The cry to bail out or save Detroit is underway. It will certainly escalate in the days, weeks and months ahead. Follow the discussion for fun. The city is $18+ billion in the hole ($3.5 billion negative in pension obligations). President Obama and VP Biden promised they would never let it go under, so let’s see how the MSM covers this. I want to address a different aspect of the story. How did it get here?
I think the situation in Detroit is a result of how governments run and why we need a new approach. When things are good , the local officials love spending the dollars. The union officials yell for their share. Every program is a good one. They all act as if the good times will roll on forever. No one prepares for the bumps in the road that come evidently. Government doesn’t do the basics that your parents taught you — prepare for a rainy day.
So Detroit spent, and spent, and spent as if it would always be rolling in. When it started slowing down they just drafted rosy scenarios and budgets. An example, their current pension funds are based on an 8% expected return. Wouldn’t you like that on your bank accounts?
As its population declined 39% (to 715,000 from 1.850,000 in 1950), crime increased, and the car business went into disarray Detroit spent itself into an $18+ billion dollar debt.
Government spends whatever it collects as if it is going to last like that forever.
Government creates programs but when did you ever hear of government canceling programs?
So in heady times as the money flows you spend and spend, increase programs, add to pensions, create new ones.
When rainy days come they borrow to cover the programs, or utilize rosy projections.
Sooner or later you hit a day of reckoning. Detroit just did. Americas day is coming.
The best way to explain it is this. When government has a surplus in good times there are three choices.
1. Create new programs and spend the money
2. Save the excess in a rainy day fund to prepare for the eventual downturn (and seek savings where you can since jobs are available)
3 Actually return the excess to the tax payer who you over charged because you had more than what you needed to run the government.
Guess which one Detroit chose? Guess which one our state government choses? Guess what the federal government does? Think what you do with your budget. Shouldn’t government do what you do?