After the initial shock, liberals have responded to Detroit’s bankruptcy crisis with their usual vigor while attempting to answer conservatives who have rightly asserted that what happened to the Motor City was an inevitable result of liberal policies. What’s more, some, like Steven Ratner in the New York Times, are claiming that rather than forcing the city to face the consequences of misgovernment and reckless spending, the federal government should step in and bail the city out in much the same way it did with the auto industry. If, as I wrote last Friday, most Americans were under the impression last November that Barack Obama had already “saved Detroit” from the bankruptcy that he claimed Mitt Romney wanted to force upon it, the goal now should be to finish the job. But while that dubious proposal is at least rooted in a sense of obligation to the beleaguered retirees and workers of Detroit who are the chief victims of this debacle, Times columnist Paul Krugman is unafraid to confront conservative doomsayers head on and declare the whole thing an insignificant blip on the radar.
While Krugman is dismissed by many on the right as an ideological extremist, his point of view about the mess actually goes straight to the heart of not only the crisis in Detroit but the impending tragedy of debt that threatens every other American city and municipality. If liberals won’t face facts about Detroit, it is not because they aren’t paying attention so much as because they see the sea of debt that their policies have created as merely the natural order of things that must be accepted. As far as he is concerned, if some people are talking about Detroit being “the new Greece,” that ought to be a signal for Democrats to stop listening because he doesn’t even think the problems of that bankrupt European nation are worth worrying about. The “deficit scolds” that he now regularly flays from his perch at the Times and his sinecure at Princeton University are, he says, trying to sell the country on an austerity mindset that is not only wrong but unnecessary. But try as he might, the example of liberal governance that Detroit (and Greece) provides shows that the liberal social welfare project is a one-way path to insolvency with desperate consequences not only for taxpayers and bondholders but to the ordinary citizens that liberals purport to want to help.
Rather than confront the problem, Krugman merely says what happened in Detroit is “one of those things” that just happen in a market economy that always creates victims. He also claims that the underfunded pension obligations that threaten the future of virtually ever state, city, and municipal government in the country are no big deal. The trillion-dollar shortfall may strike Krugman as a mere detail, but Detroit may be just the first of many other large cities that will find themselves in similar predicaments. As Nicole Gelinas writes today in the New York Post, even New York, which unlike Detroit faced and overcame not altogether dissimilar problems involving debt and urban blight in the last generation, may eventually be put in the same position unless something is done to deal with a bill for retiree medical benefits that dwarfs that of Detroit. Though, as she points out, New York has a smaller bond debt, Detroit’s sea of red ink was created by a similar confidence that they could keep borrowing money indefinitely.
Krugman is right to say that there are always winners and losers in a free economy. Every city has its own story and Detroit’s is one that is particularly heavy on bad luck as well as mismanagement. But his Adam Smith-style warning that anyone could wind up being the buggy-whip manufacturer of the future ignores the factor that powerful unions and their political protectors play in exacerbating such problems. His claim that Detroit’s situation is the result of chance rather than primarily the result of “fiscal irresponsibility and/or greedy public employees” simply isn’t credible.
A bailout of Detroit sets a precedent that can’t be repeated elsewhere because there just isn’t enough money to pay for every city that will eventually face similar problems. The wake up call that Detroit is sending Americans is one Krugman and other liberals would like us to ignore because they are confident that the federal leviathan, controlled by Democrats and fed by liberal assumptions, will always be able to squeeze enough cash out of productive citizens to pay for the left’s follies. They won’t face the truth about this because to do so would require Americans to do some hard thinking about a society where virtually everyone has their snouts in the collective trough of big government and thereby is a stakeholder in its survival in its current form. But what Greece showed Europe and what Detroit tells Americans is that sooner or later the well of public funds will run dry if obligations to liberal constituent groups continue to grow unchecked. And when that happens it is exactly the little guys who are hurting in Detroit who will be forced to suffer for Krugman’s ideology.