Detroit, and the Bankruptcy of America’s Social Contract

One way to view Detroit’s bankruptcy — the largest bankruptcy of any American city — is as a failure of political negotiations over how financial sacrifices should be divided among the city’s creditors, city workers, and municipal retirees — requiring a court to decide instead. It could also be seen as the inevitable culmination of decades of union agreements offering unaffordable pension and health benefits to city workers.

But there’s a more basic story here, and it’s being replicated across America: Americans are segregating by income more than ever before. Forty years ago, most cities (including Detroit) had a mixture of wealthy, middle-class, and poor residents. Now, each income group tends to lives separately, in its own city — with its own tax bases and philanthropies that support, at one extreme, excellent schools, resplendent parks, rapid-response security, efficient transportation, and other first-rate services; or, at the opposite extreme, terrible schools, dilapidated parks, high crime, and third-rate services.

The geo-political divide has become so palpable that being wealthy in America today means not having to come across anyone who isn’t.

Detroit is a devastatingly poor, mostly black, increasingly abandoned island in the midst of a sea of comparative affluence that’s mostly white. Its suburbs are among the richest in the nation. Oakland County, for example, is the fourth wealthiest county in the United States, of counties with a million or more residents. Greater Detroit — which includes the suburbs — is among the nation’s top five financial centers, the top four centers of high-technology employment, and the second-biggest source of engineering and architectural talent. Not everyone is wealthy, to be sure, but the median household in the region earns close to $50,000 a year, and unemployment is no higher than the nation’s average. The median household in Birmingham, Michigan, just across the border that delineates the city of Detroit, earned more than $94,000 last year; in nearby Bloomfield Hills — still within the Detroit metropolitan area — the median was more than $150,000.

The median household income within the city of Detroit is around $26,000, and unemployment is staggeringly high. One out of 3 residents is in poverty; more than half of all children in the city are impoverished. Between 2000 and 2010, Detroit lost a quarter of its population as the middle-class and whites fled to the suburbs. That left it with depressed property values, abandoned neighborhoods, empty buildings, lousy schools, high crime, and a dramatically-shrinking tax base. More than half of its parks have closed in the last five years. Forty percent of its streetlights don’t work.

In other words, much in modern America depends on where you draw boundaries, and who’s inside and who’s outside. Who is included in the social contract? If “Detroit” is defined as the larger metropolitan area that includes its suburbs, “Detroit” has enough money to provide all its residents with adequate if not good public services, without falling into bankruptcy. Politically, it would come down to a question of whether the more affluent areas of this “Detroit” were willing to subsidize the poor inner-city through their tax dollars, and help it rebound. That’s an awkward question that the more affluent areas would probably rather not have to face.

In drawing the relevant boundary to include just the poor inner city, and requiring those within that boundary to take care of their compounded problems by themselves, the whiter and more affluent suburbs are off the hook. “Their” city isn’t in trouble. It’s that other one — called “Detroit.”

It’s roughly analogous to a Wall Street bank drawing a boundary around its bad assets, selling them off at a fire-sale price, and writing off the loss.  Only here we’re dealing with human beings rather than financial capital. And the upcoming fire sale will likely result in even worse municipal services, lousier schools, and more crime for those left behind in the city of Detroit. In an era of widening inequality, this is how wealthier Americans are quietly writing off the poor.

This piece is cross-posted from Robert with permission. 

8 Responses to "Detroit, and the Bankruptcy of America’s Social Contract"

  1. Andrew_M_Garland   July 23, 2013 at 11:19 pm

    Mr. Reich writes [edited]: "That left Detroit with depressed property values, abandoned neighborhoods, empty buildings, lousy schools, high crime, and a dramatically-shrinking tax base.

    The implication is that these were all starved of funds because racist whites, and black middle class housholds, moved elsewhere. But, the schools were not starved, and they delivered miserable service anyway. Possibly that is the model for all of Detroit's woes.

    Mr. Reich is confusing cause and effect. People moved out of a city ruled by disfunctional Democratic politics, all Democrat since 1962. Not all cities have white and black middle class flight, but true, many Democrat ruled cities do, such as Chicago.

    Detroit Schools Are Well-Funded, Terrible, and Parents Want Out
    10/11/2012 – Reason
    === ===
    The Census Bureau reports that Detroit Public Schools spent $12,801 per-pupil in 2009-2010. That's pretty impressive, since the headcounters also say "the nation's elementary-secondary public school systems spent an average of $10,615 per pupil in fiscal year 2010." The Mackinac Center for Public Policy claims that Detroit actually spent $15,570 per pupil in 2010.

    With that money, the city's well-funded educrats achieved … not so much. The Detroit Regional Workforce Fund found that 47 percent of the city's residents are "functionally illiterate." According to a local CBS affiliate:
    === ===

  2. Edward Stevens   July 24, 2013 at 8:19 am

    the last time I looked:
    a. public sector workers made at leats 35% more than the private sector slobs who were forced to pay for them
    b. their pension benefits were more than double private sector pension benefits
    c. they used to call them "public servants"–now they are our masters
    d. the insanity of public sector accounting (cash basis versus accrual)– private companies have to capitalize their unfunded pension and othjer retirement obligations under GAAP BUT government, which has much bigger relative liabilties, does not under GASB standards. That is nuits

  3. margsview   July 30, 2013 at 5:48 am

    I don't believe what I have just read as comments. Too bad the same rhetoric followed after assessments of corporations and then banks. Private corporations receive subsidies, deferrals and tax cuts. As well, little or no comment has been made on the many multinationals that have decided they are above the law and thus chose not pay any taxes. What is wrong with this scenario? Please keep on baiting government and pretty soon you will have exactly what you want —you —will be all on your own.

    Now banks, they are not accountable in any way—case in point none are expected to allow full audits—yet 'the too big to fail' banks caused the recession. I guess this commenter is so happy with the private sector he won't mind a 'bail-in' to go with the bailout –if we nose-dive again into the abyss? I would be interesting in an opinion on 'shadow banks' as well and the unregulated —untaxed derivative market?

  4. SBGravely   July 30, 2013 at 6:23 am

    How Mr Reich gets from the Detroit of 40 years ago to today by blaming the "failure" of a social contract is absurd. Indeed the social contract that he wants, cradle to grave entitlements and attempts by govt to redistribute income, is exactly what caused the decline of Detroit. Detroit is a city owned by those in Mr. Reich's liberal camp where those "social contracts" became such a delimiter on individual effort, just like other Democratic owned cities like Chicago and many in California. To prescribe more of the same via more government intrusion, is idiocy.

  5. Wayne   July 30, 2013 at 7:29 am

    Again, it is the wealthy guys fault for all the problems in the country. Who elected the politicians that ran the city into the ground over the last 50 years, not the wealthy people. But once again, and not for the last time, someone else will be responsible for other people's bad decisions. Welcome to the new America.

  6. Sonny   July 30, 2013 at 7:43 am

    Mr. Reich, with these statements, has just lost any and all credibility that he may have had. The corrupt govt and unions have raped this once proud city, and govt intervention and social engineering have aided in this result. The only reason for providing Mr. Reich with this forum, is perhaps for the laughs it may produce. He wants the wealth that our free market produces to promote and finance his socialistic end, and he claims to be an intelligent man.

  7. David W. Rothschild   July 30, 2013 at 7:56 am

    Mr. Reich's article reflects what is wrong with liberals who ignore reality and prefer, Soviet style,to justify the utter failure of their ideas by blaming others. Detriot ( pun intended ! ) has been a basket case since its riot in the 60's. Her corrupt politicians, bloated civil service, fiscal profligacy, racism towards whites, violence, lack of moral fiber, refusal to control spending, bad attitude in general, breathtaking incompetence created a perfect storm that will be studied for generations to come by students of urban decay and government rot. Mr. Reich and his ilk and their failed policies and spineless approach of appeasement were the causes of Detriot's collapse. Sadly, he still doen't get it.

  8. Odikhmantievich   July 30, 2013 at 9:47 am

    Reich's simple acknowledgement that the greater metro area could easily support Detroit has predictably attracted its fair share of outraged free-marketeers. But while they huff and puff about how horrible it would be for workers to keep the modest pensions they worked for, not a single idea appears in their minds that could prove helpful in alleviating the city's social devastation. Nothing to prescribe except to say we should go further down the path of barbaric social Darwinism, so the working class of every city may learn its place.