Detroit and How Democracies Die

More Debt to GDP Than Any Time Other Than WWII
More Debt to GDP Than Any Time Other Than WWII

The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.

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Alexis de Tocqueville

It’s easy to kick Detroit. The place just about roles over and begs for it. Now we learn that the City Henry Ford built is now eligible to be put under emergency management by Governor Rick Snyder. Michigan State Treasurer described the situation succinctly below.

“We believe there’s a financial emergency in the city and that there’s no plan in place to correct the situation … I do believe strongly Detroit is fixable,” he said.

I read this, nod in sad agreement and then think to myself that Detroit is just the symptom. Detroit is just the canary that died in the burning coal mine of American finance. Our country is going bankrupt and despite our heartfelt desire that this not happen, most of us are helping it occur. We are caught in what’s called a discursive dilemma. Gonzalo Lira gives us an explanation of how we made it to sequestration below.

The majority of the group believes taxes should be cut—and at the same time, the majority of the group thinks the government should deliver more services to the people. All of the members of the group individually do not want a deficit, but as a group their incoherence leads to a deficit. This is the democratic fiscal incoherence, a situation unique to democracies.

So this devolves down to every level of government. Nobody in the State of Rhode Island was willing to resolve the dilemma. They believed and still implicitly believe that the next level up the chain (Washington, DC) would bail them out.

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They believe in Fairy Dust. They believe in The Bernanke Put. They stand athwart logic and high school mathematics. Rhode Island’s legislature believes they can magically legislate any rate of return on their pensions that the public unions feel entitled to. The fact that current conditions conspire against the possibility of such a generous return on investment can’t be allowed to stand in the way of what is Fair!

Detroit has even more impetus to believe in the magical bailout. They have no driver forcing them to resolve their fiscal incoherence. They just ask for more money to flush down the toilet and about every thirty years, a President and a Congress are stupid enough to fork over.

Mayor Bing doesn’t even really seem perturbed that the state treasurer just accussed him of total failure. In government, total failure justifies the need for additional investment! Bing explains below.

“My administration has been saying for the past four years that the city is under financial stress. If the governor decides to appoint an emergency financial manager, he or she, like my administration, is going to need resources — particularly in the form of cash and additional staff,” Bing said

Everyone needs more cronies that ought to fix just about everything! That has apparently been the American Way of dealing with this fiscal incoherence since 1975. Gonzalo Lira explains it below.

“My administration has been saying for the past four years that the city is under financial stress. If the governor decides to appoint an emergency financial manager, he or she, like my administration, is going to need resources — particularly in the form of cash and additional staff,” Bing said

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So the debt goes up like an exponential horror-movie chart, here’s the carnage since 2008.

Natdebtsince2008

That’s the impetus behind all the calls for deficit reduction. The US Federal Reserve has 420% more debt than it had in 2008. It’s gone from a miserly $500Bn to a more robust $2.1T. The Federal Government’s publically held debt has increased by 200%. It ended the reign of Bush II at $5.3T and has manfully roided up to $10.6T under the loving care of Mein Obama.

Is it really any wonder that Mayor Bing sees this whole thing as an opportunity to expand his budget and his staff. We just buy our current risk of default with future indebtedness. Is it any wonder we wound up in sequestration? Is it any wonder people are dumb enough to want John Boehner to just wave a magic wand and make it go away? But eventually it can’t be made to go away. If we believe it will just disappear, than Detroit, MI is Amerika’s Ghost of Christmas Future.

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