In Detroit We Glimpse America's Future

♠ Posted by Emmanuel in , at 7/20/2013 03:50:00 PM
Just a city boy, born and raised in south Detroit
He took the midnight train goin' anywhere...

I have been to Detroit and it is not an experience I fondly remember. So, I do not question the motives of the protagonist in the Journey song above in leaving. Still, it was with some sadness that I heard this once-great American city declare bankruptcy only yesterday. In many respects it was the conclusion of the inevitable: years of outmigration and industrial decay had taken their toll on municipal finances. Contrast its decrepit state today with what it used to be. Despite the occasionally dodgy (non-)narrative, the documentary Detropia does a fine job of visually contrasting the city in its heyday with its present state. (PBS also has a neat photo essay on its faded grandeur.)

From a broader perspective, Detroit is also a microcosm of what ails America. Some will of course say that it's inevitable for unattractive cities to decay as these people forever on the move seek better fortunes elsewhere--such as in the non-unionized South. However, I would argue that removing yourself from Detroit only rewinds the clock by a few years from an inescapable American fate. That is, you can take the "midnight train" elsewhere, but you'll still end up in the US of A with all its woes. Let us now count the ways "Detroitification" is a portent for this country's future...

1. Decrepit infrastructure is a nationwide phenomenon - I enjoy video games featuring post-apocalyptic wasteland,and one of the best remains Fallout 3.  (With one of its expansion packs already set in Pittsburgh, perhaps Fallout 4 should be set in Detroit instead of Washington, DC.)  In real life, though, crumbling infrastructure is not isolated to Detroit but is a daily reality for most Americans. The American Society of Civil Engineers give the nation an overall mark of D+ [!], which is an unbelievably crappy mark in this age of grade inflation merited only by the most apathetic of students. The ASCE further estimates that the United States needs $3.6 trillion in infrastructure spending to maintain it in acceptable standards.

Given the current economic state of America--where economic growth is an oxymoron--it is hard to imagine massive federal or state outlays on the scale civil engineers believe is necessary. So, no matter how bad things are now, they are only likely to get worse. And, if everything everywhere is plain awful, there will not be an easy solution alike taking the "midnight train" out of Detroit when every other town looks like Dodge as the Yanks say.

2. Unfunded (and unpayable) liabilities keep mounting - One of the things which surely led Detroit to fess up to its fiscal depravity was a recent requirement for state and local governments to recognize unfunded liabilities, Depending on the assumptions you make--setting discount rates, life expectancies and so forth--local governments have a shortfall in what they owe pensioners ranging somewhere between $1 and $4 trillion. That sounds pretty dire already, but consider that the United States at the federal level has at least $61.9 trillion in unfunded liabilities by one fairly conservative estimate. Again, based on different assumptions, a former Fed governor put these at $85.6 trillion--in 2008.

Assuming no major tax increases or spending cuts are forthcoming--a most non-heroic assumption given the current state of American political paralysis--the only real cures at the federal level are effectively reneging on unfunded liabilities under some flimsy legal cover (unlike municipalities, the US government like all others cannot declare bankruptcy though) or eating away at them via inflation. Either way, the reputational damage will be huge.

It is also worth pointing out that there is this American proclivity for dumping unfunded liabilities on Uncle Sam. (As it turns out, estimates of corporate unfunded liabilities are also fairly huge.) The "GM solution" for dealing with them has of course been the government bailout, which leaves America on the hook for even more than already massive federal liabilities. Already there are suggestions that Barack Obama should fund another federal rescue a la GM for Detroit.
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There will be much interest in seeing whether another federal rescue--this time of a city instead of a company--is forthcoming. Doing so would risk further bloating federal liabilities as all similarly troubled companies and municipalities resort to US government succour in the future. It will not be a pretty picture if and when the federal government is treated as a limitless dumping ground for corporate and municipal IOUs that cannot be honoured.

At present, nation-states do not have to report unfunded liabilities as corporations and now US local governments do. Still, who do they think they're fooling? Like America itself, Detroit has seen better days. The question for the rest of us is how to free ourselves of US-style misery before it drags us down to its level. Are we really as foolish as Detroit's lenders to believe that the US represents a good credit risk? Its problems are similar and differ only in terms of magnitude, where national problems are obviously far greater.

Not even RoboCop will save Detroit now...or the rest of America from "Detroitification."

UPDATE: French photographers Yves Marchand and Romain Meffre have an extensive photo collection entitled "The Ruins of Detroit."