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>Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted wo

>Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here. That is eerily, if not disturbingly, parallel to our national problems. Though, hopefully, we have a bit more time to fix the national problems.

jfb 13y ago
Yes, but. The Federal government has many monetary tools available to it that Detroit doesn't. It's not clear to me that making the analogy between the way the Federal government and a non-soverign entity like Detroit work does anything but confuse the issues.
- NoPiece 13y ago
  I think the analogy is useful, because the financial problem has some of same roots. That the federal government has more solutions available to it doesn't excuse following the same path. It's useful to to look at Detroit to try and avoid the problem, it's not useful to look at Detroit for solutions once it hits critical mass.
  - wutbrodo 13y ago
    It seems to me that the proximate cause of Detroit's problem is this massive flight of high-value (in the economic sense) population. I don't see even an echo of that happening in the US; certainly not at the level that it could be considered a problem.
    - NoPiece 13y ago
      The problem with Detroit is unsustainable debt. Depopulation is just one of many contributing factors. The depopulation has been slow, very long term, and predictable. The debt could have been avoided by scaling back spending as the the population decreased. Or an effective Detroit government might have even taken steps to improve the city so people didn't leave or even moved in.
    - bmelton 13y ago
      That may not currently be a problem, and as I'm not a psychic, it may never be a problem, but it's certainly more likely to happen from over-taxing the top 10-20%, and/or overtaxing businesses. History has examples of a nation trying to fix its financial woes through taxing the rich, and generally, the rich simply leave. Currently, Americans are renouncing their citizenship at record levels due to FATCA[1] and emigration from the US is at elevated levels since it spiked in 2009[2]. [1] - http://money.msn.com/now/post--more-americans-are-renouncing-their-citizenship http://money.msn.com/now/post--more-americans-are-renouncing... [2] - http://www.indexmundi.com/g/g.aspx?c=us&v=27 http://www.indexmundi.com/g/g.aspx?c=us&v=27
  - enraged_camel 13y ago
    >>I think the analogy is useful No, it is not useful. As someone with an economics degree I can tell you with authority that comparing the finances of a city to the finances of a nation is absolutely and utterly asinine. You see similar memes on the Internet, made by conservatives, comparing the national economy to a household budget. It's just laughable.
    - NoPiece 13y ago
      You have a strong political opinion, and an inflated sense of authority. That smells like youth, so I forgive you for it. I promise when you're older you'll look back and be embarrassed at claiming to be entitled to make authoritative economic claims. Regardless, there are certainly economists with more than an undergraduate degree in economics who have held out Detroit as a warning for the US debt problem. Do you have more authority than Rachel Greszler who has a masters in Economics from Georgetown? I know, you'll disregard her because she works for an conservative group. Just be honest and acknowledge that this is about a political difference, not an authoritative truth. http://blog.heritage.org/2013/08/05/morning-bell-learning-from-detroits-mistakes/ http://blog.heritage.org/2013/08/05/morning-bell-learning-fr...
      - enraged_camel 13y ago
        >>Do you have more authority than Rachel Greszler who has a masters in Economics from Georgetown? No, but Paul Krugman does. He's a Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University and a Centenary Professor at the London School of Economics. Oh, he also won the Nobel Prize in Economics back in 2008. Suffice it to say, he has more than a simple Master's degree from Georgetown. Here's what he has to say on the subject. http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-und... In light of your high-horse comment, I found this part especially funny. "Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!"
  - kaonashi 13y ago
    It's apples and oranges. When your debts are denominated in something you issue, your problems are inflation and unemployment; when it's not something you issue, your problem is solvency.
    - NoPiece 13y ago
      The US problem is worse than Detroit's, because Detroit can escape via bankruptcy and the US can't. Fixing the debt by printing money and the resulting inflation and unemployment would be far more disruptive to the US than the bankruptcy process will be to Detroit.
      - wintersFright 13y ago
        Why does money printing cause more unemployment? I don't see the link? EDIT: I guess a good debt destroying hyperinflation would root out all the FIRE jobs and cause unemployment there. A high inflation would funnel more wages into debt payoff so think I can see the link.
      - kaonashi 13y ago
        All money is printed. The debt is just outstanding bonds and will be paid as they mature, swapping one form of government liability for another.
      - onebaddude 13y ago
        >"because Detroit can escape via bankruptcy and the US can't" What does "escape" mean in this context? Bankruptcy means that bondholders and other investors get stiffed. That's a rather one-sided view of the outcome, and will itself have economic consequences beyond The City of Detroit. There is no "escape". Bankruptcy, while necessary, picks the wrong winners.
      - seoguru 13y ago
        Tell that to Japan. They have a debt to gdp ratio well north of 200% and they still are fighting deflation. BTW, their interest rate is 0. Those bond vigilantes are tough. The US needs to run larger deficits until we are at full employment. A simple way to do that is to eliminate the payroll tax both on employer and employee side. This will stimulate demand, and demand is the name of the game in this era of high productivity. if you're a debt/deficit hawk, please read this: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
  - jfb 13y ago
    I agree that there are cautionary lessons to be learned from the Detroit fiasco; but to my mind they're less about the particulars of, say, the Kilpatrick debt issue boondoggle, and more about the problem of incentives for elected officials. If you're looking at an average career in public service, you're going to be making decisions that have a time horizon of decades, but your electoral prospects are determined by the short term pain your constituents face, and so kicking the can down the road is entirely a sensible decision. But these sensible decisions compound, and that ends up causing enormous knock-on effects. I don't know of a way around this.
    - chris_mahan 13y ago
      instead of term limits, make it you have to win each election with 5% more of the electorate?
      - lutusp 13y ago
        > instead of term limits, make it you have to win each election with 5% more of the electorate? But that would be an exponential increase, an increase without bound that would sweep past 100% as if it was standing still. If a candidate won a substantial majority in one election, that rule might decrease his chances to be re-elected because the stakes would be raised in the following contest. So being popular would count as a handicap.
        chris_mahan 13y ago
        He would have to be head-and-shoulder above the competition, yes, but he could run.
        lutusp 13y ago
        > He would have to be head-and-shoulder above the competition, yes, but he could run. More to the point, he would have to be 5% more popular each time he ran. That's not likely. And eventually he would have to win more than 100% of the vote.
- sputknick 13y ago
  You are correct; over the short term. The federal govenment can print money, Detroit cannot. But when you print money you de-value it, so if the Federal govenment uses the monetary tools you mention, without reverses their effects when the economy improves (politically unpopular)you are likely to end up with the same result at the federal level.
  - kaonashi 13y ago
    >But when you print money you de-value it Not necessarily; it depends entirely on how much capacity you have to absorb the extra spending.
    - wintersFright 13y ago
      So if bernanke rained money from his helicopter but everyone sold their neighbour a massage that night then the money is not devalued because it was absorbed?
      - tesseractive 13y ago
        I'm not an economist, but my understanding is that the quantitative easing that Bernanke has been using over the last few years is more or less equivalent to raining money from his helicopter, only into financial markets. Runaway inflation has not resulted because there are sufficient downward pressures on prices to counterbalance the easing.
        onebaddude 13y ago
        >"Runaway inflation has not resulted" Runaway inflation has not occurred because something like $3TT in wealth evaporated from the balance sheets of (mostly) the shadow banking system during 2007/2008. That's massively deflationary. The printing of money has filled that void.
        tesseractive 13y ago
- yetanotherphd 13y ago
  Actually it does not, or at least does not when institutions like the Federal Reserve Bank are operating as they were designed to. The purpose of the Federal Reserve is to set inflation in a way that is optimal for the economy. That does not mean providing the government with cheap loans. In fact, one reason the Fed is independent from the government is so that it cannot be used for this purpose. At the end of the day, people are able to borrow only because people are willing to lend to them. There is no magical trick the federal government can use to get around this constraint. That said, I don't believe that the analogy is useful, but for different reasons: the federal government has completely different responsibilities from the city government. Each issue should be judged on its merits not by some crude analogy.

jfb 13y ago

Yes, but. The Federal government has many monetary tools available to it that Detroit doesn't. It's not clear to me that making the analogy between the way the Federal government and a non-soverign entity like Detroit work does anything but confuse the issues.

NoPiece 13y ago
I think the analogy is useful, because the financial problem has some of same roots. That the federal government has more solutions available to it doesn't excuse following the same path. It's useful to to look at Detroit to try and avoid the problem, it's not useful to look at Detroit for solutions once it hits critical mass.
- wutbrodo 13y ago
  It seems to me that the proximate cause of Detroit's problem is this massive flight of high-value (in the economic sense) population. I don't see even an echo of that happening in the US; certainly not at the level that it could be considered a problem.
  - NoPiece 13y ago
    The problem with Detroit is unsustainable debt. Depopulation is just one of many contributing factors. The depopulation has been slow, very long term, and predictable. The debt could have been avoided by scaling back spending as the the population decreased. Or an effective Detroit government might have even taken steps to improve the city so people didn't leave or even moved in.
  - bmelton 13y ago
    That may not currently be a problem, and as I'm not a psychic, it may never be a problem, but it's certainly more likely to happen from over-taxing the top 10-20%, and/or overtaxing businesses. History has examples of a nation trying to fix its financial woes through taxing the rich, and generally, the rich simply leave. Currently, Americans are renouncing their citizenship at record levels due to FATCA[1] and emigration from the US is at elevated levels since it spiked in 2009[2]. [1] - http://money.msn.com/now/post--more-americans-are-renouncing-their-citizenship http://money.msn.com/now/post--more-americans-are-renouncing... [2] - http://www.indexmundi.com/g/g.aspx?c=us&v=27 http://www.indexmundi.com/g/g.aspx?c=us&v=27
- enraged_camel 13y ago
  >>I think the analogy is useful No, it is not useful. As someone with an economics degree I can tell you with authority that comparing the finances of a city to the finances of a nation is absolutely and utterly asinine. You see similar memes on the Internet, made by conservatives, comparing the national economy to a household budget. It's just laughable.
  - NoPiece 13y ago
    You have a strong political opinion, and an inflated sense of authority. That smells like youth, so I forgive you for it. I promise when you're older you'll look back and be embarrassed at claiming to be entitled to make authoritative economic claims. Regardless, there are certainly economists with more than an undergraduate degree in economics who have held out Detroit as a warning for the US debt problem. Do you have more authority than Rachel Greszler who has a masters in Economics from Georgetown? I know, you'll disregard her because she works for an conservative group. Just be honest and acknowledge that this is about a political difference, not an authoritative truth. http://blog.heritage.org/2013/08/05/morning-bell-learning-from-detroits-mistakes/ http://blog.heritage.org/2013/08/05/morning-bell-learning-fr...
    - enraged_camel 13y ago
      >>Do you have more authority than Rachel Greszler who has a masters in Economics from Georgetown? No, but Paul Krugman does. He's a Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University and a Centenary Professor at the London School of Economics. Oh, he also won the Nobel Prize in Economics back in 2008. Suffice it to say, he has more than a simple Master's degree from Georgetown. Here's what he has to say on the subject. http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-und... In light of your high-horse comment, I found this part especially funny. "Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!"
- kaonashi 13y ago
  It's apples and oranges. When your debts are denominated in something you issue, your problems are inflation and unemployment; when it's not something you issue, your problem is solvency.
  - NoPiece 13y ago
    The US problem is worse than Detroit's, because Detroit can escape via bankruptcy and the US can't. Fixing the debt by printing money and the resulting inflation and unemployment would be far more disruptive to the US than the bankruptcy process will be to Detroit.
    - wintersFright 13y ago
      Why does money printing cause more unemployment? I don't see the link? EDIT: I guess a good debt destroying hyperinflation would root out all the FIRE jobs and cause unemployment there. A high inflation would funnel more wages into debt payoff so think I can see the link.
    - kaonashi 13y ago
      All money is printed. The debt is just outstanding bonds and will be paid as they mature, swapping one form of government liability for another.
    - onebaddude 13y ago
      >"because Detroit can escape via bankruptcy and the US can't" What does "escape" mean in this context? Bankruptcy means that bondholders and other investors get stiffed. That's a rather one-sided view of the outcome, and will itself have economic consequences beyond The City of Detroit. There is no "escape". Bankruptcy, while necessary, picks the wrong winners.
    - seoguru 13y ago
      Tell that to Japan. They have a debt to gdp ratio well north of 200% and they still are fighting deflation. BTW, their interest rate is 0. Those bond vigilantes are tough. The US needs to run larger deficits until we are at full employment. A simple way to do that is to eliminate the payroll tax both on employer and employee side. This will stimulate demand, and demand is the name of the game in this era of high productivity. if you're a debt/deficit hawk, please read this: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
- jfb 13y ago
  I agree that there are cautionary lessons to be learned from the Detroit fiasco; but to my mind they're less about the particulars of, say, the Kilpatrick debt issue boondoggle, and more about the problem of incentives for elected officials. If you're looking at an average career in public service, you're going to be making decisions that have a time horizon of decades, but your electoral prospects are determined by the short term pain your constituents face, and so kicking the can down the road is entirely a sensible decision. But these sensible decisions compound, and that ends up causing enormous knock-on effects. I don't know of a way around this.
  - chris_mahan 13y ago
    instead of term limits, make it you have to win each election with 5% more of the electorate?
    - lutusp 13y ago
      > instead of term limits, make it you have to win each election with 5% more of the electorate? But that would be an exponential increase, an increase without bound that would sweep past 100% as if it was standing still. If a candidate won a substantial majority in one election, that rule might decrease his chances to be re-elected because the stakes would be raised in the following contest. So being popular would count as a handicap.
      - chris_mahan 13y ago
        He would have to be head-and-shoulder above the competition, yes, but he could run.
        lutusp 13y ago
        > He would have to be head-and-shoulder above the competition, yes, but he could run. More to the point, he would have to be 5% more popular each time he ran. That's not likely. And eventually he would have to win more than 100% of the vote.
sputknick 13y ago
You are correct; over the short term. The federal govenment can print money, Detroit cannot. But when you print money you de-value it, so if the Federal govenment uses the monetary tools you mention, without reverses their effects when the economy improves (politically unpopular)you are likely to end up with the same result at the federal level.
- kaonashi 13y ago
  >But when you print money you de-value it Not necessarily; it depends entirely on how much capacity you have to absorb the extra spending.
  - wintersFright 13y ago
    So if bernanke rained money from his helicopter but everyone sold their neighbour a massage that night then the money is not devalued because it was absorbed?
    - tesseractive 13y ago
      I'm not an economist, but my understanding is that the quantitative easing that Bernanke has been using over the last few years is more or less equivalent to raining money from his helicopter, only into financial markets. Runaway inflation has not resulted because there are sufficient downward pressures on prices to counterbalance the easing.
      - onebaddude 13y ago
        >"Runaway inflation has not resulted" Runaway inflation has not occurred because something like $3TT in wealth evaporated from the balance sheets of (mostly) the shadow banking system during 2007/2008. That's massively deflationary. The printing of money has filled that void.
        tesseractive 13y ago
yetanotherphd 13y ago
Actually it does not, or at least does not when institutions like the Federal Reserve Bank are operating as they were designed to. The purpose of the Federal Reserve is to set inflation in a way that is optimal for the economy. That does not mean providing the government with cheap loans. In fact, one reason the Fed is independent from the government is so that it cannot be used for this purpose. At the end of the day, people are able to borrow only because people are willing to lend to them. There is no magical trick the federal government can use to get around this constraint. That said, I don't believe that the analogy is useful, but for different reasons: the federal government has completely different responsibilities from the city government. Each issue should be judged on its merits not by some crude analogy.