One might say the Mackinac Center’s biggest failure is Detroit. I’m hard pressed to name an issue on which we’ve spilled more ink and had less actual impact. But Detroit’s collapse positions us to have greater influence on cities nationwide than we ever had in Motown.
That’s because Detroit’s bankruptcy, America’s biggest-ever municipal bankruptcy, will not proceed in isolation from the urban policies in every state and the nation. No one wants other cities to follow Detroit over the cliff. Policy changes intended to prevent that outcome will be greatly shaped by whatever narrative emerges from Detroit now. That narrative will answer the questions, What happened, why did it happen and where do we go from here?
I’m not just speculating. I’m recalling recent history. In 2008 the economy came close to collapse. The narrative that emerged then was that the biggest banks nearly failed and took the economy down with them because of corporate greed, insufficient government oversight and the shortcomings of capitalism in general.
This narrative produced several harmful policies. Congress quasi-nationalized banks and auto makers while forcing taxpayers to bail out private firms. The Obama administration twisted bankruptcy rules to benefit labor unions. Congress strait-jacketed financial institutions with harsh, new restrictions and launched a multi-trilliondollar borrowing-and-spending binge. These policies are still impeding the recovery.
In 2008, we knew government policy itself was more to blame for the crisis than any problems inherent to free enterprise. But Congress bought the other narrative. They overlooked regulations that rewarded banks for making risky loans, neglected the selfcorrecting nature of capitalism, and forgot the 20th century failures of Keynesian economics. They inflated a bubble, poked at it, and were shocked by its burst.
The free market narrative didn’t prevail and we’re stuck with the policies the winning narrative begat. What does this mean for Detroit?
It means our top priority now is to make sure the correct narrative takes hold. Detroit is bankrupt for many interwoven reasons including local policies that drove away taxpayers, overly optimistic investment assumptions, plain old mismanagement, and even some factors outside the city’s control. Too little government is not a cause and more government is not the solution.
As the bankruptcy unfolds over the next year or more, we won’t be shouting “we told you so” even though Detroit could have avoided this day had they taken my colleague Mike LaFaive’s recommendations starting 18 years ago. We’ll be talking more about the future than the past. And the brightest future for Detroit, and every other mismanaged city that hopes the federal government will bail them out, is in the direction of freedom and free enterprise.
We’ll articulate that narrative and work for policies that flow from it. For just one example, if Detroit’s troubles lead to a new way of looking at public pensions, it could prevent hundreds of billions of dollar’s worth of unfunded obligations from accruing in states and cities everywhere.
Milton Friedman said, “Only a crisis … produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” The free market movement lost the narrative war in 2008 because we didn’t make our ideas the ones “lying around.” The Mackinac Center won’t let that happen now with Detroit.