Day: July 21, 2013

Sunday, 21 July 2013

09:00 – Well, it appears that there’s no interest at any level in bailing out Detroit. The state of Michigan isn’t going to do it. Obama isn’t going to push for a bailout, and neither the Republicans nor the Democrats in the Senate or House are interested in throwing any more money down that rat hole.

Even if anyone were interested in bailing out Detroit, there’s nothing there to be bailed out. With the Chrysler and GM bailouts, there was at least the prospect of those companies returning to financial health by continuing to produce and sell automobiles. The city of Detroit doesn’t produce anything. It consumes. Bailing out Detroit would be like bailing out Greece, and we all know how well that’s worked.

The real problem is too large, too sparsely populated, and too poor to be salvageable. The city sprawls over 142 square miles–that’s a square 12 miles on a side–and has a tax base large enough to support less than 10% of that area. In 1950, Detroit was the 4th largest city by population in the US, at just under 2,000,000 residents, and had one of the highest per capita incomes of any city in the US. In 2013, Detroit’s population has fallen by almost two thirds, and its per capita income is one of the lowest. Businesses have abandoned Detroit in droves, as have those with middle-class and better incomes. Only the poor and those with lower-middle class incomes remain, and even the latter have been abandoning the city in increasing numbers over the last couple of decades. The city is gutted, both physically and economically, and yet it still must somehow provide city services to that whole 142 square miles. That’s unsustainable, and of course it hasn’t been sustained.

Declaring bankruptcy was a good first step, but it’s not enough. What Detroit needs to do is dissolve itself. It could then start with a clean slate by re-incorporating as a much, much smaller New Detroit, a new legal entity with only 10% of the area and population of the old entity, and none of the debt.

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