• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • As Detroit Goes, So Goes the Nation

    Detroit’s Debt Pales in Comparison to the National Debt

    Detroit is the poster child for economic decline. The city’s policies and politics over the past half-century should serve as a “do not” guide for policymakers across the country.

    There’s a great deal lawmakers in Washington can learn. The first is understanding that Detroit’s demise was the result of big-government, liberal policies promoted by self-interested politicians and coercive public employee unions.

    >>> New Report: Detroit’s Bankruptcy Marks the Tip of the Iceberg

    In the wake of America’s manufacturing decline, Detroit enacted policies that drove out businesses and residents. Rather than reduce the size of government as its population shrank, the city instead sought higher levels of government spending. City leaders acquiesced to unions by increasing employee benefits and ceding control and flexibility over employees.

    To pay for it, Detroit continually increased taxes and engaged in prolific borrowing when the tax increases did not close the gap. And yet, despite the growth in government taxes and debt, Detroit’s citizens experienced ever-declining city services, the most troublesome result of which has arguably been the steep rise in crime.

    A federal bailout of Detroit is not the answer.

    If Congress were to step in to protect any of Detroit’s creditors—be they pensioners or bondholders—it would create an untenable moral hazard. Believing that the federal government would step in to help them, troubled state and local governments across the nation would have no incentive to enact reforms, and unions and workers would have no incentive to accept them.

    >>> Read More: Detroit Today, Illinois Tomorrow

    Moreover, a federal bailout of Detroit or any state or local government would impose the costs of one city’s fiscal recklessness on the taxpayers of other, more responsible states and localities.

    Perhaps most important, though, the federal government is in no fiscal position to be providing bailouts.

    As significant as Detroit’s debt is, the federal government is in far worse shape. In fact, as the chart above shows, the federal government’s debt and unfunded obligations are more than eight times that of bankrupt Detroit.

    Detroit’s spiraling decline is a tragedy. Lawmakers in Washington should learn from Detroit’s mistakes and rein in big government now before it’s too late.

    Quick Hits:

    Posted in Economics [slideshow_deploy]

    Comments are closed.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×