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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Public Sector Costs are Bankrupting Detroit and Illinois

Posted by PITHOCRATES - June 8th, 2013

Week in Review

Public sector pay and benefits are crushing state governments and cities.  The City of Detroit is probably going to file bankruptcy.  And the State of Illinois just saw its bond rating cut (see Illinois Bond Grade Cut as Lawmakers Can’t Fix Pensions by Tim Jones & Brian Chappatta posted 6/3/2013 on Bloomberg).

Illinois had its credit rating cut one level after lawmakers failed to restructure state pensions saddled with almost $100 billion in unfunded liabilities…

The retirement systems cover state workers, teachers, university employees, judges and lawmakers…

“It is disgraceful that this year’s legislative session ended without a new pension plan,” Treasurer Dan Rutherford, a 58-year-old Republican who is running for governor in 2014, said in a statement. The failure “costs the state millions of dollars each day, plus these downgrades could continue to make borrowing additional funds even more expensive…”

Illinois’s growing pension deficit is “unsustainable,” Fitch analysts led by Karen Krop, a senior director in New York, said in a statement. The inaction by lawmakers raises questions about the state’s ability to deal with “numerous fiscal challenges.” They also cited a growing backlog of unpaid bills and borrowing to cover operational costs, indicating another cut may be forthcoming.

These public sector workers have pay and benefit packages unlike those in the private sector.  Which has to pay for the pay and benefits of both the private and public sectors.  So they keep raising taxes on individuals and businesses.  And our politicians never worry about the long-term consequences.  But they can only tax so much.  People can only pay so much in taxes before they can no longer pay their own bills.  So they start borrowing.  And the more they borrow the more risky they are to loan money to.  The more in debt they go and the greater their spending obligations the higher the interest rates they have to pay to get investors to take a chance on buying their bonds.  Because there’s a very good chance something like this will happen (see Detroit to offer creditors less than 10 percent of what city owes -report by Steve Neavling posted 6/7/2013 on Reuters).

Detroit Emergency Manager Kevyn Orr plans to deliver grim news to the city’s creditors next week: Take less than 10 percent of what the city owes or risk losing it all in a bankruptcy proceeding, the Detroit Free Press reported on Friday…

In his report, Orr stated that the city has run annual deficits of $100 million and more since 2008. Detroit is believed to owe about $17 billion in debts and liabilities.

So on the one hand they beg and plead for investors to loan them money.  So they can pay the overwhelming costs of their public sector in the face of a shrinking tax base.  And then when their finances get so bad that they can’t even service their debt any more they say, “Thank you for your money when we could not raise any ourselves.  And because you took that great risk for us we will reward you by screwing you out of 90 cents of every dollar you loaned us.  But stick around after the bankruptcy.  For once we shed this debt we will need to borrow more to pay for the overwhelming costs of our public sector.”

Detroit had annual deficits of $100 million.  Illinois has $100 billion in unfunded liabilities.  Is it any wonder Fitch lowered their bond rating?  For the state of Illinois has a greater financial problem than the City of Detroit has.  The State of Michigan gave Detroit an emergency manager to fix their problems.  They even offered to buy a city park.  Belle Isle.  To help Detroit get out of the mess they put themselves into.  But Illinois cannot help Illinois.  Only the federal government can.  But will they?  If they do you know California will demand a bailout, too.  As will every other state and city with a crushing public sector cost will.  But the federal government can’t bail out everyone.  Not when they have their own trillion dollar deficit problem to fix.

No.  There is only one way to fix the problems these cities and states are having.  They have to cut their public sector costs.  Which means someone else besides the bondholders will have to take a haircut to put these states and cities back into the black.  Meaning the public sector can no longer enjoy the kind of benefits people in the private sector haven’t enjoyed in decades.


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The Solution to the Epidemic of Gun Violence is adopting Conservative Economic Policies

Posted by PITHOCRATES - February 16th, 2013

Week in Review

The Left is saying there is an epidemic of gun violence in the nation.  And President Obama wants to pass new sweeping federal gun control laws in response to that epidemic.  Because the Left has always wanted to take guns away from the people.  The president wants to try these sweeping measures even if it only saves one life.  And that may be all the lives they save.  One.  For guns aren’t killing people.  It’s the people using these guns that are killing people.  And that’s what we should be looking at.  These people.  And what so many of them have in common (see MILLER: Chicago’s deadly gun control lessons by Paul Miller posted 2/11/2013 on The Washington Times).

Last year, more than 500 individuals were murdered in Chicago…

Fifty-six children — under the age of 18 — met violent ends last year in Chicago, while 133 individuals — nearly one-third of all the murdered victims — never saw their 21st birthdays. Still, the city and the state don’t want to talk about the nightmare that Chicago’s African-American and Hispanic neighborhoods have become. Nobody is asking how the disastrous economy of Illinois is contributing to violence on the streets of Chicago.

Illinois has an unfunded pension deficit of $200 billion. It now lays claim to the worst credit rating in the nation. Single-party rule — controlled by public-employee unions — has created a business climate that is benefiting neighboring states. The black unemployment rate average in 2012, according to the U.S. Bureau of Labor Statistics, was 24.2 percent. That is not a typo — the unemployment rate in Chicago’s black community is almost 1 in 4. The overwhelming majority of the murders take place in minority neighborhoods, which implies this is not a gun control issue — “it’s the economy, stupid…”

Elected officials for over a decade have seen their policies fail time after time. They continue down the same path, knowing full well their policies do more economic harm than good. They are more concerned with power than people. The results are higher taxes, fleeing businesses and no jobs. Minority communities get hit the hardest.

Guns don’t kill people — politicians do…

Unemployment in minority communities is appalling. That story line in Chicago is the same from Detroit to Baltimore and Oakland to St. Louis. The most dangerous cities in the nation have minority communities that see no hope because they have little opportunity. The results have been the same throughout human history — poverty leads to violence and hopelessness equals suffering.

What’s causing people to pick up guns and kill people?  Liberal economic policies.  At least, in cities like Chicago, Detroit, Baltimore, Oakland and St. Louis.  Cities controlled by liberal Democrats.  That are highly unionized.  Have high taxes.  And costly business regulations.  All of which discourage business from locating in these cities.  Which is why these cities have such high unemployment rates.  Especially in their minority communities.  Creating fertile ground for unrest.  Hopelessness.  And desperation.  Making people pick up guns to kill people.

Guns aren’t the cause of this violence.  They’re the effect.  It’s the poor economic conditions that cause people to be hopeless and desperate.  Pushing them towards gangs.  Drugs.  And violence.  Had they had jobs they would not be so hopeless and desperate.  As they would be too busy working.  And raising their families.  This is what conservative economic policies give.  A business-friendly environment that creates jobs.  While liberal economic policies give us strong unions, high unemployment, hopelessness and desperation.  Especially in our minority communities.

So if the president wants to adopt policies that can stop this epidemic in gun violence he should endorse conservative economic policies.  And if you bring down the unemployment rate down from 24.2% you’re going to get a lot of people off the street.  And save a lot of lives.  Far more than just one that the president is targeting with his new sweeping federal gun control laws.


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