People seeking Privilege destroyed the City of Detroit

Posted by PITHOCRATES - March 16th, 2014

Week in Review

The history of the world is not pleasant.  It is one where brutal oppression has been the rule.  Where a king or a lord or a chieftain used brute force to establish a leadership position in a tribe.  Then that tribe followed that leader to conquer other people.  To rape and pillage those around them.  As these groups grew larger power concentrated in the few hands at the top.  Who lived very well.  As did the people who protected them.  But the people beyond this inner circle?  They were expendable.   And lived nowhere near as well.  For there just wasn’t enough for everyone to live like that.  Which is why people want power.  So they don’t have to live the miserable lives of the masses.

Times have changed.  But one thing hasn’t.  There is always a group of people that wants to live better than the masses.  Today some use politics to give themselves privilege.  Like the United Auto Workers.  And public sector unions.  Two things that led to the bankruptcy of Detroit.  See how people seeking privilege destroyed one of the greatest cities in the world.  The Motor City.  The city that won World War II.  See how it fell from glorious heights into the shell that it is today in this documentary (see BANKRUPT…. How Cronyism And Corruption Brought Down Detroit by FTR Media in conjunction with Ben Howe and Mister Smith Media posted 2/1/2014 on FTR Radio).

The message is clear.  And a clarion call for the elections this fall.  Detroit is a Democrat city.  And it has been a Democrat city for decades.  Detroit was a model of Democrat Party rule.  And that model failed.  As it is failing—or will fail—in other large Democrat cities.  And, perhaps, a Democrat-controlled United States.  Something we may be able to avoid if we stop voting for the party of privilege.  The Democrat Party.

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Is Chicago the Next Detroit?

Posted by PITHOCRATES - February 9th, 2014

Week in Review

Another big American city is having ‘Detroit’ problems.  And may soon follow Detroit down the Road to Serfdom.  The warning signs are all there.  But will this big American city—Chicago—listen?  Well, Chicago like Detroit is a big Democrat city.  So, no.  They will not heed the warning signs.  And will make things even worse by going more ‘Detroit’ (see Chicago Votes to Go the Way of Detroit by Michael Auslin posted 2/6/2014 on National Review).

Chicago mayor Rahm Emanuel is increasingly a textbook example of how far the Democratic party has moved to the left since Bill Clinton’s day.

Emanuel, who cut his teeth in Clinton’s administration, just presided over a $1.9 billion increase in Chicago’s debt, only months after Moody’s downgraded the city’s bond ratings three notches based on its growing and unsustainable spending and debt obligations…

Old-line Democratic cities, it seems, have learned nothing from Detroit’s collapse. Wishful thinking, ignorance of the parallels, and misleading excuses are the common defenses trotted out by city administrators who have no intention of having to deal with the mess they have either made or worsened. Indeed, Emanuel explicitly rejected the Detroit comparison, arguing that, unlike the Motor City, which was fatally dependent on the auto industry, Chicago has “an extremely diverse economy where no one sector is more than 13 percent of the employment.”

That may be true now, but surely Emanuel knows that Illinois’s and Chicago’s high tax rates are causing a business exodus. The Chicago Tribune recently highlighted ten major companies threatening to leave Illinois and the Chicago area, including the Chicago Board of Trade, U.S. Cellular, and CME Group, the world’s biggest futures exchange company. Part of Chicago’s problem is being stuck in Illinois, which has the country’s third-highest unemployment rate, a dysfunctional state government, and crippling taxes that have led over 30 companies to cross over the state line to Indiana recently. But Chicago’s own borrowing and profligate pension promises will continue to eat away at its credit rating and desirability of doing business there. All this will help hollow out the city and its tax base, and eventually could lead to an all-too-familiar downward spiral once the productive elements of the city decide the benefits of staying don’t outweigh the costs of moving.

Of course the reason why Emanuel is throwing Chicago into this black hole of debt is because he is a Democrat.  And that’s how Democrats win elections.  By buying votes.  With a lot of good-paying jobs in the public sector.  Jobs with generous benefits.  Especially in retirement.  Thanks to profligate pension promises.  Requiring a large portion of city taxes to go to pay these underfunded pension obligations.  That are so underfunded they need to borrow money in addition to those high taxes to meet those pension obligations.

This is exactly what happened in Detroit.  The massive cost of their public sector became harder and harder to pay for.  So they began to fleece businesses as much as they could.  With higher taxes, fines, fees, regulations, etc.  Which only chased businesses out.  Making their problem worse.  For they never cut their spending.  Even though half of their tax base had disappeared they still tried to spend as if their tax base never shrunk from its high in the Sixties.  And we see where that led to.  Bankruptcy.  Something Chicago is now flirting with.  And a fate they will share if they don’t cut back their spending to what they can support without fleecing businesses out of the city.

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Democrats and Unions are impoverishing American Cities

Posted by PITHOCRATES - December 21st, 2013

Week in Review

Detroit had a massive public sector.  Lots of union government jobs.  With very generous benefits.  Then the city began losing population.  As the city shrank the public sector did not.  As the city could no longer support the public sector on tax revenue they turned to borrowing.  At her bankruptcy her pension obligations were in the billions.  And were just unsustainable.  With a lot of those retirees going to see huge cuts in their retirement benefits.  A first for a public sector union.  And one that may set a precedent for other impoverished cities (see Cities where poverty is soaring by Michael B. Sauter and Thomas C. Frohlich, 24WallSt.com, posted 12/16/2013 on Yahoo! Homes).

Many of these cities show a symptom of the regions hit hardest by the recession — a significant decline in real estate value. Nationally, the average home value during the three-year period of 2010-2012 was down by 9% compared to the previous three-year period. In eight of the 10 cities with soaring poverty rates, property values fell by at least 10%. Homes in Eastpointe lost nearly half of their value. In Inkster, Michigan, another city where poverty grew substantially, an average of 43.3% of homes were worth less than $50,000 between 2010 and 2012, compared to just 11.8% of homes during the 2007-2009 period…

Several of these cities were already struggling prior to the recession, in part because of their reliance on manufacturing. The industry had been declining for years, and the recession only made matters worse. In Salisbury, North Carolina, employment in manufacturing fell from 15.5% of all jobs to 8.3%. Goshen, Indiana, another city with a major increase in poverty, is heavily dependent on the auto industry — more than a third of the working population was employed in manufacturing between 2010 and 2012. According to Joe Frank at the Indiana Department of Workforce Development, this dependence had particularly dire consequences during the recession.

The Democrats are all Keynesians.  Who believe in government spending.  And keeping interest rates artificially low to stimulate the economy.  To encourage people to buy big expensive houses.  Just because interest rates are low.  So people did.  With mortgages so cheap everyone was getting them.  And as these buyers flooded the market housing prices soared.  Creating a great housing bubble.  Which collapsed when interest rates rose.  Resetting the rates on those subprime adjustable rate mortgages (ARMs).  Raising monthly payments.  Beyond what some people could afford.  Forcing them into bankruptcy.  Creating the subprime mortgage crisis.  And the collapse of housing prices.

The UAW made American cars so expensive people started buying the less expensive imports.  As most people don’t have UAW contracts giving them a fat paycheck and generous benefits.  Leaving them to get by on less than UAW workers.  Which meant they turned to the less costly imports.  Built by companies that didn’t have those great legacy costs of years of overly generous contracts that became unsustainable.  Pension costs and health care for retirees (which outnumbered active workers) forced GM and Chrysler to ask for a government bailout to avoid bankruptcy.  Asking the taxpayer to help them pay the generous pensions and health care costs of others.  Instead of bringing these benefits into line with the rest of America.

Democrats are Keynesians.  They believe in government intervention into the private sector economy.  And they protect their friends in unions to get their votes.  Raising costs for everyone else.  These policies, though, are just impoverishing American cities.  At least the ones dominated by unions and/or Democrats.

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Alberta Health Services privatizes some Pensions to Cut Health Care Costs

Posted by PITHOCRATES - December 14th, 2013

Week in Review

Public sector pensions are pushing cities and states to bankruptcy.  The Detroit bankruptcy was due in large part to the staggering debt the city took on to meet current pension obligations (and health care cost for retirees).  While the pension fund remained woefully underfunded.  The Detroit bankruptcy may set a precedent for other debt-laden cities.  Who are drowning under the costs of their bloated public sectors.  As they’ve run out of room to raise taxes any further.  Which wasn’t a problem during the initial surge of public sector growth.  But now that those retirement rolls have grown so large cities and states have found those generous pensions to be just unsustainable.  Even in Canada (see Alberta Health Services privatizing Edmonton labs posted 12/11/2013 on CBC News).

Alberta Health Services is going ahead with its plan to privatize all of its diagnostic lab services in Edmonton…

The new lab will replace hospital labs operated by AHS and Covenant Health as well as the services provided by DynaLIFE…

No jobs will be lost and all staff positions will be protected by the new employer, AHS says.

The Health Sciences Association of Alberta represents about 75% of the 2,000 workers affected by the changeover.

Even though AHS claims wages won’t change, the union believes pensions will take a hit.

“This is going to a private provider,” said HSAA president Elisabeth Ballermann.

“The private provider by definition cannot participate in the pension plan that our public sector members are currently part of and that’s an enormous loss for those workers.”

A loss perhaps for 2000 workers.  But a win for the health care system in Alberta and the people who use it.  As the cost savings from privatizing these pension obligations will free up money to spend on health care.  Something to think about as Obamacare continues to rollout and destroy the private health insurance industry on its way to establishing national health care.  Nationalizing one-sixth of the U.S. economy.  Creating a windfall of new public sector workers to vote Democrat.  And unsustainable pension costs that will increase the cost of health care.  Which will lead to longer wait times and rationing.  As well as adding to the deficit and debt.  Which will, in time, lead to the same cost-cutting actions like Alberta is taking.  Or something a little more painful like they did in Detroit.

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FT184: “If our big Democrat-controlled cities seceded from the US to form a liberal utopia they’d all become like Detroit.” —Old Pithy

Posted by PITHOCRATES - August 23rd, 2013

Fundamental Truth

The President basically said he doesn’t like Representative Government

President Obama recently said that some Republicans in Congress told him in private that they agree with his policies.  And would like to vote for his policies.  To do what is right for the American people.  But they won’t because they have a primary election coming up.  And if they agree with the president that will hurt them in that election if they go up against some Tea Party candidate.  And they’re afraid what Rush Limbaugh will say.  Him and his conservative extremists.

Now think about what the president is saying.  He said that these Republicans would vote for his policies if they weren’t afraid to vote against the will of the people they represent.  For if these Republicans are afraid they will lose a primary election by voting for the president’s policies that could only mean the people they represent don’t want them voting for the president’s policies.

This is very telling.  For what the president is really saying is that he could do what he wants to do if it wasn’t for representative government.  That is the big obstacle preventing him from passing policies the people oppose.  The people.  Which is why his administration is full of czars to help write and execute policy.  Because they have no elections to worry about.  And can do things against the will of the people all day long without worrying about the consequences of doing so.

If you want to see the Result of Failed Liberal Policies just look at the Big Democrat-Controlled Cities

There’s a reason why those who want to implement liberal policies like the president have to use deceit.  The nation is about twice as conservative as it is liberal (see Conservatives Remain the Largest Ideological Group in U.S. by Lydia Saad posted 1/12/2012 on Gallup).  This is why Republicans in Congress fear the Tea Party.  Because the Tea Party represent about twice as many of the people than they and their liberal friends in Congress do.

There’s a reason why the number of people who call themselves liberal has hovered around 20% for decades.  Because liberal policies are not good for America.  They are only good for the ‘connected’ class.  Those with friends in high places.  America’s aristocracy.  Who hate the Tea Party.  And most of America.  As they talk condescendingly down to them from their lofty perches in academia, the mainstream media, union leadership, Hollywood, government bureaucracies, etc.  People who are wealthier than most.  Who like to force people to live the way they want them to live through the heavy hand of government.  While exempting themselves from the laws they pass for us.  Like Obamacare.

If you want to see the result of their failed policies just look at the big Democrat-controlled cities.  Like Detroit.  Detroit was controlled by Democrats for decades.  Democrats there ushered in their liberal utopia.  They raised taxes so much to fund a massive city government that they chased business out of the city.  While layer upon layer of costly regulatory policies helped chase even more businesses away.  And with the jobs gone the people soon followed.  Now they have half the population they once did.  With their tax base imploded they are now left with unfunded pension and retiree health care obligations for their public sector that can never pay.  Sending them into bankruptcy.

Just imagine all the Good that could come from Paying an Entry-Level Worker $75,000

There are a lot of people on the left that want a federal bailout for Detroit.  They want people who have long suffered the high taxation and the job-killing legislation that caused Detroit’s problems in the first place to bail out the city.  People who do not benefit from those generous pension and retiree health insurance benefits.  And who will not benefit from a bailout.  They will only see higher taxes.  More federal debt.  Or more inflation to eat away the money THEY saved for their own retirements (if the government chooses to monetize the debt).  Just so the people in the public sector can enjoy better and longer retirements than they will enjoy.  Because they’ll have to work closer to their own death as they will never be able to save enough to enjoy a ‘public sector’ retirement if they have to pay for the public sector’s retirement as well as their own.

Here’s a thought, why not have the other big Democrat-controlled cities bail out Detroit?  Oh, wait a minute, they can’t.  Because their public sectors have left them greatly indebted, too.  These cities are irresponsibly running up debts that they never will be able to repay.  No matter how much they raise taxes and implement new taxes.  There’s never enough.  In fact, in creating their little liberal utopias they have chased a lot of business, and their tax base, out of their cities.  Yet these cities vote overwhelmingly Democrat.  Perhaps these cities should band together.  If they are so much more enlightened than the rest of the knuckle-dragging Neanderthals in this country perhaps they should secede from the US.  Declare themselves city-states.  And join a federation with other Democrat city-states.  Then they can live like they want to live.  And tell the rest of us (the 80% or so who don’t think like they do) to go someplace warm but not at all pleasant.

They could raise taxes on everyone to really redistribute wealth.  They can do away with drug laws.  Lessen the severity of our criminal laws so there isn’t such a disparity of offenders in our jails.  Make it a hate crime to criticize anyone who isn’t a conservative.  Have government-funded birth control, abortion and morning-after pills.  Government-funded housing.  Government-funded food.  And government-funded health care.  They can outlaw profits and force businesses to maximize the social good.  Raise the minimum wage to a true living wage.  Say, $75,000 a year.  Just imagine all the good that could come from paying an entry-level worker $75,000.  There would be no more student loan debt.  For there would be no reason to go to college to become engineers, doctors, nurses, dentists, paramedics, pharmacists, etc.  Wouldn’t that be lovely?  Wouldn’t you love to work and live in a city where you could do any kind of drug wherever you wanted?  Even while you were cooking food in an entry-level job?  Where there was no punishment for breaking the law?  And no one was so puritanical to tell us not to have sex as often or with as many people as we wanted?  Wouldn’t women love this?  Sure, there would be an epidemic of venereal disease but there would be free health care to treat that (if anyone still worked hard to learn to become a doctor, nurse, dentist, paramedic or pharmacist, that is).  Can you just see these utopian city-states?

Actually, you can see it right now.  For I dare say anyone wanting to open a business or raise a family would NOT want to do so in a city like this.  The jobs would leave first.  Then the people.  Imploding the tax base.  Until you’d have nothing but Detroits dotting the landscape of this utopian federation of liberal city-states.  This is what the president and those in the 20% want.  While of course exempting themselves from this world.  Living in their gated fortresses.  Comfortably.  Where they’ll blame the people who abandoned their utopian city-states as unpatriotic.  Who wouldn’t have fled if it wasn’t for the Tea Party.  Rush Limbaugh.  And, of course, George W. Bush.  Who the left will never tire of hating.  Or blaming.

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To avoid Detroit’s Fate Chicago looks at Revenue Generation from Speed Cameras

Posted by PITHOCRATES - August 11th, 2013

Week in Review

The City of Detroit bankruptcy shows how the massive costs of a city’s public sector are strangling these cities.  Promises of generous pensions for a long retirement and free health insurance up until you die are just promises these cities can’t pay for.  So some (like Detroit) raised their tax rates so high that people left the city in droves.  Further reducing the tax base.  While other cities turn to other revenue generating schemes (see Speeders were plentiful in camera test run by David Kidwell and Bill Ruthhart posted 8/12/2013 on the Chicago Tribune).

As Mayor Rahm Emanuel rolls out his long-delayed speed camera plan, new numbers his office released suggest that drivers who speed in Chicago could rack up way more in fines than a cash-starved City Hall initially projected.

The mayor had hoped to bring in $30 million this year. But results from a monthlong test of the automated camera system indicate the city could reap well into the hundreds of millions of dollars in the program’s first year.

City transportation officials argue that estimate is overblown, but the test period statistics the mayor’s office released Friday reinvigorated critics who argue that the program is more of a cash grab than the child safety measure Emanuel sold it as…

City transportation officials put estimated first-year revenues at $40 million to $60 million, arguing that several factors will cut down on the number of tickets actually issued.

For starters, they argue that it’s incorrect to estimate revenues based on the test program. They suggest the money will never reach into the hundreds of millions of dollars because of a number of factors. The most important: the fast learning curve of Chicago drivers…

Ald. Leslie Hairston, 5th, who voted against the speed camera program, said the number of speeders captured on the test cameras supports her insistence that the main motivation is to generate more city revenue.

“I guess this is just going to be a city for wealthy people, that’s where we’re headed,” she said…

The speed camera rollout was scheduled for closer to the start of the year, but it was delayed after City Hall came under scrutiny following Tribune reports of an alleged bribery scandal involving its 10-year-old red light camera program.

Making the streets safer for children is a noble goal.  But like their red light camera program it’s all about the Benjamins.  The money.  And they love cameras because they can rake in the money without having to put more costly public sector workers (i.e., cops) onto the streets.  That is, they’re outsourcing these costly union jobs to machines.  To minimize their labor costs.  Just like corporations try to minimize their labor costs.  Because union workers are very, very expensive.

But like every government revenue policy they’ve overstated the expected revenue from these cameras.  Just like a higher cigarette tax rate reduces cigarette tax revenue.  Taxes, and these revenue cameras, change human behavior.  Actually achieving the stated purpose for them (better health if people don’t smoke and safer streets if speeders are punished).  Which means though they have a burst of revenue in the beginning it will eventually taper away.  Requiring a new revenue generating scheme.  And then another one to replace that one.  And so on.  On and on.  Forever and forever.  Instead of doing the simpler thing.  And the thing that would work best.  Forever and forever.  Just stop spending so much.

If the public sector union enjoyed pensions and health care benefits like they do in the private sector there would be no Detroits going bankrupt.  Because there would be no generational theft.  These workers would provide their own pensions—401(k)s—and pay a much larger portion of their health care expense.  And they would work into their Sixties (or more) like the rest of America.  Instead of retiring in their 40s or 50s.  To enjoy a retirement that in some cases lasts longer than their working career.  This would solve the budget problems of the big cities.  Instead of passing it on to future taxpayers who were not included in those generous contract negotiations that they find themselves stuck paying for.

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Detroit may mark the Beginning of the End of Generational Theft by Public Sector Unions

Posted by PITHOCRATES - August 4th, 2013

Week in Review

So who’s to blame for Detroit?  The greedy.  The greed of the public sector.  Who stole as much as they thought possible from future generations.  Laughing all the way to the bank.  But never did they think that their greed would eclipse the paying-ability of those they were stealing from.  Future taxpayers.  Which is what happened in Detroit.  And will probably happen elsewhere throughout the nation (see The Unsteady States of America posted 7/27/2013 on the Economist).

Nearly half of Detroit’s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states’ own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48% (see article). And many states are much worse. The hole in Illinois’s pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%.

By one recent estimate, the total pension gap for the states is $2.7 trillion, or 17% of GDP. That understates the mess, because it omits both the unfunded pension figure for cities and the health-care promises made to retired government workers of all sorts. In Detroit’s case, the bill for their medical benefits ($5.7 billion) was even larger than its pension hole ($3.5 billion).

Some of this is the unfortunate side-effect of a happy trend: Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. They have also allowed some startling abuses. Some bureaucrats are promoted just before retirement or allowed to rack up lots of overtime, raising their final-salary pension for the rest of their lives. Or their unions win annual cost-of-living adjustments far above inflation. A watchdog in Rhode Island calculated that a retired local fire chief would be pulling in $800,000 a year if he lived to 100, for example. More than 20,000 retired public servants in California receive pensions of over $100,000.

This is an important point.  People say that we must honor these lavish pension and retiree health care benefits because they made a deal.  A contract with the city.  Or the state.  But did they?  No.  The public sector unions and the cities and states colluded together to steal money from future generations.  Who were not a party to those agreements.  This amounts to generational theft.  And the generous size of those benefits just makes that theft worse.  Transforming the public sector into an aristocracy.  That cares little for the future taxpayers that they will be bled dry to pay for their long and comfortable retirements.

Detroit is just the first domino to fall.  This generational theft is just unsustainable.  Something has to be done.  But what?

Public employees should retire later. States should accelerate the shift to defined-contribution pension schemes, where what you get out depends on what you put in. (These are the norm in the private sector.) Benefits already accrued should be honoured, but future accruals should be curtailed, where legally possible. The earlier you grapple with the problem, the easier it will be to fix. Nebraska, which stopped offering final-salary pensions to new hires in 1967, is sitting pretty.

In other words our public servants should not live a better life than their masters.  Those people paying the bill.  There should be no aristocracy in the United States.  People in the public sector shouldn’t be able to retire young and live a long life in retirement while someone else is paying the bill.  The taxpayer.  People who have to work until they drop dead to save for their own retirement.  That just isn’t right.  If our servants in the public sector want that long and comfortable retirement then they must do what people in the private sector do.  Save for it.  Make sacrifices.  And live more frugally.  Because there shouldn’t be two Americas.  Where one enslaves the other.  While setting up a string of municipal and state bankruptcies because of their greed that threatens the financial wellbeing of the nation.

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Unfunded Pension and Retire Health Care Liabilities are a Problem for more Cities than just Detroit

Posted by PITHOCRATES - July 28th, 2013

Week in Review

The problem all our big cities are having is the cost of pension and retiree health care for their public sectors.  These cities made ridiculous promises during their contract negotiations with their public sector unions.  Promising them generous pension and health care benefits for life for retirees.  Benefits a later generation would have to pay for.  Which is why these cities are imploding under these costs.  And why Detroit filed bankruptcy.  These cities never put away the money for these future benefits because they were just too costly.  Besides, they no doubt thought, when the bill comes due it will be someone else’s problem.  And that’s where we are today.

How bad is it?  Really bad.  Especially in Detroit.  A city that has about half the population it had when it entered into those agreements.  And nowhere near the automotive industry it had back then.  A race riot in 1967 caused a white flight.  And the black middle class would follow years later.  As the jobs left Detroit for the suburbs.  And the people followed those jobs out of the city.  Just decimating the tax base that has to pay those unfunded benefits (see The Retirement Surprise In Detroit’s Bankruptcy by Robert C. Pozen posted 7/25/2013 on Brookings).

When Detroit recently filed for bankruptcy, one number surprised a lot of observers–$6.4 billion in other post-employment benefits (OPEB). OPEB is primarily comprised of unfunded obligations to pay health care costs for municipal employees.

By contrast, the unfunded pension obligations of Detroit were $3 billion–less than half the size of its OPEB…

The Pew Charitable Trust did a study in 2013 of both pension and OPEB shortfalls in the 30 largest cities in the United States. The three cities other than Detroit with the largest pension shortfalls were:

$14,302 per city household in New York City;
$12,170 per city household in Philadelphia; and
$11,389 per city household in Portland, Oregon.

But the shortfalls for OPEB, primarily healthcare obligations, were significantly larger. According to Pew, the three cities other than Detroit with the largest OPEB shortfalls were:

$22,857 per city household in New York City,
$18,962 per city household in Boston
$13,487 per city household in San Francisco.

These numbers are staggering.  Based on the U.S. Census, there are about 264,209 households in Detroit.  If you divide the total unfunded pension and health care costs by the number of households you get $35,578.  That is, to pay this outstanding debt it will cost each household in the city of Detroit $35,578.  Which will be very difficult to do when the median household income in Detroit is $27, 862.

Those in the union say these people are owed their retirement and health care benefits.  Because they made a deal.  But they didn’t make a deal with the people currently paying the taxes.  What this amounts to is generational theft.  Like all those municipal pensions and health care benefits.  For when they made those generous agreements the people who ultimately had to pay them weren’t in the room when they signed those contracts.  In fact they weren’t even born yet.  The people demanding their benefits now and their union representation apparently had no problem sticking it to future generations.  They were the ones in the room when they signed those contracts.  And didn’t give the people stuck paying for their benefits a second thought.

All big cities with big public sectors have the same problem.  They may not be ‘Detroit’ bad but they have bills that they won’t be able to pay.  There are about 100 U.S. cities with a population of a quarter million or more.  If each one of them had this problem that’s about $1 trillion in unfunded benefits just in these cities alone.  With trillion dollar deficits already, Obamacare coming on line and Social Security and Medicare projected to go broke the federal government just won’t be able to bail these cities out.  Perhaps bringing the days of generational theft to an end.  Which may be the only good thing to come from a wave of municipal bankruptcies.

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Saint-Domingue Slave Rebellion, Great Migration and 1967 Detroit Race Riot

Posted by PITHOCRATES - July 23rd, 2013

History 101

The Brutal Slave Rebellion on Saint-Domingue created Haiti and opened the Door to the American West

Haiti was born from a slave rebellion.  Inspired by the French Revolution, which was inspired by the American Revolution, the slaves on Saint-Domingue could taste the liberty in the air.  The slaves outnumbered the whites on the island.  And when they rose in rebellion in 1791 their white overlords were powerless to stop them.  The slaves massacred the white planters.  Those lucky enough to survive fled the island.  The French tried to reestablish control.  Then they went to war again against the British.  Which complicated matters.  And led to a British invasion of Saint-Domingue.

Toussaint Louverture, a former slave, and educated, eventually led the now former slaves to victory.  And won the peace.  He invited the planters back.  Replaced slave-labor with paid-labor.  Reestablished trade with Great Britain.  And the new United States.  While the French did away with slavery in their colonial possessions.  For a while.  During the convulsions going on in France following the French Revolution there were many changes in government.  And the government in 1802 lent a sympathetic ear to the former white planters who wanted their plantations back.  And their slaves.  Napoléon Bonaparte, interested in reestablishing New France in North America, sent a military force to take back Saint-Domingue.  Who captured and sent Toussaint Louverture back to France.  But things did not go well for the French.

Jean-Jacques Dessalines continued the fight in Louverture’s place.  A determined enemy, and Yellow Fever, were too much for the French.  They pulled out their remaining soldiers.  Gave up on Saint-Domingue.  And on New France in North America.  Causing another exodus from the island.  And if you ever wonder why New Orleans is so French this is why.  A lot of those fleeing Haiti settled in New Orleans.  Doubling the city’s population.  Needing money to continue the war against Great Britain Napoléon offered to sell the Louisiana Territory, the thick center part of the United States between Texas and Canada, to Thomas Jefferson.  And did.  So the brutal slave rebellion on Saint-Domingue not only created Haiti.  It gave the Americans the Mississippi River and its tributaries.  The Mississippi Valley.  The Great Plains.  And opened the door to the West.

The Great Migration brought some 6 Million Blacks from the Rural South to Northern Factories

But that brutal slave rebellion did something else.  It made the southern planters nervous.  Over half of the 40,000 white colonists were killed during that slave rebellion.  A fact that weighed heavily on the minds of the highly outnumbered white planter class in the South.  Who lived in fear of a similar slave rebellion happening in the United States.  Which lead to a more oppressive control over their slaves.  So they could snuff out any rebellion at the first sign of trouble.  And there was a reversal of policy.  The Founding Fathers had shelved the issue of slavery for 20 years to get the South to join the new nation.  Believing that the institution of slavery would die out on its own.  And in the following two decades some slave owners were freeing a slave or two.  But that all stopped following the revolution in Saint-Domingue.  When the life of a slave went from bad to worse.  For the last thing the white planter class needed was a Toussaint Louverture in their midst.

By the time of the American Civil War the slave population had grown much larger.  Which added another element to the Civil War.  Especially for the South.  The North was fighting for a noble purpose.  To free the slaves.  And fulfilling the declaration that all men were created equal in the Declaration of Independence.  But what then?  What happens after the North wins the Civil War?  And they free the slaves?  Where are the slaves going to go?  Back to Africa?  Even the ones who have no idea what or where Africa was?  Having been born and raised in the United States?  No.  They weren’t.  They were going to remain in the South.  Nothing would change in the North.  But life in the South would be changed into something that just didn’t exist.  A biracial society.  Worse, this was going to be a biracial society where the majority was once brutally oppressed by the minority.  Thanks in large part to the slave rebellion on Saint-Domingue.

With this backdrop the odds for a peaceful reconstruction were slim.  The South did not adjust well to the new reality.  There were fears.  Anger.  And the old prejudices.  While in the North life went on as it always did.  Predominantly white.  And industrializing.  Creating more and more factory jobs.  That drew immigrants to the industrial north.  As it drew southern blacks.  Leading up to the Great Migration.  From 1910-1930.  Pausing during the Great Depression and World War II.  And picking up again from 1940-1970.  When some 6 million blacks left the rural south.  And headed to the jobs in the big cities in the Northeast.  The Midwest.  And the West.  Working and living in the big cities.  Like Detroit.

The 1967 Detroit Race Riot accelerated the White Flight from the City which decimated the Tax Base

Detroit dominated following the post-war period.  It was an economic powerhouse.  Thanks to a booming automotive industry.  And a war-torn Europe and Asia.  Whose industrial capacity suffered greatly from Allied bombing.  Leaving the motor city the auto capital of the world.  And making Detroit one of the richest cities in the nation.  With their population peaking in 1950.  As people came to the city for those manufacturing jobs.  But the housing did not keep up with the growth in population.  Blacks and immigrants often faced discrimination.  Getting the worst jobs.  And the worst housing.  Things that changed in the Sixties.  Thanks in large part to a shift of the auto industry out of Detroit.

Following World War II Packard, Hudson, and Studebaker went out of business.  And the Big Three went on a building spree.  In the suburbs.  And a lot of white Detroiters followed them.  Relieving the housing pressure a little.  Allowing a black middle class to grow.  But the suburbs kept growing.  As businesses moved their jobs to the suburbs that were a little more business friendly.  With sprawling spaces for new factories.  And a brand new interstate highway system to easily ship material and parts from one to another.  The same interstate highway system that converged four expressways in the city of Detroit.  Destroying a lot of neighborhoods.  Which were predominantly black.

Many of those displaced people moved to the 12th Street area.  An area that become twice as crowded as the city average.  Unemployment was rising.  As was crime.  Including prostitution.  Where white johns were coming to the neighborhood to solicit black prostitutes.  A big complaint of the black community.  So the police cracked down on prostitution.  And a black prostitute ended up dead.  The people blamed the cops.  The cops blamed a pimp.  Tensions were rising.  Then on July 23, 1967, the police raided a blind pig.  An unlicensed after-hours bar.  On the corner of 12th Street and Clairmount.  Where a party of some 80 people were celebrating the return of two soldiers just back home from the Vietnam War.  The cops arrested them all.  While they were waiting for the paddy wagon to take them away a crowd formed outside.  Someone threw a bottle at a cop.  And thus began the 1967 Detroit race riot.  Which only accelerated the white flight from Detroit.  Caused an exodus of jobs, too.  As businesses fled the city.  Which just decimated the tax base.  Accelerating the urban decay.  Soon the black middle class followed the whites.  In pursuit of those jobs.  And to escape the dying city.  Which it did in 2013.  Die.  Figuratively.  By filing the largest municipal bankruptcy in U.S. history.

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The City of Detroit Bankruptcy

Posted by PITHOCRATES - July 22nd, 2013

Economics 101

There is nothing more Dangerous to a City’s Finances than a Shrinking Tax Base

The federal debt is at record levels.  Because federal spending is at record levels.  But those on the left say there’s nothing to worry about.  And try to expand federal spending further.  With more government benefits to hand out to the people.  And an ever growing federal bureaucracy.  Full of new jobs with generous pay and benefits.  All funded by the taxpayer.

Businesses in the private sector cannot operate like this.  Because businesses have to pay their costs with the things and/or services they sell.  That people willingly buy.  So there is a limit on the costs a business can incur.  But not so with government.  For the government has the power to tax.  To forcibly take more money from the people against their will.  Something businesses just can’t do.  And when that fails they can borrow money by issuing bonds.  Which are generally easy to sell.  Because governments have the power to tax.  All but guaranteeing that they will repay those bonds.  And when that’s not enough the federal government has one other benefit businesses don’t have.  They can print money.  Further guaranteeing that they will be able to redeem their bonds.  Making them that much easier to sell.

Government below the federal level, though, doesn’t have that last option.  So when they want to spend more money than they have they have no choice but to borrow.  And hope that their tax base doesn’t erode over time.  For there is nothing more dangerous to a city’s finances than a shrinking tax base.  Especially when the city has a huge and growing public sector.  Enjoying generous pay and benefits.  Especially pension and health care benefits for retirees.  Where promises made must be kept decades into the future.  During which time a lot of things can happen.  Such as that tax base shrinking.

Detroit’s Tax Base plummeted while the Size of the Public Sector did not for Government Never grows Smaller

This is the problem the City of Detroit has.  And it is why they filed the largest municipal bankruptcy in U.S. history.  Thanks to the automotive industry and World War II destroying most of the industrial economies of the world, Detroit became an economic power house.  And one of America’s grandest cities in the 1950s.  Paris of the Midwest they called Detroit.  Automotive capital of the world.  The Motor City.  The mecca of American manufacturing.  Having one of the richest middle class.  And one of the largest black middle classes.  Everyone was doing well in Detroit.  So the City of Detroit did the only rational thing a city could do with a swelling tax base.  They exploded the public sector.  All paid for with higher taxes.  Including a new city income tax.

But that growing public sector soon turned Detroit into a business unfriendly city.  With more red tape, regulatory costs and a corporate income tax.  And rising union demands during contract negotiations made it even less business friendly.  So businesses started leaving the city.  Taking their jobs with them.  And people followed.  Then the race riots hit in 1967.  Five days of unprecedented violence.  Thus beginning the great white flight from the city.  And the great population decline of the City of Detroit.  Culminating in the nation’s largest municipal bankruptcy in history.

At Detroit’s peak her population topped out at about 1.8 million people.  Today there are but 680,000 people remaining.  A loss of 1.12 million people.  About 62% of her peak population.  So Detroit’s tax base plummeted.  But the size of the public sector didn’t.  For government never grows smaller.  So Detroit continued on with the overhead expenses of a city with a population of 1.8 million people.  With the tax revenue of a city with a population of 680,000 people.  Making bankruptcy inevitable.

The Problems of the City of Detroit are the Problems of the Nation Writ Large

At the height of Detroit’s industrial might there were approximately 300,000 automotive or manufacturing jobs in the city.  Today there are a mere 27,000.  That’s a loss of 273,000 jobs.  That’s 273,000 breadwinners whose families are no longer in the city.  If each of them had on average 2.5 children who remained in the city with their parents that would have added about 1.2 million to the city’s population.  Which corresponds pretty closely to the 1.12 million the city actually lost.  So we can see how the loss of the jobs devastated the population.  But we can also see what it did to the city’s finances.

Let’s assume these breadwinners had their children when they were in their 20s.  So the breadwinner was still in the workforce when their children were 20 and had entered the workforce.  Let’s say this happened over a 40-year period.  So, on average during that 40-year period, there were an additional 136,500 jobs per year.  Let’s say they each owned a house and paid property tax of $750.  Over 40 years that’s about $4.1 billion in lost property tax revenue.  If each of these workers earned $35,000 on average over those 40 years and paid a 3% city income tax that’s about $9.8 billion in lost personal income tax revenue.  Finally, if we figure a 50-50 split between labor and material, a 15% overhead and a 2% net profit we can extrapolate that $35,000 average personal income into approximately $448 billion in lost corporate revenue over those 40 years.  At a city corporate income tax rate of 2% that’s about $9 billion in lost corporate income tax revenue.  Adding these all together we see a total loss of tax revenue to the city of approximately $18.8 billion due to the loss of 273,000 jobs.  Plus or minus.

This is a crude guesstimate with an emphasis on crude but it could be close enough to explain what happened in Detroit.  For with the falling tax base Detroit turned to borrowing more and more money to pay for an oversized public sector.  To service a disappearing population.  With those pension and retiree health care benefits being especially burdensome.  Which forced the city to borrow so much it left them with a debt of $18.5 billion (very close to the $18.8 billion in our little exercise above) that they don’t have a chance in hell of ever repaying.  Leaving bankruptcy as the only option.  Unless the federal government steps in.  Which probably won’t happen.  And shouldn’t happen.  For Detroit is not the only government suffering under the weight of unfunded pension obligations and retiree health care benefits.  If they bail out Detroit then they’ll have to bail out all other states and municipalities.  Which they can’t afford to do.  For the federal government has its own problems with pensions (Social Security) and retiree health care benefits (Medicare).  And they’ve just added a new government benefit that will dwarf the costs of Social Security and Medicare.  Obamacare.  All while burdening the economy with a slew of anti-business regulations that has chased jobs out of the economy.  And out of the country.

So the federal government can’t step in to save Detroit.  For the federal government is working to ‘out Detroit’ Detroit.  As the problems of Detroit are the problems of the nation writ large.  What’s happening in Detroit will happen in other states and cities across the country.  That are spending more money than they have to support an oversized public sector.  And in time what’s happening in Detroit will happen to the federal government.  Bailing out these states and cities will only hasten the downfall of the federal government.  Which the federal government will do whatever it can to prevent.  For while the nation can survive a city like Detroit going bankrupt the nation cannot survive a federal bankruptcy.  Because the numbers are just too big at the federal level.

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