Bailouts: No more, no way, no how

| August 12, 2013

 

Detroit Hot Buttons poll

George Long spelled out the typical route for city governments facing default on their debts in comments on Overdrive‘s recent Hot Buttons poll probing reader opinion on a potential federal bailout of Detroit. Cities’ respective state governments often assume responsibility, Long wrote, hitting only that state’s taxpayers. But with the hard-time Michigan metropolis in crisis and local officials and advocates appealing to the U.S. Congress directly for a bailout, Long reflected the large majority of readers in urging federal restraint. “We erred in bailing out Detroit’s base industry,” he wrote of the bailouts of the automobile industry. “Let’s not err in bailing out Detroit. Let them re-establish their own credit rating through proper management.”

David S. McQueen: “The people of Detroit elected those corrupt politicians. Now, when it’s time to pay the piper, the people who supported corrupt city government want the rest of Americans to bail them out. No way!”

Detroit’s misery, many suggested, came down simply to bad decisions, which “should not be so easily forgiven,” wrote John Scott. “Who learns from a bad policy or business model if someone will bail you out [when you fail]. It’s no different than kids today with parents who would rather be their kid’s friend than mentor. Two mistakes don’t make a right.”

Bailouts of the kind that were extended to the financial sector and, in particular, the auto industry, only “masked the cause of the problem,” Long added, “which was that management ceased trying to keep union worker compensation in line with productivity.”

HB bug DetroitDetroit, in addition to certain other cities, he noted, appears to be and/or have been “doing the same thing with its unionized workforce.

“The result: no one left to pay the bills. At $80/hour, you can hire many fewer forklift drivers than at $25/hour, so you must find ways to replace them through automation, and that was done through capital borrowing, which also could not be sustained. A federal bailout for Detroit? Why? If we allow Detroit to fail, it will either vanish from the earth or it will ‘get real.’ All of the pension obligations that are not funded will remain not funded, and the people who never earned the money will never get the money. Where is the harm in that?”

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