every bankruptcy has two stories: one about revenue, and one about expenses. After Detroit entered bankruptcy, its emergency manager pegged the annualized difference between revenue and expenses at about $200 million.

For most of the past 40 years, Detroit’s government did a reasonable job of keeping abreast of the city’s shrinking population by cutting services and reducing the size of the municipal workforce. In constant dollars, Detroit’s budget fell from $2 billion in 1960 to $1 billion today. The Detroit Free Press, in a remarkably comprehensive report (cited below) approves of the downsizing efforts of every mayor since and including Coleman Young (who served 1974-94).

Only mayor Dennis Archer (1994-02) is faulted for increasing the size of city government – but his administration ran budget surpluses during 7 of his 8 years in office. Archer also introduced a tax on the city’s new gambling industry, which continues to be an important revenue source. And the 90s were relatively kind to Detroit, which only lost 5% of its population between the 1990 and 2000 censuses – it would lose 25% between 2000 and 2010.

Even the disgraced mayor Kwame Kilpatrick (2002-08) slashed the city workforce, refinanced the pension system, and went to the extreme of shuttering the city aquarium and zoo, cutting more than $400 million from spending – a reduction of 25%. But when he left office (in handcuffs), the city was in the grip of the Great Recession, running a deficit of more than $200 million, and borrowing to pay its bills while it could still find lenders. Mayor Dave Bing (2009-13) dismissed more than 30% of the city’s remaining employees – firing 40% of all teachers – but the budget deficit hardly budged.

On the revenue side, property taxes were 50% of city revenue in 1960, but only 13% in 2012, despite higher rates – attributable to the collapse of home values. To make up the difference, new taxes were implemented along the way, on income, utilities and gambling. But as the city shrank in size, revenue from all sources shrank too.

Of the $200 million shortfall, fully one-third can be attributed to the State of Michigan, which, in its own fiscal straits, slashed support for the city by $67 million. The big banks who underwrote Detroit’s last-gasp borrowing binge expected Michigan to bail the city out if insolvency ever threatened. Ironically, it was the state that pushed Detroit over the brink.

While Detroit’s economy is probably more varied now than it’s been for the past 100 years, the auto industry remains the single largest employer. Ever sensitive to the business cycle, the Big Three were devastated by the Great Recession. Unemployment in Detroit was 13% on the eve of the Great Recession – it would climb as high as 27% – and the official rate persists at about 18% today, though informal estimates run much higher. Property and income tax revenues have never recovered.

All things being equal, over the long haul one should NOT expect a city of 700 thousand to be able to maintain an infrastructure for 2 million. Detroit might have made it, were it not for the explosion of healthcare costs across the US. While a city can fire its workers, it cant fire its retirees, who live longer than ever, and have higher-than-ever medical bills. Detroit actually kept retiree healthcare cost-increases below the national average. But as a consequence of shrinking so much so fast, Detroit in 2012 had twice as many pensioners as workers – and was spending more on retired cops and firefighters than active-duty personnel!

It would have been tough enough to pay for the retirees of a much larger city, but the 2005-06 refinancing deals, which restructured the city’s pension obligations, made the task impossible. “Legacy” payments since the Great Recession have gone up by $60 million – but most of the increase is attributed to the souring of the refinancing deal, which had contingencies to inflate debt-service costs if the city’s credit-rating were ever downgraded. When the Great Recession struck, the city was squeezed between tanking revenue and skyrocketing costs. City managers must take a share of the blame for their naivete – as well as local newspapers who advocated for the deal. But more culpable are the Wall Street firms who structured it, and stood to profit greatly from it. The Demos article (linked below) suggests that the deals were so poorly suited to a city like Detroit, that the banks who designed them may have breached their fiduciary duty to the city.

Why Detroit shrank so much is the last issue to be explored – when Detroit Week at the Field Guide concludes….

 

Refs:

http://www.freep.com/interactive/article/20130915/NEWS01/130801004/Detroit-Bankruptcy-history-1950-debt-pension-revenue

http://www.demos.org/publication/detroit-bankruptcy

http://en.wikipedia.org/wiki/Motor_vehicle#Production_by_country