Charlie Harper: Detroit as a warning shot

July 23, 2013 

Last Thursday the city of Detroit filed for the largest municipal bankruptcy in U.S. history. The move places retired workers' pensions at risk and makes it likely that those holding Detroit's municipal bonds will receive pennies on the dollar for their investments. For those individuals affected it will be a painfully dramatic change. But it can hardly be called a surprise.

Detroit was a city of 1.8 million in the middle of the last century, but today only about 700,000 call it home. The city's principal industry remains automotive, but General Motors, which once sold half of the cars in this country, sells less than 20% of them today, with Ford and Chrysler also seeing dramatic losses in market share. Detroit industry - and its residents - have watched as others have "voted with their feet." The city was slow to change, and now dramatic steps must be taken.

The Washington Post's Wonkblog offered "Six Crazy Ideas for Saving Detroit" that should be examined not so much in the context of what would fix Detroit, but as a bigger picture of what should also be done around the rest of the country.

The authors first suggest "eliminate all the taxes." This is quite strange coming from the Post, which routinely pushes a "soak the rich" argument. But for Detroit, they acknowledge that a way to kick-start Detroit back to health would be to eliminate all taxes, with the federal government paying the state and local taxes owed by Detroit residents "to spur outsiders to come in and do business."

So plan one is to reward Detroit's failure by having the rest of us pay our income taxes and let some of that go to the city of Detroit and the sState of Michigan? We should at least acknowledge the Post has admitted that cutting taxes will spur growth. They even doubled down and suggested "Get rid of zoning, parking requirements, occupational licensing and other cumbersome regulations while you're at it. See how many businesses come."

Funny, but every time a Republican suggests those "cumbersome regulations" that government keeps coming up with at a record pace, publications like the Post suggest that means dirty air and water. But now that a major Democratic city needs to be saved, they apparently can get a waiver from all those people who are from the government and are here to help.

The next suggestion is to make the city a tax shelter to attract businesses. Funny thing about that, but Republicans have also been suggesting the same thing be done as part of broad tax reform. After all, there are hundreds of billions of dollars stored in offshore tax havens by U.S. companies because they don't wish to pay confiscatory corporate tax rates to bring that money home and reinvest it here. The Post should expand this suggestion nationwide, and then let Detroit earn its "fair share" of those investment dollars based on their ability to attract capital.

Another suggestion is to create a "Detroit Visa" and allow those seeking to immigrate to the U.S. to settle in Detroit. This, also, is the basis for what should be the cornerstone of comprehensive immigration reform. Lots of folks want to come to the U.S. legally. We should be seeking to identify those with the intellectual capital that would add to skills we need here in this country. Giving priority to those who will agree to settle in areas of poverty - urban city centers as well as rural areas in need of health care providers - could be an idea that helps much more of the country than just one city.

There are other ideas that are less than compelling. One suggests moving federal workers to Detroit. Again, while the concentration of federal workers has turned Maryland and Northern Virginia into wealthy recession-proof enclaves, there is no reason to reward Detroit specifically with federal largess. Many federal workers should be taken from the areas surrounding the beltway. Some of these should be eliminated altogether (as the authors have already conceding lower taxes would help the economy), while others should be disbursed more evenly around the country.

Suggestions that the city go vegan are just about feeding the non-stop PR machine that is the People for the Ethical Treatment of Animals. And the suggestion that Detroit be given to Canada is more about admitting that Detroit has truly failed than a serious policy discussion point.

That said, there is a bigger lesson here. Detroit is one example, but may not be the only one. Any entity that perpetuates expensive yet unsustainable government programs, all the while relying on industry that acts contradictory to market forces, is headed for failure.

Those looking at remedies for Detroit need to keep perspective of the much bigger picture. Detroit's economic failure was last week's news. Yet the parallels between Detroit's policies and those of the current U.S. government have too many familiar parallels.

It is time to look at Detroit for the lesson that it is. People can vote with their feet, and with their checkbooks and capital. The U.S. needs to right its economic ship, and take an honest look at the size of government it has, and the amount of regulation we continue to burden industry with. Failure in one major city is manageable. Failure at the national level of a major superpower will not be smoothed over as easily.

Charlie Harper, author and editor of the Peach Pundit blog, writes on Georgia politics and government; www.peachpundit.com.

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