Defenders of the leviathan state were getting so hopeful. The U.S. budget deficit is well below $1 trillion a year, the economy is still growing, the health care cost curve shows signs of bending and even California has a balanced budget. Things may not be great right now, but they’re mending. All that talk about Boomergeddon sounded so quaint and antiquated.
Then along came the Detroit bankruptcy. MoTown’s financial demise comes as no surprise to anyone but until the city actually filed for protection yesterday, the sad state of affairs could be swept under the rug. Sadly, the city of Detroit did file yesterday in the biggest municipal bankruptcy in United States history. No longer can its pathetic performance be ignored. With $18 billion in debt, Detroit dwarfs the previous blockbuster bankruptcies, Jefferson County, Ala., and Orange County, Calif.
Does Detroit’s fate portend other municipal disasters to come? Conservatives, of course, will say yes. Detroit was the apotheosis of the blue state government model, a big-city political machine characterized by high taxes, excessive spending, public employee unions and the politics of racial resentment. Much was done in the name of the poor. Yet, curiously, the poor got poorer… and more numerous. And the productive, tax-paying classes fled. What occurred in Detroit can, and will, occur elsewhere.
Progressives predictably will blame Detroit’s problems on anything but the blue state governance philosophy. They will blame white flight, racism and Republicans. They will point to the hollowing out of the U.S. automobile industry and the hemorrhaging of manufacturing jobs. The economy is a factor, there’s no denying. A stronger, non-automotive economy explains why, say, Chicago has evaded Detroit’s fate… so far. But it’s only part of the story. Other cities have managed to reinvent themselves. Detroit has not.
What happens post-bankruptcy in Detroit will be as interesting to watch as what happened pre-bankruptcy. Once the city’s creditors take a hair cut of 80% or so on their bonds, pension obligations and other city obligations, the city can start fresh financially. But will anything really change? Is the municipal organism capable of truly reforming itself? Or will the city proceed to run up obligations to a new set of creditors and run itself into the ground once again? Let’s hope not. But don’t bet against it.