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The tale of Detroit’s decay is one of a long decline and a swift collapse when it finally became clear that 51 years of Democrat government has left the city utterly bankrupt.
The marvellously gregarious American-domiciled British racing driver David Hobbs surmised street racing in Detroit beautifully in the early 1980’s. It wasn’t the narrow confines lined with concrete bollards which concerned him as he sped around a downtown street circuit consisting of roads normally open to metropolitan traffic. No, the real danger came from breaking down somewhere on the back stretch and then having to risk life and limb trying to get himself back to the paddock on foot through some highly dangerous areas!
Thirty years ago that seemed to be a humorous aside which played to European phobias about the dangers of US cities awash with firearms. However, today Detroit is a post industrial horror story. A tragic morality tale of government corruption, union intransigence and the destruction of a city once famed the world over as 'motown' for its cars and eponymous record label...
The city has shrunk from 2 million residents in its heyday to a mere 700,000 today, as private citizens fled the city while unions defiled the auto industry with dizzying demands for increases in wages and benefits which have left patriotic new car buyers paying a thousand dollars or more on the sticker price just to cover the gilded pensions demanded by the United Auto Workers.
Similarly Bloated municipal compensation led to dizzying budget increases which were challenging even when the economy was strong. As Detroit drove wealth creators away, the local economy decayed and last week it finally collapsed.
Detroit has a litany of statistics which would sound ghastly in the poorest corners of the developing world. In the world’s greatest ever capitalist economy, they are unbelievable. 47% of Detroit residents are functionally illiterate, the murder rate is 11 times higher than New York and the police force solve barely 10% of crimes...although the later fact is perhaps quite impressive given that most police stations are closed for up to 16 hours a day.
While it may have shocked the economically illiterate, the municipal debt bubble was clearly visible to any amateur who could do basic math. Detroit has been spending on an unsustainable scale just like Greece, for decades. A Detroit-style meltdown awaits anybody who believes an obese central government can spend their way to economic growth.
Ironically last year, President Obama was trumpeting how he had ‘saved’ Detroit (aka the US auto industry) through his personal audacity. This bravery actually meant moving huge chunks of pensions liabilities onto the already burgeoning burden of American citizens. NB Non-unionised corporations like Mercedes and BMW can make cars in the USA and profit...
The most worrying aspect of Detroit’s decline is the parable for the entire USA. America is increasingly nicknamed “Kickcanistan” in financial circles as the government repeatedly kicks the can of budgetary rectitude down the road. This abject irresponsibility makes the excesses of recent banker history look mild by comparison. In 1980 the US government debt surpassed a trillion dollars and now sits at almost 17 trillion. Moreover, just as the Democrats oversaw the decline and fall of Detroit, Barack Obama accumulated more debt in his first term than the previous 42 American Presidents combined!
Detroit is America’s city of dysfunction: 210 of 317 public parks are closed, half the population over age 16 is unemployed and 60% of the street lights do not work. This municipal travesty is a hideous example of what happens when government spends without discipline. The result is citizen impoverishment even as government introduces ever more entitlements and raises benefits. Capitalism has given way to socialism and Detroit has collapsed in a morass of mismanagement.
In 1962 Detroit was a trendsetter in motoring and music. Now it is a trendsetter in that dark truth which will always upset the tax and spend brigade: big government does not work. The wastelands of Detroit now resemble something more like a Mad Max movie than a modern digital city. At a macro level, the longer Washington ignores its responsibilities and refuses to wean itself off its massive debt addiction, the closer the USA comes to being the United States of debt, decay and disharmony...
There is a clear lesson in the collapse of Detroit that all governments need to heed.
Patrick L Young is expert in global financial markets working in multiple disciplines, ranging from trading independently to running exchanges.
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