Tags: DC | Detroit | Bankruptcy | economy

DC Can Learn From Detroit's Bankruptcy

Monday, 22 July 2013 11:00 AM Current | Bio | Archive

A weak economy fails to generate the tax base necessary to fund government services. Promises of retiree benefits explode far beyond government’s ability to pay for them.
Elected officials refuse to acknowledge the problem and blame others for not paying enough into the system. Spending and borrowing get so out of control, creditors no longer express full confidence in the government’s faith and credit.
The political class does whatever is necessary to position itself for the next election cycle, and avoids solutions to these problems.
And as all this happens, the economic well-being of the people is decimated.
Am I talking about what goes on in Washington, D.C.? Or am I talking about Detroit? You’re not sure, are you? And that should scare the living daylights out of you.
If the Detroit bankruptcy filing has a silver lining, it could be that the rest of the country learns something about the ultimate price of decades of denial, which is exactly what brought Detroit to bankruptcy. The similarities between the two situations are frightening. The biggest source of Detroit’s debt is retiree benefits, which is also the biggest long-term liability facing the federal government in the form of unfunded obligations for Social Security, Medicare, and Medicaid.
You can argue that America has a larger tax base upon which to draw to pay for these things, but the economy is limping along at an annualized growth rate of just 2 percent, and that’s not going to produce anywhere near the wealth needed to fund these obligations.
You can argue that the federal government can print money, and yes it can if you don’t care about the strength or stability of our currency. Detroit has homes available for $1,000 or less and no one wants to buy them. That’s what happens when economic decimation makes your assets worthless. What do you think will happen when we do the same thing to our money supply?
The political class in Washington is very much in denial about the economic condition of this nation, and much of the news media is enabling their denial by not telling the real story about how serious the situation is. Unemployment has been above 7 percent for the entire Obama presidency, and real unemployment — which counts the underemployed and those who have given up working — is over 14 percent. The national debt has exceeded $16 trillion, and unfunded entitlement mandates have likely exceeded $100 trillion.
And we can already see the job-killing, growth-killing effects of Obamacare, which are making all of this even worse.
Our problems on the national level are the product of the same kind of thinking that was embraced in Detroit: Promise generous benefits to win elections, then worry later about where to get the money. Resist any and all attempts to privatize or otherwise reduce the size of government or its payroll. Sell bonds and other instruments of public finance to keep things afloat, and hope that somehow, some way, the money will eventually show up to cover all this spending and borrowing.
And if it doesn’t?
No one can send in an emergency manager to run the federal government, but neither can anyone shield us forever from the consequences of what our elected officials are doing there. Detroit shows us: You cannot keep up this game forever. Nations have collapsed under the weight of their own economic delusion.
Leaders in every city should study what happened in Detroit and make sure they are not on the way to the same fate, and that especially includes the city on the banks of the Potomac River — where the delusion and denial are eerily similar, but on a shockingly larger scale.
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A weak economy fails to generate the tax base necessary to fund government services. Promises of retiree benefits explode far beyond government’s ability to pay for them.
Monday, 22 July 2013 11:00 AM
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