5 ms·

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 excu

by 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.

by NoPiece 13y ago

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.