Detroit’s Greek tragedy

From Charles Lane at the WashingtonPost.com: 

Liberal economists have a ready response to conservatives who fret that U.S. debt might spiral out of control, a la Southern Europe: “America is not Greece.”

It’s true. Greece has much more public debt than does the United States, relative to economic output...

Certain parts of the United States, however, are like Greece. Just read emergency manager Kevyn Orr’s134-page report on Detroit, which has $20 billion in unpayable debt.

...the document nevertheless tells a harrowing story of institutional rot and social collapse, brought on by decades of government of, by and for special-interest groups.

Prominent among them are public-employee unions — 47 in all, from organized crossing guards to the Association of Professional Construction Inspectors. Contracts permitted employees to “bump” from job to job based solely on seniority, “without regard to merit, relevant qualifications or experience,” the report says.

Generous pension and retiree health benefits gobbled up tax dollars — more than 38 percent of the city’s revenue in fiscal 2012 alone — that would otherwise have paid for public services.

Small wonder that, per the report, the effectiveness of Detroit’s police force is “extremely low” and the city’s rate of violent crime is five times the national average; or that the average fire station is 80 years old; or that the number of city parks has dwindled from 317 to 107 in the past half-decade.

Detroit could not have financed its bloat without Wall Street. Like German and French banks that bought Greek debt long past the point of reason, Detroit’s financial enablers cheerfully synthesized such securities as $1.43 billion in pension-funding “certificates of participation” — about whose “validity and/or enforceability” the Orr report expresses circumspect but ominous doubts.

Spare some blame for Detroit’s log-rolling and — it must be said — mostly Democratic politicians, including spectacularly corrupt former mayor Kwame Kilpatrick, who faces more than 20 years in prison on bribery and extortion charges related to rigging city contracts.

Greece’s state-owned money pits include a railroad and ports. The political class in Detroit saw fit to own water works and parking garages. Much as Greece ended up contemplating renting out the Acropolis, cheap, to foreign film crews, Detroit is pondering the sale of masterpieces in its art museum.

...difficult as Detroit’s economic issues were, bad governance made all of them worse. For too long, too many people whose first concern was supposed to be serving citizens concentrated instead on feeding off whatever public resources Detroit had.

...Of course, Detroit should never have reached the point where it needed an enlightened dictator. Motor City residents, public employees, financiers and politicians should have practiced the shared sacrifice Orr is belatedly attempting to impose.

...Maybe Americans have nothing to learn from Greece. Detroit, though, is closer to home, and its lessons are not so easily ignored.
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Link: http://www.washingtonpost.com/opinions/charles-lane-detroits-greek-tragedy/2013/07/08/