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July 19, 2013 12:40 PM Bankruptcy and Moral Leprosy

By Ed Kilgore

I’m sure there are plenty of valid lessons to learn from the City of Detroit’s municipal bankruptcy filing. A steadily depopulating city providing services to large tracts of empty buildings is not a sustainable proposition over the long haul, particularly if it relies disproportionately on a single struggling industry and must cope with all the problems associated everywhere and at every time with large and growing pockets of intense poverty. Such a city does not have the fiscal margin of error for much in the way of inefficiency, corruption, or over-generous benefits, particularly when hit by a national economic calamity far beyond its control that saps the ability and willingness of state and federal governments to help it through the rough patches.

So let’s learn away. But there’s no “learning” involved in the sanctimonious crap we’re already hearing in some conservative circles about Detroit serving as some sort of big cautionary tale in the moral squalor of liberalism. Here’s Charles Krauthammer on Fox News hitting a theme we are sure to hear often:

On Thursday’s “Special Report” on the Fox News Channel, Washington Post columnist Charles Krauthammer said the bankrupt city of Detroit’s inability to adapt to economic changes is a preview of what’s ahead for the rest of the United States.

“It’s sort of a classic example of a city that was once at its peak and as its economic success began to go away, it was unable to adapt,” Krauthammer said. “So I mean it was a thriving city, obviously the auto industry was running the world in the ’50s, after the Second World War when there was no competition. So they got used to the great union benefits, the retirement, health care — they got used to all of the other, you know, handouts and money from the government. And when hard times arrived, it was impossible to, in the end, do anything because it would be seen as a cruel reduction of x, y and z.”
He then predicted what is to come from the Motor City’s bankruptcy filing, which could be a signal of what the United States faces under the pressure of all the entitlements it grants citizens.

It’s the same theme we heard endlessly about the impending insolvency of California reflecting the moral rot of the Entitlement State, until California’s budget deficits suddenly went away.

More broadly, the Detroit bankruptcy story will likely appeal to those who view American politics, economics and culture as a vast morality play in which the looting of the productive and the virtuous by those people and their union-thug allies eventually ruined the looters themselves, as their avarice outstripped their ability to redistribute the wealth they could not themselves generate. There is no power on earth that could make me listen again to Rick Santelli, but I suspect that somewhere he is gloating or glowering, depending on how deeply he is invested in the municipal bond market.

This is all somewhat ironic, because the very existence of bankruptcy laws is a testament not only to a belief in second chances, but in the ability of people and institutions to bring great and valuable things out of failure. Access to bankruptcy is a very American phenomenon. The list of great Americans who have survived bankruptcy (Henry Ford, Walt Disney, H.J. Heinz, Milton Hershey) or—prior to the modern era of bankruptcy laws—personal insolvency (Thomas Jefferson, Abraham Lincoln, U.S. Grant) is long and distinguished enough to make the equation of bankruptcy and moral leprosy, well, un-American.

Detroit will long suffer in higher borrowing rates, loss of autonomy, and reduced city services, for the situation that brought it to bankruptcy. And among the greatest sufferers will be the municipal employees and retirees, now unsecured creditors against the city, and low-income residents, who are supposedly to blame for their excessive demands for a middle-class standard of living. So let’s dispense with the smug and moralistic condemnations, and the use of misery to justify miserable austerity policies.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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