Detroit: Cities Are Not Immortal And Not Above The Law


The Huffington Post headline on their business page this weekend was, in huge lettering: “20,000 REAL PEOPLE.”

The headline led to this article, with the headline, “Detroit Pensions Threatened By Bankruptcy, Retirees Could Lose Healthcare, Retirement Funds.” It opens with an anecdote:

“When Paula Kaczmarek moved to Detroit in 1978 to work for the city’s public library system, a guarantee of good retirement benefits was a key sweetener that convinced her to leave her previous job in Boston. ‘I basically came here for future security,’ said Kaczmarek, who retired in 2012, two years earlier than she planned, as the public library was facing potential layoffs. Kaczmarek is among the more than 20,000 unionized retirees whose pensions and healthcare benefits hang in the balance after Detroit filed the largest municipal bankruptcy in U.S. history.”

It may be that if one looks at the kind of amazing pension benefits that retirees get, then one might be prone to be less than sympathetic. However, one can’t ignore the fact that promises were made by people who are never going to suffer any consequences for their fraudulent promises or their treacherous decisions to not keep those promises.

Detroit was built on a circle of lies. Politicians offered benefits to unionized city employees and the unions supported the politicians, making it easier for them to stay in office. Now that game comes to an end. And it seems that no one is ever held criminally liable for underfunding a pension.

But no matter how much you hate retirees being left with nothing, after all the promises that were made to them, nothing justifies a headline claiming that “bankruptcy” threatens these benefits. That’s simply not true. There is no money and no way to get enough money to pay those benefits. Bankruptcy simply acknowledges those facts. Without bankruptcy, those retirees are still going to stop getting checks. It is a question of when, not if.

And it isn’t just Detroit. Mish reports on many American cities that are at the threshold of the same place:

“There is absolutely no way Chicago, Oakland, Baltimore, Philadelphia, LA, Houston, and numerous other cities can meet pension obligations without a major restructuring of promises. Given that public unions seldom if ever agree on even the smallest of pension concessions, expect many of those haircuts to happen in bankruptcy court. This article regarding the bankruptcy of Stockton, California shows why bankruptcy is inevitable: Federal Bankruptcy Court Lets Stockton, California Cut Retiree Health Care Benefits. The bankruptcies in California cities and Detroit provide a backdrop of what’s about to happen. In the meantime, expect an avalanche of city debt downgrades.”

The latest news I have seen is that a judge has ruled the bankruptcy of Detroit to be unconstitutional. Doesn’t matter. Facts are facts and lies can’t be turned into truth. Those pensions are worthless or worth a lot less than they claimed. The only question is when reality will collapse the lies.

The lesson here is that economics is real and wishful thinking posing as economics is fake. You can sneer at free market economists and go running to your Keynesians or your Monetarists or whatever clique you think is safely popular at tax- or debt- funded universities. You’re just clinging to the Titanic.

Cities aren’t immortal.

Actions have consequences.

God is not mocked.

You rely on debt; you inherit the wind. It will be carrying the dust of many an American city that once seemed eternal and solid.

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