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July 26, 2013

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At the end of this excellent piece, Jon ends where I began:
"There is a gap between public pension promises and assets, but who the hell's fault is that?"

Yes, WHOSE FAULT, but to what extent are other states quietly hiding or glossing over their pension deficits? Example: it sounds like there's an intelligent discussion taking place in Oregon . . . but with no apparent solution. And will red state legislatures treat public employee retirement with their typical meat-axe mentality?

Was it the 1970's when New York City flirted with bankruptcy? What a turnaround for the Big Apple.

The Feds would have bailout NYC just like they bailed out Wall Street crooks in 2008. Too bad for Detroit it isn't located on the east coast and loaded with institutions making hefty political payments to Washington politicians.

No doubt morecleanair red states will try and a few blue states may be forced to reduce promised payments to pensioners.

"...will red state legislatures treat public employee retirement with their typical meat-axe mentality?

Yes.

I'm only as far as "metonym," but this is going well and I just wanted to pause to note my appreciation for another new word... :)

We went off to graduate school at UM Ann Arbor in 1973 and were warned not to go into Detroit, the number of times which we did I can count on one hand. The annual UM undergraduate architecture field trip was to Toronto, to "see a real city".

Doc, a quote from a friend of mine.
"for some years now i have been trying to explain to people that a culture of fear is what is killing us, not global warming or the terrorists. i am always met with glazed eyes."

But I am glad you heeded your mothers advise.

A couple of summers ago, my boyfriend and I were having dinner with a nice liberal couple from Scottdale (who now live in Santa Cruz, CA). The wife told us about how her dad (an old guy with a big crush on Ayn Rand) was sending her emails about some city in CA where they were having terrible, awful problems meeting the pension obligations engendered by the terrible, awful unions that forced, forced!, that city to fund (what she and her father considered to be) overly generous retirement and health care benefits.

I asked her what she felt should happen to the retirees in that city, having had the promises made to them reneged on. As I recall, her response was something like, "They'll get health care and Social Security. They shouldn't get high class hospital rooms."

Rogue wrote:

"While unemployment in the metro area is around 9 percent, inside the city limits it is more than 16 percent and barely fell below 15 percent all through the 2000s."

Actually, if you look at a graph of the historical unemployment rate for the City of Detroit you find that unemployment was at 10% in January of 1999 and by January of 2000 had decreased to about 5% and stayed under 10% until January 2001. Then it starts climbing up until it plateaus at an average of maybe 14% from 2003 to 2008, after which it climbs sharply.

http://www.google.com/search?q=detroit+unemployment+historical&tbm=isch&tbo=u&source=univ&sa=X&ei=MVn0UbSyNIvS8wTuxoCQAg&ved=0CD8QsAQ&biw=1280&bih=907#facrc=_&imgdii=_&imgrc=IWuMdei399SzfM%3A%3BqHY9afyMNdZdRM%3Bhttp%253A%252F%252F3.bp.blogspot.com%252F_xlGBqqM0muE%252FSxMsmUI81qI%252FAAAAAAAADI4%252FEPayTt8QXCA%252Fs320%252Fdetroitunemploymentrate.PNG%3Bhttp%253A%252F%252Fwww.distressedvolatility.com%252F2009_11_01_archive.html%3B475%3B261

So, the City of Detroit saw some good times in the early 2000s. What happened?

Black flight.

From 2000 to 2010 the White population declined less than 2 percentage points (from 12.26% to 10.61%), or roughly just 45,000.

The Black population in Detroit increased from 1940 through 2000 not only as a percentage but also in absolute numbers: from roughly 145,000 to 775,000. We also see that the Black population held steady from 1990 to 2000.

After 2000, however, what you see is Black flight: the population drops precipitously, from 775,000 to 590,000 in 2010.

http://en.wikipedia.org/wiki/Demographic_history_of_Detroit

Fewer residents equal fewer workers and less taxes paid by residents; it also means less consumer spending which in turn means less business revenue and employment (and sales taxes collected).

By 2000, most White flight had already occurred. Whereas, after 2000, the vast bulk of Black flight occurred. Since this is when Detroit's most recent job losses occurred I have to conclude that racial strife had nothing to do with the city's RECENT economic problems.

Slow hot humid week end,
Did AZRebel get caught trying to get Snowden in his suitcase.

Regardless of your opinion of the Jewish Princess Ayn Rand U might or maybe might not enjoy John Hodgemans piece in the New Yorker of Shouts and Murmurs called Ask Ayn
Here is a few paragraphs I found amusing.

"I do not approve of the so-called hippies, but I do not approve of any government control over drugs. The government does not have the right to tell any individual what to do with his or her health and life. You probably know that I received a prescription for the stimulant Benzedrine, or “speed.” I can say rationally that it increases my happiness and my productivity. For example, some time ago I went to Studio 54, because I love to dance on speed. I took fifteen speed pills, and I got into a contest with Liza Minnelli over who could roar most like a jaguar. She simply sounded like a stupid lion.

Then the inside of my head began to sound like a jet engine and so I went to the bathroom. I took maybe ten more speed pills and sat in a stall and wrote a new chapter of “Atlas Shrugged.” Perhaps twenty-five thousand words, all on toilet paper. I cannot include these words in a new edition, alas, because I did not write them so much as encode them on the toilet paper by biting it.

As I write this, I am drinking speed, and you cannot stop me. You cannot stop me, America, with your altruism and your Alan Alda and your Fresca cans biting at my skin. I shall speed across this country like a great high-speed train and the U.S. shall be forever changed in my wake.

Yes, I am both a speedboat and a speed train, and I will mix metaphors if I wish and bend language to my own reality like rails of garbage steel. Because Ronald Reagan has deposed Jimmy Carter, and I predict that by 2013 my influence will be profound, and a new generation of leaders will hallow my name, and devotion to self-interest and capitalism and the free market will not be the exception but the rule, and these leaders will naturally share my disapproval of religion, my support of abortion rights, and my love of Godiva chocolates. I have to stop writing now, because I have chewed through my typewriter.

Talk to you next week, readers of “Parade,” and remember to send me your favorite ways to spice up Hamburger Helper. I asked you that three weeks ago. ♦"

One box any type Hamburger Helper

One pound ground chicken or ground turkey.

Four chopped jalapeno peppers.

Cook as directed on box.

Eat with 3 to 6 Corona beers. (lime optional)

Good to be back home.

Emil:

By 2000, most White flight had already occurred. Whereas, after 2000, the vast bulk of Black flight occurred. Since this is when Detroit's most recent job losses occurred I have to conclude that racial strife had nothing to do with the city's RECENT economic problems.

But perhaps everything to do with the recent and controversial responses to those problems. There is a barely concealed patronizing racism in the way in which the city's management was sneered at by surrounding communities, and the resultant anti-democratic "emergency manager" business.

While the loss of property, business and income tax revenue would have staggered any city, there was an underlying attitude that somehow it could've been "handled" better.

I gathered this impression while corresponding with a friend in the area, who shared with me hers and others' reactions to the unfolding drama. It was a hot topic on their local talk radio, and their Facebook page was alive with commentary. Sorry I can't provide more definitive links at the moment (I didn't engage myself, playfully irritating my friend by telling her I didn't get involved in "provincial" politics. :) Truth is, the subject was a little too hot for me.)

Bottom line - the antics of Coleman & Kilpatric, together, drove the final nails into Detroit's coffin. Once the white & black tax payers fled the city, municipal obligations could not be met as their absence destroyed the city's credibility.

See the recovery of Pittsburgh for a contrasting scenario.

Blade Detroit
grow trees
will be ahead of NY city when it goes under 8 feet of water and returns to the swamp it used to be.

The other thing that happened since 2000 is China in the WTO, playing by its own rules. Among the big losers were the manufacturers in Detroit.

Thanks for the article, Cal. That was a funny read. I’d say Ayn sounds like Rush Limbaugh. (I could not recall Limbaugh’s name today, so I Googled “right wing pundit on drugs”. His name came up first.)

Rogue wrote:

"The other thing that happened since 2000 is China in the WTO, playing by its own rules. Among the big losers were the manufacturers in Detroit."

Yes, when I suggested "Black flight" (during the 2000-2010 decade) as the reason for Detroit's most recent problems, that begs the question, why did they leave?

There is no doubt in my mind that a decline in auto manufacturing jobs (which includes both vehicles and parts manufacturing) meant that large numbers of Detroit workers (nine-tenths of whom were Black) lost their jobs and migrated in search of replacement income.

From 1998 through 2000 both vehicle and automotive-parts manufacturing employment were increasing in Michigan, Ohio and Indiana as a whole; from 2000 on, both forms of manufacturing employment declined precipitately. See Figure 3:

http://www.ibrc.indiana.edu/ibr/2010/spring/article2.html

The same article notes that from 2000 to 2006 automotive-parts imports boomed (i.e., foreign manufacture replacing domestic sources); that many Midwest manufacturers moved to the Southeast where wages were 23 percent lower; and that per worker output grew 29% over the same period, meaning (I infer) that automation (robots) replaced a number of jobs.

So, a combination of U.S. "trade normalization" with China resulting in outsourcing of jobs; domestic shifting of such jobs from the Midwest to the Southeast (also cost driven); and loss of jobs to automation as robotics expanded and became more sophisticated.

Another major factor (arguably) is the loss of domestic market share to Japanese brands during the 2000s. U.S. market share declined from 82% in 2002 to 73% in 2009. However, from 2002 to 2006 U.S. manufacturers' market share declined only 2 percentage points (from 82% to 80%).

http://www2.briefing.com/Marketing/includes/state-of-the-us-motor-vehicle-industry-2012.pdf

(See graphs, page 4.)

P.S. In September, 2012 (took 'em long enough!) the U.S. filed a formal complaint with the World Trade Organization (WTO) accusing China of illegally subsidizing as much as 60% of its auto-parts exports.

http://www.bloomberg.com/news/2012-09-17/u-s-complains-at-wto-over-chinese-aid-on-cars-car-parts.html

But concentrating on direct state subsidies ignores the much more important subsidies giving Chinese-based businesses a huge advantage over U.S. and European businesses; the latter have to adhere to environmental, workplace-safety, and labor rights laws, giving them much higher overhead costs compared to China (which gets to pollute and exploit to its heart's content, having no legal labor unions and being a one-party police-state with no enforceable legal rights outside the whims of national and local Party cadres); to say nothing of the basic difference in standard of living and thus wages and salaries.

ALL of this would be reflected in any legitimate system of international trade so that foreign companies in competition with the U.S. would have to play by the same basic rules or else have the cost of their exports increased by offsetting tariffs. That this is not the case reflects the influence of international corporations over politicians and the political system. Federal laws that require businesses in all U.S. states to adhere to uniform federal environmental, safety and labor requirements, but which allow them to escape these requirements by moving operations abroad, can only have the effect of outsourcing U.S. jobs.

Whenever the WTO rules against the USA, the USA ignores it. I imagine China will do the same.

Here are two columns useful for understanding China's affect (and that of some other neo-mercantilists) on trade (and us):

http://prestowitz.foreignpolicy.com/posts/2012/02/17/chinas_not_breaking_the_rules_its_playing_a_different_game

http://prestowitz.foreignpolicy.com/posts/2012/03/12/tennis_vs_football

Now, send me to the spam dungeon...

"Detroit has given treasures to the world no Sun Belt city can ever match"...
That's a line I will be using in the future, thank you.
Detroit and its streetcars...

http://www.shorpy.com/node/7136?size=_original#caption

I've been thinking about Detroit as a retirement spot if they can restore police and fire services. Fresh water and cool summers.
Thanks Emil for the great summary. Lots of auto work headed South. Some friends of mine built cars seats for $12 an hour in 1981. The same plant has less than half the employees and new hires start at $9 an hour.

Rogue, here's a revealing excerpt from one of your Prestowitz links:

"In any case, there are a lot fewer clear cut rules than most people think. For example, probably the biggest single factor in the off-shoring of large chunks of U.S. based production and millions of jobs abroad has been the packages of financial investment incentives offered by China and others to global companies to encourage them to relocate production. More jobs have been lost to these packages than to currency manipulation. But you can't complain about rules violations because there are no rules to cover these investment incentives. At the federal level, America doesn't offer such incentives but there is no WTO or IMF or other rule against it. Nor is the United States proposing any rules in this area."

Rogue's "Front Page" links include the following recherche item. I thought I'd post a brief excerpt. From the Yale Journal of International Affairs:

"Abstract—The Pentagon has concluded that the time has come to prepare for war with China, and in a manner well beyond crafting the sort of contingency plans that are expected for wide a range of possible confrontations. It is a momentous conclusion that will shape the United Statesdefense systems, force posture, and overall strategy for dealing with the economically and militarily resurgent China. Thus far, however, the military’s assessment of and preparations for the threat posed by China have not received the high level of review from elected civilian officials that such developments require. The start of a second Obama administration provides an opportunity for civilian authorities to live up to their obligations in this matter and to conduct a proper review of the United StatesChina strategy and the military’s role in it."

http://yalejournal.org/2013/06/12/who-authorized-preparations-for-war-with-china

Somebody seems to be looking ahead at something for some reason...

I wonder if defense budget concerns are relevant? If the U.S. has a new Big Enemy to fight (or, per the Cold War, to prepare to fight so as to be strong enough to discourage a fight) that gives a ready-made rationale for fat Defense Department budgets...

Great line, Rogue:

"Beware of scare tactics by the right and some quarters of the media about the gazillions facing us in "unfunded liabilities." There is a gap between public pension promises and assets, but who the hell's fault is that? We're the richest country in the world. Wall Street is gambling with $600 trillion in nominal derivatives. And the retired garbageman is to blame?"

Emil:

Once we've eliminated worker rights and environmental laws in the U.S., China's competitive advantage will be eliminated. Problem solved!

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