A Detroit bailout is a very bad idea

Published 8:58 pm Tuesday, July 23, 2013

By Staff Reports

 

We probably should have seen this coming. Even as Texas continues to lure jobs and companies away from high-tax, business-unfriendly locales, those locales have gone into economic crises — and they’re starting to look to us to bail them out.

Supporters of Detroit, a now-bankrupt failure of public policy and governance, are calling for the federal government to step in and save it from a self-induced disaster.

“Does anyone seriously doubt that, if Detroit was a ‘too-big-to-fail’ bank, it would have been bailed out long ago?” asks John Nichols in The Nation magazine. “Or that its pensioners, rather than facing the threat of cruel cuts as part of Michigan Governor Rick Snyder’s scheme to steer the city into brutal bankruptcy proceedings, would instead have pocketed hefty bonuses?”

The verbiage is telling — cuts are cruel, bankruptcy is brutal. This ignores the plight of real Detroit residents, who lack even the basic public services of police, fire protection and sanitation.

Washington must step in, Nichols claims, because Washington is at least one of the primary causes of the problem.



“America’s urban communities — and many not-so-urban communities — have for decades been battered by free-trade policies that foster deindustrialization, by tax policies that encourage offshoring, by all the missteps and misdeeds of Congress and successive presidents,” he claims.

Let’s take those items one by one. Free-trade policies didn’t hurt the auto industry. In fact, they allowed the expansion American auto making by encouraging foreign companies to build plants here. Five of the top 10 American-made autos are built by foreign-own companies with factories in the United States.

But they’re not built in Michigan. They’re mostly built in states without the onerous union controls and costs found in what was once the Motor City.

Nichols’ claim is that free-trade policies fostered deindustrialization. They didn’t. They fostered de-Detroitification.

How about his claim that tax policies encourage “offshoring”? Again, this is a simplistic charge that a closer look disproves. An expansive definition of “tax policies” does indeed discourage multinational companies from expanding here; the U.S. corporate income tax is the highest in the developed world. Companies making financial decisions have to take that into account.

But there are no tax policies, in the current tax code, that “reward” firms for taking business away.

Finally, Nichols claims that “misdeeds of Congress” caused the Detroit crisis. There were misdeeds, but they were closer to home. Corruption in the city is legendary. In May, for example, “Former Detroit Mayor Kwame Kilpatrick, once seen as a rising star in Democratic Party politics, was convicted on Monday on two dozen federal charges of corruption and bribery during his seven-year tenure,” the Reuters news agency reports.

Nichols is blaming others for Detroit’s own problems; he wants Washington to come in and bail the city out.

But that move would create the worst sort of moral hazard for other cities. If politicians learn that they can spend and even steal without consequence, then no other city is safe.