It's a Bankruptcy, Not a Bailout

The Washington Times (Washington, DC), July 30, 2013 | Go to article overview

It's a Bankruptcy, Not a Bailout


Byline: Ed Feulner, SPECIAL TO THE WASHINGTON TIMES

Washington would send the wrong message by rescuing Detroit from Detroit

Picture two gamblers. Both of them head to Atlantic City one weekend, bet irresponsibly and rack up some big losses at the gambling tables. One has his debt wiped off the books by an inexplicably forgiving casino owner. The other has to go into debt to cover his losses. Many months later, though, he has paid it all back.

Who is most likely to learn the right lesson? The second gambler, obviously. Sure, it wasn't easy, but what's the likelihood that he will repeat his mistake? The first gambler, by contrast, might turn around and do it all over again.

Which brings us to Detroit, which recently filed for bankruptcy.

It's a shameful chapter for a city that once exemplified American industrial might. The modern middle class sprang in part from the production line that Henry Ford set up there. During World War II, more than a third of U.S. war materiel was manufactured in the Motor City. During the postwar boom, cars made in Detroit embodied the American success story.

But, as they say, that was then and this is now.

Detroit is bad for the adults: Its unemployment rate of 16 percent is more than double the national average. It's bad for the children: The city's public schools have failed, with just 7 percent of eighth-graders proficient in reading.

It's notoriously dangerous, with vacant lots dotting the landscape and police taking about an hour to respond to calls. It's a fiscal mess as well, carrying more than $18 billion in debt and unfunded liabilities on its books.

This naturally has prompted a severe case of urban flight: Hundreds of thousands of residents, about a quarter of the city's population, have left in just the past decade.

How did it get to this point? According to some, it's more or less a case of bad luck. According to New York Times columnist Paul Krugman, for the most part the city was just an innocent victim of market forces. Poor Detroit, right?

Wrong. The blame can be placed squarely on something that Mr. Krugman is barely willing to allow played a part: bad governance. …

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