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Can the Free Market Save Detroit?

When Detroit’s bankruptcy was announced last week, the analysis from the left followed a peculiar trend: the more time passed, the less informed their commentary became. That’s because the government-centric causes of the city’s financial collapse were obvious, and had been in motion for decades. When bankruptcy was finally declared, everyone already knew the unfunded pension and benefit liabilities the city held were unsustainable and unrealistic, and most simply acknowledged that reality had finally caught up with the city.

But if you wanted to absolve the liberal approach to governance of blame for Detroit’s woes, you had to get pretty creative. Challenge accepted, responded some Democrats. So by the end of the weekend Paul Krugman had come up with a particularly unconcerned dissection of Detroit’s crisis. The crowd at MSNBC first tried blaming Republicans for … well it wasn’t exactly clear. Then Michael Eric Dyson proposed the city had been bankrupted by racism, because the city contains a large number of minority residents. (If Dyson thinks it is racist to give minorities generous retirement and health benefits, he has a very unconventional definition of the term.)

Plenty of liberal writers did not stray nearly so far from reality. And in fact some of the initial responses from the Washington Post’s Wonkblog hold up pretty well, and are now being echoed by more conservative voices. The group blog offered “Six crazy ideas for saving Detroit.” Some of them were actually wacky, while others were merely free-market and small-government oriented (which may seem “crazy” to the left, but that’s another topic). The first suggestion was to get rid of all the taxes and regulations:

Jack Kemp, the former congressman and housing secretary, 1996 Republican vice-presidential nominee and 1988 presidential candidate, had an idea for America’s inner cities. He wanted to make them “enterprise zones,” where federal taxes and regulations were greatly relaxed, to spur outsiders to come and do business. That’s been tried to varying degrees, including a federal program creating “empowerment zones,” but why not go all the way? Eliminate all taxes for year-round residents of Detroit, with the federal government paying the cost of the abolition of state and local taxes. Get rid of zoning, parking requirements, occupational licensing and other cumbersome regulations while you’re at it. See how many businesses come.

Today the Competitive Enterprise Institute’s Bill Frezza makes a similar argument, that Detroit can be rebuilt as an American version of Hong Kong. Cut regulations and taxes to spur economic growth and investment. Frezza explains:

Imagine what would happen in a city where both the personal and corporate federal income tax rates were set to zero. Imagine, further, if all federal labor laws were suspended-hire whomever you want to do whatever job you want at whatever pay they will accept without having to ask the National Labor Relations Board and Citizenship and Immigration Services for permission. Start any business you please-no Interstate Commerce Commission, Equal Employment Opportunity Commission, or Federal Trade Commission to get in your way. Only the laws, rules, and regulations of the State of Michigan would apply to protect citizens from acts of force or fraud.

The reason this is such an intriguing idea is also the reason it’s unlikely to be enacted if Democrats in the state (and nationally, since the White House and Congress would have to oversee elements of it) have a say in the matter. When she tried to blame Detroit’s downfall on Republican policy, MSNBC’s Melissa Harris-Perry was reduced to claiming that the end result in Detroit’s meltdown is actually the goal of conservative policymakers.

Detroit’s fiscal woes, Harris-Perry explained, were exacerbated by population flight that reduced the tax base and that “this lack of tax base is also exactly the kind of thing that many Republicans would impose on us, even when our cities have sufficient populations, even when our communities have sufficient populations.”

There is an important distinction, of course, between the productivity of a city with a high tax burden that drives out private-sector workers and entrepreneurs causing a narrowing of the tax base, and a city with a light tax burden that draws those same people back into the city. Conservatives would no doubt love the opportunity to help MSNBC’s economics experts understand that distinction.



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