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Fiscal Crises: Coming To A City Near You?

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By George DeMartino, and Ilene Grabel, Professors at the Josef Korbel School of International Studies, University of Denver. Cross posted from TripleCrisis

This week Paul Krugman used his influential column in the New York Times (NYT) to draw comparisons between the fiscal crises in Greece and Detroit (USA). In the essay, Krugman highlights the rhetorical parallels between the two crises. He argues that “deficit hawks” are misusing the Greek and now the Detroit crises in their continued efforts to lay the blame for fiscal crises anywhere and everywhere on fiscal profligacy and bloated public sectors. He is of course quite right about the misdiagnoses of these crises and the underlying political economy of the attack on the public sector. (Though note that his emphasis on the “Schumpeterian aspects” of the Detroit and the Greek crisis really misses the point insofar as they involve far more than the failure of policymakers to adapt to inevitable changes in competitive advantage.)

There is much more to be said about the Detroit crisis. The sad fact of the matter is that Detroit suffers today from international trade and international financial policies of the past two decades that Krugman himself, and indeed many other leading international economists embraced. It was not so long ago that leading international economists, Krugman included, advocated strongly for the North American Free Trade Agreement (NAFTA), the WTO, and just about ever other neo-liberal international agreement that came down the pike. At the time the champions of neoliberalism ridiculed anyone who raised virtually any concerns about the agreements. Labor and human rights advocates, environmentalists and child’s rights advocates were branded as well meaning but ignorant, sanctimonious, or simply self-interested.

What seemed to escape the attention of the leading international economists at the time was that by opening up the world to free trade and free financial flows, without at the same time attending to basic labor and human rights and environmental protections, the extraordinary opportunities that the new policy regimes would create for massive corporate tax avoidance and evasion (and hence fiscal crises), and the failure of the US and no doubt other governments to make meaningful provision in advance for the extraordinary adjustment costs that these agreements would entail, they essentially ensured that defaults on the scale of Detroit would be highly likely if not inevitable. Eventually, but too late for Detroit, some of the champions would recant—indeed, Krugman himself came around to advocating for labor standards in trade agreements by 2006; and many economists today realize that unregulated international capital flows not only induce financial instability, but also encourage capital movements that are designed to reduce corporate tax burdens and hence undermine the tax base of municipalities, states, and even national governments.

Blaming Detroit’s leaders today for its failure to adapt and adjust, in the face of capital flight and a diminished tax base, and the blatant failure of the US government to prepare for the de-industrialization and relocation that the neoliberal agreements of the 1990s accelerated—that might make for a nice sound bite, but it lets economists off the hook too easily for the damaging consequences of the policies that they themselves sold to the U.S. public. More difficult, perhaps, but far better to acknowledge that Detroit’s mess is in part the result of radical and mis-guided policies that eminent economists embraced with such vigor not so very long ago. Indeed, much the same radical worldview is embodied in the Trans-Pacific Partnership Agreement and the Trans-Atlantic Trade and Investment Partnership, two new agreements that are presently being negotiated. Both of these agreements are close cousins of NAFTA insofar as they reflect the continued resonance and influence of neo-liberalism on trade and financial matters.

Multilateral trade, investment and other types of integration agreements are a big part of the story of all of these crises–NAFTA in the case of Detroit; the decision to join the Eurozone in the case of Greece. We might also recall that Detroit’s efforts to declare bankruptcy comes on the heels of fiscal crises in other struggling US cities. Scranton, PA led the way by declaring bankruptcy, and Harrisburg Pennsylvania has been nearly there several times (and only seems to have averted that fate by slashing public spending and selling the city’s incinerator). Tax justice advocates have rightly argued that governments themselves have signed on to tax rules and liberalization agreements that enable tax evasion and international asset transfers. These have stripped nations and states of the tax revenues that might close many of the budget gaps and provide finance for critical public services during economic crises.

Crises in Greece, Cyprus, Detroit, Scranton, and Harrisburg have others things in common as well. In these cases (and of course many others in the Eurozone and in the developing world), the burden of adjustment–as always–is borne by the most vulnerable groups in society: pensioners (and especially retired public servants), the infirm, youth, the poor, and the middle class. In Detroit there is the added dimension that the crisis falls not just on the poor that largely populate this deindustrialized city, but also on African Americans who also dominate the city. The destruction of the auto industry and of the retirement and health benefits to the industry’s workers falls disproportionately on African Americans, who had for a time enjoyed a degree of social mobility and economic security in what used to be very good unionized jobs in the auto industry.

One other troubling parallel among all of these crises is the shifting of authority to unelected technocrats charged with enforcing fiscal rectitude during crises. By now, the role of the Troika in the Eurozone is well known. That group (comprising the European Union, IMF, and European Central Bank) has staked out a clear role in dismantling the public sector and enforcing fiscal retrenchment. In the Detroit case the state-appointed “Emergency Manager” Kevyn Orr plays this same role.

The crises in US cities and in the Eurozone have many troubling parallels and deep structural causes. Failure to adapt to change is simply not one of them.

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55 comments

  1. allcoppedout

    The “free market” advocates were (and remain) as cruel as the landlords of the Enclosures.

    1. Mickey Marzick in Akron, Ohio

      From agricultural enclosure to industrial enclosure.

      What happened in agriculture has been underway in manufacturing for approx 40-odd years – if not longer! Capital intensive and labor-displacing with the result that the absolute number of persons employed in manufacturing will continue to decrease – even in China and elsewhere.

      As to the “political” consequences, work by Claus Offe , Dahl and Lindbloom’s Politics and Markets [1977], and/or the seminal work by James O’Connor, The Fiscal Crisis of the State [1973] come to mind. Yes, even back then there were “warnings” of the impending fiscal crisis… just a matter of time. But the irrational exuberance of the pimps [economists and politicians alike] of the “knowledge economy” in the new world economic order drowned out critics. What baffles me is how many “progressives” bought the swill when a reading of Marx [Volume 1, Parts 3-5, particularly Chapters 14 -15] documenting the decimation of hand-loom weavers by the introduction of machinery in England would have suggested that “we” have been here before.

      Industrial Enclosure…

      1. diptherio

        “What baffles me is how many “progressives” bought the swill when a reading of Marx [Volume 1, Parts 3-5, particularly Chapters 14 -15] documenting the decimation of hand-loom weavers by the introduction of machinery in England would have suggested that “we” have been here before.”

        Progressives don’t read Marx, only commie-pinkos and godless anarchists. If Progressives are familiar with any economics text, it’s more likely to be Samuelson or Mankiw. Progressives are too lily-livered to even push for real Keynesianism, by and large, much less anything espoused by that anathema, Marx.

        [Note to Progressives: I sometimes call myself a Progressive. This is intended as constructive criticism.]

        1. Mickey Marzick in Akron, Ohio

          diptherio,

          Thanks for making my point! I didn’t want to come across as a disgruntled commie-pinko or a godless anarchist.

          Mickey

        2. Massinissa

          As a socialist, I have to ask, and im being serious here:

          Do Anarchists actually read Marx? I thought they were still mad at him for being mean to Bakunin.

          1. Mickey Marzick in Akron, Ohio

            I would think that Marx’s comments regarding the “withering away of the state” would be of interest to an anarchist.
            Admittedly not much to chew on there….

          2. diptherio

            Anarchists (if they’re smart) read Marx for his description of the capitalist system and its internal contradictions and basic tendencies. Marx’s analysis of the functioning of the system is second to none. I only part ways with Marx when he starts speculating about the transition from capitalism to something else.

            Anarchists desire the withering away of the state without first having a dictatorship of the proletariat [sic]. I believe the Narodniki held to a somewhat similar line during the Russian Revolution (though I’m no expert).

          3. xo50rar

            Anarchist here. I generally dismiss Marx as a sophist who failed at everything until he found politics. Terms like ‘proletariat’ and ‘bourgoise’ are never properly defined, and thus become “people I like” and “people I don’t like” in the reader’s mind. It’s pretty obvious emotional manipulation.

            In my experience, anarchists are more focused on the moral and practical arguments for a stateless (or the term I prefer, “voluntary”) society, which I think are strong and many, and in general we advocate for the complete abolition of that horribly immoral and destructive institution known as the state, which is funded by theft and coercion, on both moral and practical grounds. For example, we consider the fact that States the world over murdered over a quarter of a billion of their own people (not counting wars, mind you) in the 20th century alone to be a priamry piece of evidence in support of our views, and for me at least, everything else is sort of secondary to that fact.

            Here’s a recent speech giving some pretty good arguments for what I’m talking if you’re interested. Personally I love exposing myself to opposing points of view. I think it’s important to test our conclusions lest we settle on the wrong ones, and who likes being wrong? I do hope you give it a listen.

            http://www.lewrockwell.com/assets/2013/07/381_Higgs.mp3

            1. digi_owl

              Marx didn’t define them, as in his time they were frequently used. Now however they are archaic terms.

      2. digi_owl

        What seems to be continually ignored by politicians and economists alike is that one entities wage expenses is another entities revenue.

  2. Jim Haygood

    ‘Blaming Detroit’s leaders today for its failure to adapt and adjust … lets economists off the hook too easily for the damaging consequences of the policies that they themselves sold to the U.S. public.’

    In 1979, former GM exec John DeLorean published On a Clear Day You Can See General Motors, ripping the purblind management of the company. Michael Moore followed ten years later with his documentary Roger & Me, exploring a similar theme involving plant closures.

    GM’s crack-up was foreshadowed decades earlier. The crappy little Chevy Vega that my dad had when I was in high school told me almost forty years in advance that GM was headed for the scrap heap.

    As ol’ Ralph Emerson said, ‘Things refuse to be mismanaged for long.’

    1. Yves Smith Post author

      Yes, the piece went a bit overboard in wanting to assign blame to US policies (which were designed to help companies like GM…). This failure has many parents. However, their general point holds, in that the auto industry is often included on the list of things that produced the mess that Detroit has become, and US policies aren’t. You are seeing lots of other cities struggle and fail, and the ultimate driver of that is now nearly 40 years of stagnant average worker real wages.

  3. Clive

    I’m always intrigued to learn what, exactly, laissez-faire free-marketeers propose to about industrial cities (and, indeed, industrial counties — and even States) in the absence of an industrial policy.

    I’m sure they would, if the read NC at all, pipe up and say “creative destruction”. Now, I’d be all for that (subject to transitional relief for the people — yes, people, remember them ?) who are affected e.g. generous social security, training and education provision etc. if this was a genuine case of creative *destruction*. But I’m struggling to see the destruction part of the creative destruction. This is more like creative moving. The work is still needed from what I can tell. No-one is proposing a serious long term decline for overall industrial production, and our economies are still based on consumption of all that production.

    So it’s merely relocation of labor. Enterprise is reneging on the social contract. Why ? Because it can. If it can, it will. But what about the now surplus to requirement infrastructure which was borrowed by the public purse to pay for the assets which enabled that production ? Tough. Capital flight in action. The capital has, well, flown.

    Beware, then, India, China, and all you other emerging economies. The ports, rail and road links, power generation and transmission, education, housing and so on which you’re borrowing to build out now will, in maybe less than 20 years be similarly un-needed because some other lucky country will be being lined up to take your place. You can’t say you’ve not been warned. And if you’re silly enough to be incurring environmental damage to support this “development”, you might find that sort of own-goal takes a long, long time to recover from.

    1. seabos84

      whenever ANY opponent of the neolib lies on freeloader free trade uses the lie free trade as the liars use the lie, then you’re already losing. I think that 1 could argue that the illegal drug trade is free from government meddling – well, except the DEA will drop in with MP5s and handcuffs – and, if you think that the rules are WIDE open for the drug market players … try making up your own rules with some russian or southeast asian or latin american gangsters … ha ha ha.
      there ain’t no trade free of rules – there are ALWAYS rules. Are the rules gonna be fair, or, are they gonna be tilted for the crony kleptocrats of Boeing, Haliburton, Exxon, Microsoft, Goldman… yawn.

      rmm.

    2. lucky

      “Beware, then, India, China, and all you other emerging economies. The ports, rail and road links, power generation and transmission, education, housing and so on which you’re borrowing to build out now will, in maybe less than 20 years be similarly un-needed because some other lucky country will be being lined up to take your place. You can’t say you’ve not been warned.”

      Next in line is Mexico. The manufacturing boom across the boarder will create more jobs in the US – or so they say.

      “Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.” Thomas Jefferson

      1. Clive

        Yes, sorry, Mexico was a glaring omission so thanks for the inclusion (my European bias is to blame, I quite forget the US’ backyard). I’m too remote to being able to comment from first hand knowledge but I don’t believe for one single second that Mexico’s transition into a failing state (I’m basing this comment on MSM reporting so might be wide of the mark, happy to be corrected by knowledgeable locals) is a complete coincidence to it also being the 2000-era strip mine for low cost labor now being supplanted by even more pliable countries. The Philippines and Bangladesh spring readily to mind.

        1. Waking Up

          Sorry, but I now place Bruce Springsteen in the category of hypocrites. After all, he went on the campaign trail for Obama in 2008 AND 2012. He knew or certainly should have known by 2012 that President Obama’s policies have been detrimental “to his home town”.

    3. optimader

      Beware, then, India, China, and all you other emerging economies The ports… in maybe less than 20 years be similarly un-needed because some other lucky country will be being lined up to take your place…And if you’re silly enough to be incurring environmental damage to support this “development”, you might find that sort of own-goal takes a long, long time to recover from.

      You speak to a whole cost analysis. I think it reasonable contemplate if much of the rip and run infrastructure will survive 20 yrs, or at least whatever it’s planned economic life is?
      As energy costs inexorably climb, ultimately whomever gets the job done (value creation) for the least energy content wins.

      Of course “getting the job done” includes externalities like sustainable environmental footprints, transportation costs, economic scale of operation/material handling (you can witness absurdly inefficient exercises in these considerations)in china india etc etc.

      One thing you can depend on, “manufacturing” is not a static phenomena, is a globally mercurial. A case study is the history of steel manufacturing as it became a social welfare project that migrated the globe as thefirst rung in the ladder for sovereign industrial food chains. Steel smelting and billet/ingot production, processed steel product forms (rolled plate sheet, higher metallurgical value products), simple manufactured parts for OEMs, complex steel products (transportation –cars, ships etc), higher value transportation products and electronics bits to put in them, ding! –obsolete steel industry migrating as a social welfare project to the next contestant, ship building following it.. etc etc. File under: Japan, Korea

    4. Walter Map

      I’m always intrigued to learn what, exactly, laissez-faire free-marketeers propose to about industrial cities (and, indeed, industrial counties — and even States) in the absence of an industrial policy.

      Bleed them dry. That’s the industrial policy.

      Duh.

    5. GRP

      What this means is that manufacturing as an employer for large percentage of the population is only a passing phase. Eventually every society has to figure out alternate means of productively employing large percentages of their populations.

  4. financial matters

    The problem with comparing Greece to Detroit is that Greece was a sovereign country that gave up that right in regard to its monetary policy.

    Many pension funds were raided by corporate takeovers and financialization of corporations

    Pension funds probably don’t belong under the control of corporations or city or state governments.. Corporate management is mainly interested in exorbitant salaries for top management and ‘shareholder value’ has become synonymous with lack of capital reinvestment in the business.

    We have seen too many instances of city, state, municipal, teacher, firefighter etc pensions being misled by our ‘greatest’ financial institutions into amazingly complicated and poor ‘derivative’ based investments. With some of the people controlling these funds making out as well as the financial institutions.

    A central sovereign plan such as Social Security or a universal Medicare has more potential for transparent control and the backing of a sovereign currency to keep it solvent.

    Using national taxpayer payer money to fund all these various local pensions based at least partially on graft and gross financial mismanagement would seem problematic. But the government could step in to provide free Medicare instead of the horrible Obamacare patchwork. And adequate Social Security and a Job Guarantee program could go a long way in promoting a healthy economy based on goods and services rather than artificial increases in housing and stock prices.

    Tax laws should be simplified to avoid so much arbitrage and public works should be kept in public hands with the proceeds going into the public coffers…

    1. BondsOfSteel

      Yes! I see these battles over pension more as a battle for who is going to control the large amount of capital set aside for retirement of > 5% of the populations. (Since most of the rest of the population doesn’t have retirement accounts… this isn’t chump change.)

      Push the cities in bankruptcy then force the employees to some kinda 401k/IRAs where big banks make coin instead of that pesky CALPERs. Added benefit… no more shareholder activism.

    2. Don Levit

      Social Security has the advantages of transparency and the backing of the sovereign state to ensure its success.
      Really?
      How transparent is Social Security when the trustees strongly suggest the trust funds have no budget implications for their usage due to cash flow shortages, that have occurred since 2008.
      They nake it seem like drawing down on a trust fund is similar to drawing down surplus in an insurance company.
      As for sovereign backing, Stephen Goss has an interesting take on that.
      Stephen Goss, the current (or former) head actuary for Social Security and Medicare contrasts social insurance from piovate insurance. Private insurance is to be fully pre-funded, for the plan may not always have new entrants.
      On the other hand, Social Security is around forever, so the ability to always tap new entrants makes pay-as-you-go financimng more applicable. Why build up reserves if you can always count on the new people to bail you out? Why build up reserves if the plan can adjust its payments to expected costs, rather than actual costs?
      Don Levit

  5. Thingumbob

    The second phase of the plan by the City of London and their junior partners in Wall Street is now upon us. Not just more government bailouts for lunatic speculators in derivative gambling debt. Witness the advent of the “bail-in.” Cypress and Detroit are the beginning of that process. Glass-Steagall reform is needed to cut loose the multi-trillions of uncollectable nominal debt created by “bucket shop” profiteers and a return to FDR’s mobilization of our population for massive infrastructure credit generation to restore and advance the broken down physical economy.

  6. Tokai Tuna

    Michigan started to rust after the Vietnam war, then came starve-the-beast (to-hell-with-people). The country has more than enough to pay for the military, prisons, and cops, and no one cares about the ghetto unless they are lining up to pick over its bones.

  7. josh

    In Michigan, cities are abandoned for the suburbs when their infrastructure becomes too costly to be maintained. People too poor to move get stuck with the bill.

    1. Carla

      “In Michigan, cities are abandoned for the suburbs when their infrastructure becomes too costly to be maintained. People too poor to move get stuck with the bill.”

      In Ohio, to add insult to injury, the cities are stuck with the bill for building out the suburban infrastructure. My gut tells me this happened in Detroit, too.

      The Growth Coalition Theory explained it all to me:

      http://www2.ucsc.edu/whorulesamerica/local/growth_coalition_theory.html

  8. washunate

    “What seemed to escape the attention of the leading international economists at the time was that by opening up the world to free trade and free financial flows…”

    Um, the international trade and finance regime instituted by the West over the past couple decades is pretty much the opposite of free. Just try asserting your Constitutional rights the next time your friendly local armed federal agent wants to ask you a few questions about what’s on that shiny laptop in your luggage.

    But at any rate, international trade has little to do with why the city of Detroit has been in trouble for decades. NAFTA and financial deregulation and media consolidation of the 1990s didn’t cause white flight to Oakland county or dismantle passenger rail systems or force local leaders to systematically over promise and under fund pension/healthcare promises.

    1. Yves Smith Post author

      Inspecting your laptop has nothing to do with trade. Political authoritarianism is a different axis.

      Political oppression and “free trade/free markets” usually go hand in hand. I have a quote in ECONNED apropos of Pinochet from a Chilean economist that goes something like “People died so markets could be free” and he meant “people were killed.”

      1. washunate

        Yves, thanks for the response, but I don’t understand what you are describing. I would say that trade is the flow of stuff, the movement of goods and people and capital and ideas and so forth. The movement of oneself and one’s possessions seems so basic an economic idea to me that perhaps I’m misunderstanding your comment?

        At any rate, my main observation is that international trade has nothing to do with why the city of Detroit faces financial difficulties. The past couple decades of US policy have been about corporate trade, not free trade. (If anything, increasing restrictions on travel from Canada poses the most immediate international trade problem for Detroit – without bans on trade in drugs, for example, Detroit would be a major import center for a wide variety of drugs that are cheaper in Canada than in the US).

        There’s white flight, the movement of auto plants, the replacement of trains with automobiles, the drug war, the rise of the healthcare cartels, the financialization of the auto companies, the militarization of society, the chronic underfunding of city employee retirement benefits, environmental contamination, the general concentration of wealth and power within our country, and other factors.

        Perhaps two specific data points can help illustrate this:

        1) Median household income in the city of Detroit is about $27,900, while median household income in the city of Troy is about $85,900.

        2) The largest employer in Oakland county is neither GM nor Chrysler; it is Beaumont Hospitals.

        Mexico and China and India and Indonesia are not responsible for inequality in the US.

        http://www.detroittransithistory.info/PCC/DetroitPCC-5.html
        http://www.nps.gov/nr/travel/detroit/d32.htm
        http://www.nps.gov/nr/travel/detroit/d38.htm
        http://quickfacts.census.gov/qfd/states/26/2680700.html
        http://www.city-data.com/city/Detroit-Michigan.html
        http://www.detroitchamber.com/economic-development-2/region-overview/county-profiles/
        http://www.beaumont.edu/

        Etc.

        1. Yves Smith Post author

          Go look at any good history of the decline of Detroit. Its population has been in decline since the 1950s.

          http://www.nakedcapitalism.com/2013/07/the-decline-and-fall-of-detroit.html

          Big Auto was LONG the dominant employer in Detroit. I don’t see how you can say otherwise. You aren’t looking back far enough.

          And trade had everything to do with the fall of Detroit. In the 1970s, as I recounted in the piece linked above, the Big 3 started moving production to Mexico and got legislation passed (later NAFTA but earlier provisions first) that facilitated that. Yet it was Germans (with high wage workers) that were among the auto producers eating our lunch. It was widely recognized when I was a kid (1970s, you’d see this all over the business press) that Big Auto was depicted as lousy at managing. That was confirmed when Toyota took over the absolute worst plant GM has in terms of labor relations, hired the old workers, and got it producing to levels seen in Toyota’s own plants in Japan.

          Detroit was allowed to get waivers to allow it to move jobs while maintaining OTHER de facto trade barriers, the most important, lousy fuel economy standards, that led them to lose tons of market share overseas. The refusal of incumbent management to up their game (or of the boards to fire them and bring in better guys) meant they instead fought for policies that allowed them to limp along longer than they should have. Exporting jobs was not necessary but it was an example of what has become a widespread approach among our elites: of screwing labor to preserve executive pay and power.

          1. washunate

            I agree with the details, and like many Americans today, I am deficient in personal experience of the post-war period. All I can do is read books about it like The Reckoning and read historic articles online about the end of streetcars and movement of auto plants out of the city and look at maps of racial segregation and so forth. And more recently, the horrific consequences of the racism of the drug war specifically and our criminal justice system more broadly.

            What I am confused about and clearly not articulating well is how does international trade explain the difference between the city of Detroit and the region of Detroit?

            Are you suggesting that if the US border had been sealed to the import and export of cars that white flight from the city of Detroit wouldn’t have happened? That the city leaders of Detroit would have fully funded retiree promises? That the median household income in the city would be comparable to that in Oakland county?

  9. bluntobj

    I work with small towns and cities, consulting on budgets, accounting, and other financial matters. What happened in Detriot is happening on a far greater scale in the US than you realize.

    I am talking about the 250 resident town to the 20,000 resident city. These local governments are depleting their general funds, undercharging their residnets for utilities, and have declining revenue bases.

    Their costs are heading nowhere but up. Their labor unions expect greater wages and benefits; health, insurance, and other costs rise at a 8-12% rate each year, and they borrow absurd sums to comply with incredibly punitive requirements for their water & sewer systems. I’ve personally worked with a town that borrowed $8 million to completely refurbish it’s sewer system, without planning that the P&I alone would be over $500,000 a year, and would reauire them to raise their monthly sewer rates by over $50 a month per connection to just have a no deficits budget in their sewer fund, to say nothing of future cost increases!

    These towns don’t have the same characteristics of Detroit referenced here as scapegoats to blame their failure on. What they do have the same is an inability to envision and project costs, failure to understand the consequences of their actions, and the lack of leverage (or will) to negotiate with their unions. These towns and small cities are at the mercy of national forces, just like Detroit, so pointing blame away from the city leaders using national level excuses is such, such, (and their really is no other adequate expression) FAIL.

    Every government or city in this fucking contry is affected by those fucking policies, so claiming wounded victim status deserves mockery and fucking shame for those who would use it!!! Detroit is not special!

    For years governments have failed to adapt, because they have been captured by whatever force is intent on milking them dry. Where change comes it is driven by personality, such as Kenneth Orr, who had the balls to say that the debt ridden decisions made in the past decades had not worked, and that it was time to clear the decks.

    The comfortable elite has been shaken up, and the defenders of TPTB have arisen to decry the bankruptcy. They know that Detriot is merely the first drawing back of the waters as the ocean of debt prepares it’s tsunami of destruction.

    It’s going to affect everyone. Expect a large number of dissolutions of small towns and cities in the next two or three years as their costs drive them into the ground.

    1. Scavenger

      Having trouble with this one “Gov’mints have failed thus they should be blamed, but Gov’mints were misled by FIRE because of spending like crazy”. Is that what you mean? Not sure which city you live in but the employees here are under constant attack with big union busting lawfirms being brought in to put fires out. I think Hudson alluded to stiffing the creditors, maybe I have that wrong. But it sounds ethical.

      1. bluntobj

        I work with small cities over an entire state. It’s a fairly union friendly blue state. The unions here, especially the police and fire unions, could use a “busting” to bring them back to reality. Cities and towns that have unions are under more fiscal pressure than those who do not.

        As for being mislead by the FIRE industry, two things: I mentioned lack of vision and adaptability as being the reason for failure. The bubbles of the last two decades were not hard to identify, and there were a multitude of voices warning about how bad the crash was going to be. Governments did not hesitate to increase valuations, nor did anyone try to moderate expenditures or negotiate moderation from their unions.

        What is worse is that there was no change in behavior after revenues crashed; instead the borrowing increased or they consumed their fund balances, hard earned residuals built up over the course of years, because they failed to adapt quickly to the new reality.

        The same can be said of a majority of americans, the federal government, or of the nations of the world. Borrow, maintain your lifestyle, and go hopelessly into debt.

        Overshoot, overreach, ignorance, arrogance, willful blindness. Just because most governments, and most people, are guilty of this does not negate the guilt.

        Besides, it’s always a chicken and the egg question. Government misread the signals from the FIRE industry, whose growth in turn had been enabled by government, which had been lobbied by the FIRE industry, which was only possible because governments allowed it and gave themselves the power to be manipulated.

        I point the finger of guilt at government, because it is only the power of government that has given the FIRE industry and the elite such power.

        1. Paul P

          It’s the greedy unions, of course

          The economy cannot support health care, housing, education, jobs, and retirement for the population. Yet, the economy grows, doubling per capita since the 1970 or some such amount.

          Found a lot of money pretty quickly when the banks needed it

  10. kevinearick

    The City Empire

    Cities are sewers, big, small and medium. They are all sewers, full of critters breeding on something for nothing. Some dwellers know it; most do not. Most are born in place and bred to ignore the obvious. Others are drawn by the promise. The only difference among them is the number of social event horizons separating critters in the zoo, and from nature.

    You might find a few old cusses living there, to be near amenities in their old age, and a few kids with blinding passion, but that’s about it. No work of any consequence gets done in a city, which is specifically built to exploit nature and pass on the increasing risk and lower return to future generations. Nuclear power simply and temporarily extended the radius of exploitation.

    The females you will meet largely employ males as disposable tools, because the male treat females as disposable tools, which is why the bisexual population grows to become relatively successful. Personally, I don’t bother with that side of the equation because that is capital’s domain.

    In the empire world, honest labor is considered a stupid activity for those too stupid to make the grade, to be supervised by those who do, all chiefs and no Indians, completely dependent upon automation. Today’s unions play along, protecting capital, not labor. Take a look at their spending habits, on taxable titles, to their corporate cars, land, certifications, blah, blah, blah – labels that serve as the foundation of their lives, the rat raceways, to be pulled at the empire majority’s whim.

    I just try to be a decent human being while I’m swimming through the sewer, because there are things in that sewer worth retrieving, especially the kids. Funny, not, how the rats seek me out to solve their problems, all the while designing traps to enslave me to their cause, or destroy me if not.

    Even at this late date, on the eve of world war that will be fought, ultimately, on American soil, the critters are still trying to come up with some theory to justify monetary and fiscal expansion under authority of law, in the face of demographic deceleration. They just can’t wrap their minds around sunk cost, especially one that engulfs the empire, even though their History is replete with the same result.

    FDR was as good a dodger as any, but he had labor’s interest in gravity on his side at the time. Gravity catapults are not necessary, but they are interesting to build, and solving the problem once is just a whole lot easier. If you want to change the system, you have to change the system, because it’s a fulcrum acting as a buffer. You can apply energy, which must come from somewhere, but when you remove it, which you must, the status quo returns.

    Basically, an empire keeps a lot of people busy, with busy work, humanoid self-preoccupation. After all this time, why do you suppose the Internet is a tool of NSA and there are no real changes to the university system? Has anything really changed at the University of California, other than the veterinarians being as stupid as the doctors? Who was just coined as its icon?

    Empire currency delays the cost of stupidity, to make room for more stupidity, until it can’t. As you can plainly see in Detroit, Chicago and elsewhere, leadership has once again run out in front of the mob, right into a bottleneck, with mob pressure coming up fast behind. Empire leadership is impulsive – just step off the cliff; don’t think. Given your now evolving definition of crime, which comes first, cops or crime? Recast the data.

    The empire majority can’t raise children themselves, so they desperately want to tell you how to do it, to be worshiped by the so ingratiated humanoid mass, under the circus tent. Depending upon your development, you want to position your children somewhere out in front of that bottleneck, to catch the wave. Watch the crank, on the margin. Empires are dc. How do you create ac from dc, and what kind of backlash do you want?

    There is nothing good or evil about the capital, middle class, and labor event horizons. They are arbitrary, built to suit a purpose. Don’t expect a leopard to change its spots anytime soon, but, also, don’t assume a leopard and be surprised to find yourself confronting something else all together. What is the event horizon of your development?

    An empire is a city of cities. If you can wrap your mind around that, you can employ it, instead of it employing you, or you can choose option C. If the critters could raise children, why would they need an empire to worship? Which is more valuable, any effective parent, Randy Moss, Joyce Meyers, or the President of the United States?

    Empire money has no intrinsic value. Gold has some intrinsic value, but every ounce on the planet cannot scratch the surface of the colossal stupidity wrought by Silicon Valley, leveraged by the Fed, and leveraged again by the global central bank cabal, to automate the labor function, Marvin the Martian’s latest and greatest bait and switch to re-inflate the real estate ponzi.

    Silicon Valley is just the latest in a long line of ideas Shanghaied by the money-changing drug culture. Absent your intelligent labor, ROI is an illusion, a trick played on an audience composed of accomplices, witting or not, for the purpose. That’s Bank for you, no matter how you regulate it. Without you, money is just another relative transmission mechanism, on a trash heap called History.

    Empire money subsidizes the back end at cost to the front end, and the empire needs a willing horse, which it doesn’t have. Statistical association doesn’t work because its derivative observer’s prism is backwards, which is the problem and the solution. Life goes forward, not History. History travels backwards, in circles, along a raceway composed of mix and match false assumptions to assemble the track.

    Your children are the integral path to the future; money is a derivative. Don’t place the cart before the horse because everyone around you is doing the same and expect a happy outcome. Your children need you, not Uncle Sam or peer pressure consent. Public school is about empire economics (oxymoron), not family economics. The latter you have to figure out for your self.

  11. kevinearick

    The City Empire

    Cities are sewers, big, small and medium. They are all sewers, full of critters breeding on something for nothing. Some dwellers know it; most do not. Most are born in place and bred to ignore the obvious. Others are drawn by the promise. The only difference among them is the number of social event horizons separating critters in the zoo, and from nature.

    You might find a few old cusses living there, to be near amenities in their old age, and a few kids with blinding passion, but that’s about it. No work of any consequence gets done in a city, which is specifically built to exploit nature and pass on the increasing risk and lower return to future generations. Nuclear power simply and temporarily extended the radius of exploitation.

    The females you will meet largely employ males as disposable tools, because the male treat females as disposable tools, which is why the bisexual population grows to become relatively successful. Personally, I don’t bother with that side of the equation because that is capital’s domain.

    In the empire world, honest labor is considered a stupid activity for those too stupid to make the grade, to be supervised by those who do, all chiefs and no Indians, completely dependent upon automation. Today’s unions play along, protecting capital, not labor. Take a look at their spending habits, on taxable titles, to their corporate cars, land, certifications, blah, blah, blah – labels that serve as the foundation of their lives, the rat raceways, to be pulled at the empire majority’s whim.

    I just try to be a decent human being while I’m swimming through the sewer, because there are things in that sewer worth retrieving, especially the kids. Funny, not, how the rats seek me out to solve their problems, all the while designing traps to enslave me to their cause, or destroy me if not.

    Even at this late date, on the eve of world war that will be fought, ultimately, on American soil, the critters are still trying to come up with some theory to justify monetary and fiscal expansion under authority of law, in the face of demographic deceleration. They just can’t wrap their minds around sunk cost, especially one that engulfs the empire, even though their History is replete with the same result.

    1. kevinearick

      FDR was as good a dodger as any, but he had labor’s interest in gravity on his side at the time. Gravity catapults are not necessary, but they are interesting to build, and solving the problem once is just a whole lot easier. If you want to change the system, you have to change the system, because it’s a fulcrum acting as a buffer. You can apply energy, which must come from somewhere, but when you remove it, which you must, the status quo returns.

  12. kevinearick

    Basically, an empire keeps a lot of people busy, with busy work, humanoid self-preoccupation. After all this time, why do you suppose the Internet is a tool of NSA and there are no real changes to the university system? Has anything really changed at the University of California, other than the veterinarians being as stupid as the doctors? Who was just coined as its icon?

    Empire currency delays the cost of stupidity, to make room for more stupidity, until it can’t. As you can plainly see in Detroit, Chicago and elsewhere, leadership has once again run out in front of the mob, right into a bottleneck, with mob pressure coming up fast behind. Empire leadership is impulsive – just step off the cliff; don’t think. Given your now evolving definition of crime, which comes first, cops or crime? Recast the data.

    The empire majority can’t raise children themselves, so they desperately want to tell you how to do it, to be worshiped by the so ingratiated humanoid mass, under the circus tent. Depending upon your development, you want to position your children somewhere out in front of that bottleneck, to catch the wave. Watch the crank, on the margin. Empires are dc. How do you create ac from dc, and what kind of backlash do you want?

    There is nothing good or evil about the capital, middle class, and labor event horizons. They are arbitrary, built to suit a purpose. Don’t expect a leopard to change its spots anytime soon, but, also, don’t assume a leopard and be surprised to find yourself confronting something else all together. What is the event horizon of your development?

    An empire is a city of cities. If you can wrap your mind around that, you can employ it, instead of it employing you, or you can choose option C. If the critters could raise children, why would they need an empire to worship? Which is more valuable, any effective parent, Randy Moss, Joyce Meyers, or the President of the United States?

    Empire money has no intrinsic value. Gold has some intrinsic value, but every ounce on the planet cannot scratch the surface of the colossal stupidity wrought by Silicon Valley, leveraged by the Fed, and leveraged again by the global central bank cabal, to automate the labor function, Marvin the Martian’s latest and greatest bait and switch to re-inflate the real estate ponzi.

    Silicon Valley is just the latest in a long line of ideas Shanghaied by the money-changing drug culture. Absent your intelligent labor, ROI is an illusion, a trick played on an audience composed of accomplices, witting or not, for the purpose. That’s Bank for you, no matter how you regulate it. Without you, money is just another relative transmission mechanism, on a trash heap called History.

    1. kevinearick

      Empire money subsidizes the back end at cost to the front end, and the empire needs a willing horse, which it doesn’t have. Statistical association doesn’t work because its derivative observer’s prism is backwards, which is the problem and the solution. Life goes forward, not History. History travels backwards, in circles, along a raceway composed of mix and match false assumptions to assemble the track.

      Your children are the integral path to the future; money is a derivative. Don’t place the cart before the horse because everyone around you is doing the same and expect a happy outcome. Your children need you, not Uncle Sam or peer pressure consent. Public school is about empire economics (oxymoron), not family economics. The latter you have to figure out for your self.

  13. Antifa

    Detroit is just one of many cities and states going down the tubes, compliments of a thoroughly rigged economy and criminal bankers and politicians.

    It’s vital to see the neoliberal/neoconservative experiment in context. American history (especially since WWII) has been increasingly a reach for more and more international dominance, leading finally to the modern “neo” movement since 1980, which seeks permanent Americanization and globalization of the world’s economy. Why? Because we can. Because our wealthiest citizens profit from it. Because we have had the resources and manpower to go a viking, so we did.

    The Monroe Doctrine of 1823 is the great grandfather of the Cheney 1% Doctrine of 2001 — preemptive war on any nation that even hints at challenging our empire.

    Our empire building has been based, until recent decades, on stripping the resources and wealth of overseas nations. That process has now matured to its natural physical limits. The planet’s resources have been thoroughly explored and taken. It’s getting harder every day to get the raw materials we need. We approach the point where landfills from decades past are some of the richest sources of the materials we need for our daily lives.

    It’s also vital to see that this mad lust for global empire is doomed to failure by the natural laws of physics and biology. There is no chance that a consumer society based on American-style appetites can even continue as is on this planet, much less expand to every continent. The planetary resources simply aren’t there. Our oceans, atmosphere and soil are already visibly collapsing under the duress of what we currently consume and throw away. Our bees are dying from the witches brew of chemicals we lace our farms with to whip them into hyper production of food lacking in essential minerals and nutrients. When the bees go, a lot of our food will go away, too.

    Like the bees, Detroit matters. When entire American cities are, like failed states overseas, abandoned to the predations of the banks and elites who already own and hoard two-thirds of all monies, assets and property in America, it is the Third Act of our American play. Now comes the climax and conclusion of our story:

    In order to maintain an active and expanding military theater on every continent, in order to build and grow a total global surveillance apparatus, in order to keep the American dollar the world’s dominant reserve currency, in order to keep the US military machine going as the largest industrial user of oil on the planet, all the furniture in the American domestic economy now has to be splintered and burned in the fires of empire. That’s the closing scene of the American dream.

    The result is that fully 80% of adult Americans now live in poverty or near-poverty, with less and less assurance of sufficient shelter, nutrition, education and medical care to live decently, much less pursue careers or creativity. Everything is subject to sacrifice on the altar of our overseas empire. Social Security is no part of the budget deficit caused by multiple aggressive wars in a time of lowering taxes and unlimited bailouts to foreign and domestic banks. It’s a separate, self-contained insurance fund. Yet Social Security is going on the chopping block before 2016, if Obama carries out what his masters expect of him. It will be just another pension fund robbed of its contents by Wall Street’s greed. Medicare will be hollowed out and turned into an shrinking annual coupon if we do not stop it from happening.

    None of this destruction of America’s middle class was by happenstance. The resources are needed for empire, and will be taken — if we allow it.

    Who wants this global policing of the planet at any price?

    Who wants this military/economic empire no matter the cost?

    Our financial elites do. Our military industrial machine does. Our bought and paid for politicians do. They have collectively become an international class of predatory financiers and mercenaries chasing fiat profits anywhere available, buying governments wholesale and stripping nations of their resources and treasures to pay usury on the debts they put them into. All to stuff more paper wealth into offshore accounts where it does nothing but commit incest upon itself. So what if their pile grows larger by the minute? Whom does it help? Not even the people who own it. It just gets larger because it can.

    This globalization process by our wealthy, inflicted on other nations by America for so long, has now necessarily come home to America’s domestic population, a population viewed by our elites as mere cattle to be harvested of their productivity and lives as needed. A population under deep surveillance because they are the enemy now, they are criminals who won’t work for pennies or pay their medical bills, they are terrorists who could rise up and take back the money and power at any time. They must be stopped, they must be kept in line, they must be made to live in fear, divided and conquered and fed on scraps.

    But the neo dreams can’t last. They are too large for life. When an empire hits nature’s physical limits to endless growth, it stops growing. Debts that can’t be paid won’t be paid, and this planet owes no debt to the wealthiest one percent.

    Empires that stop expanding, historically go into decline, usually rapid decline. The easiest assets to strip and steal at this end stage are its own population’s labor and possessions, which are quickly seized and burned in the final orgy of trying to maintain foreign hegemony before things fall apart of their own accord.

    Know that what we let our elites do to Detroit now will be done to our street, our neighborhood, our homes and our families in turn. There is no reason to think you will be spared.

    It is time to change course. Our house is on fire.

    It is time to demand an end to overseas empire, a return to our own shores, and a united effort to rebuild our own nation before conquering all the others. It is time to disavow the Cheney Doctrine and aggressive war as a means of progress. There is no progress there except for Dick Cheney and his ilk.

    It’s time to refocus our national goals toward becoming genuine leaders of mankind, to finding new ways into a sustainable future for all humanity. Why let endless wars be our last gasp? Why let ourselves go down in history as a people who used up everything they had and then burned down their own nation trying to force the whole world to make our richest citizens ever richer? There is no such thing as enough for these people, but there is a point where enough is enough for us.

    We’re there.

    Let’s start with Detroit. And then let’s become a nation to admire.

    1. Don Levit

      Social Security was supposed to be a separate self-contained insurance fund.
      But, as many people have pointed out, those in the know, Social Security is social insurance, and differs significantly from private insurance.
      Private insurance are exchange transactions, in which one party lowers his salary for a future retirement benefit.
      In contrast, Social Srcurity, according to the FASAB, the accounting advisor for the federal government, considers Social Security “pension” as a non-exchange transaction.
      A non-exchange transactionisi where you are forced to pay in, but the government is not forced to pay you back. In fact, if you are actually paid back in the form of a defered benefit, the government does so only out of the grace and goodness of its heart.
      Don Levit

    2. Walter Map

      The U.S. economy is being systematically liquidated in favor of labor markets where pay scales are subsistence-level at best and where there are no worker protections or industrial regulations. The hyperrich want it all – including whatever anybody happens to have left.

      Why did you think the hyperrich wanted “free-trade” agreements? They wanted the freedom to pillage the planet. And they got it. And now that they’re free to pillage the planet, they are pillaging the planet freely. And they’ve bought up governments so they could be used as weapons. And use them they do.

      It is no accident that U.S. cities most affected so far are strongly associated with labor unions and have large minority populations. It’s rather by design: destroy the worker unions, and blame it on the blacks. You’d be amazed at how effective this strategy has been.

      Looking at Detroit these days, and looking at Hiroshima, you’d never know which one got nuked, and which one won the war.

  14. Jerry

    If were going to be global, them we need a global minimum wage to end all this movement for the cheapest labor. Simple solution, no/yes? (It could be done gradually.)

  15. steve from virginia

    DiMartino and Grabel are well meaning but they miss the point. Even the places that gained comparative advantage — due to cheaper labor and absence of environmental controls as well as dirt cheap credit/hot money flows — are suffering the same outcomes as Greece and Detroit.

    China is bankrupt and Mexico is poised to be the Western Hemisphere’s version of Syria … once its oil is gone.

    Without Nafta and outsourcing, Detroit would still be destitute in 2013, so would Europe. The Southeast Asian pussycats would not emit as many goods so they would be preemptively bankrupt.

    Japan might be more successful without the cheap labor competition but that would mean more reactors to melt and more land area abandoned to radiation. Hubris works that way …

    One does not burn 90 million barrels of capital per day any- and everywhere in the world and not endure severe consequences. Better to look toward the bankruptcy machine at the end of your driveway … and figure out a way to live without it.

  16. May

    @bluntobj Many states will rue their failure to monitor local finances. Let me guess there has been no state oversight of local finances? You can be small like this and not have issues like this, if you are located in North Carolina.
    I suggest you check out the Strong Towns website. Local governments of all sizes urban/suburbs have a huge problem with infrastructure.
    http://www.strongtowns.org/journal/2013/7/12/friday-news-digest.html
    http://bettercities.net/news- opinion/blogs/charles-marohn/ 20319/second-life-cycle-blues
    Second life cycle blues

  17. Kimberley O. Key

    The spectacular increase in hoarding of international reserves by emerging markets since the East Asian crisis has been one of the defining features of global imbalances. This column explores lessons from the crisis regarding alternatives to massive hoarding. It says that the crisis validates the need for external debt management policy and that the presence of fire-sale externalities associated with deleveraging, optimal external borrowing-tax cum international reserves hoarding-subsidy reduces the cost and the scale of hoarding international reserves.

  18. May

    http://citiwire.net/columns/why-your-city-might-be-the-next-detroit/?utm_source=newsletter&utm_medium=email&utm_campaign=dispatch
    Why Your City Might Be the Next Detroit
    Japan had a collapse like Detroit in Yubari and see what they did in response in 2007 to avoid repeats. Japan has 2d largest muni bond market after the U.S.
    http://www.iir-hu.de/fileadmin/Freigaben/Veranstaltungen/Tagung_Jan_2012/DRMConf-Kono.pdf
    Insolvency Avoidance Measures
    for Municipalities in Japan
    http://www3.grips.ac.jp/~coslog/activity/01/03/file/up-to-date-7_en.pdf
    The New System for Promoting Soundness
    in Local Finances in Japan
    http://www.japantimes.co.jp/news/2006/09/26/business/panel-calls-for-measures-to-shore-up-local-finances/#.UfwiwawUUlI
    Panel calls for measures to shore up local finances
    http://blogs.cfr.org/renewing-america/2012/06/15/policy-initiative-spotlight-north-carolinas-local-government-commission/
    Policy Initiative Spotlight: North Carolina’s Local Governmen t Commission
    http://www.auditor.state.oh.us/conferences/fiscaldistress/handouts/files/Fiscal%20Indicators-%20A%20proactive%20approach%20to%20local%20government%20financial%20assistance.pdf
    Fiscal Indicators:
    A Proactive Approach to Local Government Financial Assistance

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