State of the Union - Detroit's Shining Fiscal Example

As we approach the State of the Union Address when the President is expected to tell us all about income inequality, it seems a good time to talk about bankruptcy. Why? Because the Presidents's agenda to achieve income equality seems to be large-scale bankruptcy; the great equalizer.

I was reading about the ever-looming debt ceiling in the NY Times. In the article discussing a warning from Treasury Secretary Jabob Lew to House Speaker John Boehner, the author says "Last February, government spending reached $230 billion, compared with $45 billion in other months. This year will be worse, because the government shutdown delayed the start of tax season and will concentrate refund payments."

The article is written to suggest that Jabob Lew said it but I added the quotes.

I couldn't believe that the Secretary would be so arithmetically challenged as to say that government spending in 2013 was a mere $725 billion (230+(11*45)). Would that it were true!

Alas, more digging uncovered the actual letter from Lew to John Boehner.

The letter speaks of "net cash outflows" not "government spending"; Lew was saying that deficits will be biggest in February. It was the arithmetically challenged, liberal writer Jonathan Weisman who magically reduced federal spending by more than 80%; were it not obvious that he (and his editors) are pinheads, I'd vote for him for president.

At least this pinhead tried to cut spending!

But the error shows how out of touch the liberal media is with fiscal reality.

As for the cause being the shutdown, this is nonsense since a delay in tax filing would delay net cash outflow, it would not accelerate it. Translation; cheap shot.

Now you may be thinking; what does this have to do with bankruptcy in Detroit?

Well, for one thing, Detroit has been run into the ground by liberal democrat mayors for the last 52 years...and counting. That said, Detroit is a shining model of fiscal conservatism compared to Washington.

For confirmation of this sad fact, compare Detroit with the nation as a whole.

• Detroit has a population of 701 thousand and a debt of $18 billion; debt per capita is $25,677.
• The nation has a population of 317 million and a debt of $17 trillion; debt per capita is $53,627.

Detroit's debt, however, includes unfunded liabilities, the national debt shown above does not include them; including them brings it up to $218,169 per capita.

So I have to ask; what liberal arithmetic can possibly deduce that Detroit is in deep shit but the US is not?

I turned to my favorite liberal economist, Paul Krugman.

Krugman wants us to believe that Detroit "...does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces."

Innocent victim or innocently victimized by bad progressive, liberal, socialist governance?

Krugman cites "...jobs fleeing the urban core even when employment in greater Detroit was still rising, and even as other cities were seeing something of a city-center revival."

Who wouldn't flee a property tax mill rate of 88.178 (in 1991)?

Who wouldn't flee the highest tax rates in Michigan?

Who wouldn't flee a city with an over-sized public workforce?

Why does Krugman ignore job flight to right-to-work states and low-wage, low-regulation countries?

Everything Barack Obama and his allies say today, the corrupt Democrats who destroyed Detroit were saying yesterday (and for the last 52 years). Spending restraint was delayed until it was far too late to make a difference… a point that was reached some years before outright collapse. Benefit entitlements accumulated until there was no way for the private sector to keep its public overlords in the style to which they had become accustomed. Do you like those special Obamacare subsidies handed out to rich Congressional representatives and their six-figure staffers? Detroit politicians have been looting the city’s treasury like that for decades just as Washington has looted Social Security.

Krugman does not argue that Detroit is not or should not be bankrupt yet he continually argues in favor of national deficit spending; completely ignoring the fact that the national finances are eight times worse than Detroit's.

Reader Request
My brother Kel asked me to plot minimum wage hikes on the same chart as unemployment. Here ya go Bro.

The correlation is fairly clear except for the delay in 1967 caused by the industrial boom (and the 10% tax cut in 1965) and 1997 when the tech bubble fueled employment to the highest level in three decades.

In that same post, I showed a linkage between the minimum wage and the cost of living.

I subsequently discovered a better linkage between payments on the national debt and the cost of living.

After having linked cost of living increases to payments on the national debt, I wanted to plot them on the same chart.

Since published debt payment levels only go back to 1988, the plot only goes back that far. I normalized both the cost of living (by CPI) and debt payments (as a percentage of unadjusted GDP) to 1987 and plotted the result.

As I noted previously, CPI doesn't include things like food and energy. If these are included as in the EPI (Everyday Price Index), the result is nearly a perfect match (both currently up by a factor of about 2.4 since 1988). It even shows the 14% increase in debt payments by the Bush administration is it's last three years and the 15% drop in debt payments by the Obama administration starting in 2009.

So, when the liberal media try to tell you that debt doesn't matter and that it helps the poor when we borrow money to give to them, don't be fooled.

Any competent financial planner can tell you about the "power of compounding interest."  It can work for you or against you when you "leverage your money" by "borrowing to invest."   It only benefits you until an untimely "change happens."  Then the "law of compounding interest" turns on you and consumes you for breakfast.

Our "government" has been "using financial leverage" for nearly a century... and it now looks like the "big chicken is coming home to her fiscal coop." When the politicians say they want to invest our money, it's good to keep in mind that government is inherently unprofitable.

Our  "government experts'" assurances that "Our dollar is as sound as the 'Good faith and credit of the United States," sound very similar to the unscrupulous real estate salesman who told you "The good Lord isn't making anymore land... the price of real estate (and your home) can only go up!".

Recall that it was the government policy to expand home ownership by lowering the mortgage bar that led directly to the crash of 2008. 

Also don't be fooled when the President asks Congress to squander even more of our hard-earned cash during the State of the Union Address tonight. Enjoy the circus as those on the President's right applaud and those on his left frown as the rest of us drown in a sea of red ink.