City of the Damned

Potemkin would be proud.

Across the river from where I sit rise the impressive towers of downtown Detroit. Looks good, since from this viewpoint you cannot see the open fields and scrapyards beyond.

Detroit has just applied for bankruptcy. What happened?

Point 1: half of Detroit's debt is pension costs.

Point 2: Detroit's municipal government has only 9,700 workers, but there are 21,000 municipal retirees drawing benefits.

The cost of these pensions, underfunded by successive governments, eventually and necessarily pushed Detroit tax rates up and services down. Why did it happen? Because it costs a government nothing politically to hold the budget line yet keep government workers happy by raising pensions. After all, when the pensions come up for payment, that particular government will be long gone.

But eventually, this is the result. And in a free country, as services deteriorate yet taxes rise to cover the pensions, working people, those who pay taxes, naturally flee to the suburbs or beyond for a better life. Those who are left, if any, will be those on some form of social assistance. Setting up a death spiral—revenues going down each year while liabilities rise.

Is there a solution?

Sure. Bankruptcy. Or, failing that, evacuation.