If there’s an iron rule in economics, it is Stein’s Law (named after Herb, former chairman of the Council of Economic Advisers): “If something cannot go on forever, it will stop.” Detroit, for example, can no longer go on borrowing, spending, raising taxes and dangerously cutting such essential services as street lighting and police protection. So it stops. It goes bust.
Cause of death? Corruption, both legal and illegal, plus a classic case of reactionary liberalism in which the governing Democrats — there’s been no Republican mayor in half a century — simply refused to adapt to the straitened economic circumstances that followed the post-World War II auto boom.
Corruption of the criminal sort was legendary. The former mayor currently serving time engaged in a breathtaking range of fraud, extortion and racketeering. And he didn’t act alone. The legal corruption was the cozy symbiosis of Democratic politicians and powerful unions, especially the public-sector unions that gave money to elect the politicians who negotiated their contracts — with wildly unsustainable health and pension benefits.
When our great industrial competitors were digging out from the rubble of World War II, Detroit’s automakers ruled the world. Their imagined sense of inherent superiority bred complacency. Management grew increasingly bureaucratic and inflexible.
Unions felt entitled to the extraordinary wages, benefits and work rules they’d bargained for in the fat years. In time, they all found themselves being overtaken by more efficient, more adaptable, more hungry foreign producers.
The market ultimately forced the car companies into reform, restructuring, the occasional bankruptcy and eventual recovery. The city of Detroit, however, lacking market constraints, just kept overspending — $100 million annually since 2008. The city now has about $19 billion in obligations it has no chance of meeting. So much city revenue had to be diverted to creditors and pensioners that there was practically nothing left to run the city. Forty percent of the streetlights don’t work, two-thirds of the parks are closed and emergency police response time averages nearly an hour — if it ever comes at all.