For 40 years, it has been obvious to conservatives that Detroit would go bankrupt if the government would not change its ways. The government was running up huge bills to the workers for pensions and health care. Detroit was the poster child of bad government.
Detroit’s government is bankrupt. The city’s pensioners offer their tales of “betrayal.” They want blood out of the second-largest turnip in America. (The largest fiscal turnip is the U.S. government, with unfunded liabilities well over $220 trillion, but it has the Federal Reserve System to bail it out for now.) Detroit has only the distant hope of a state or federal bailout. That is not going to happen.
Some county judge has declared that the city has no right to go bankrupt, as if the judge has the ability to provide a transfusion of solvency into the turnip. Everybody is ignoring the judge.
Fiscal conservatives have said for years that this was inevitable. We were dismissed as crackpots. The red ink could flow forever, we were told. “No problem!” They say the same thing today about the federal government. The suckers line up for jobs with the federal government, with its fat pensions and unfunded liabilities. The result will be the same: default. The wailing will spread. “Betrayal! It’s just not fair!” They think budget deficits reflect fairness. Red ink is their natural right as employees. “A contract’s a contract!” Yes, it is. And bankruptcy breaks all such contracts. But the suckers never figure it out until it’s too late.
Cities can do what individuals do: run up large bills, and then declare bankruptcy.
The voters will shrug off 20,000 pensioners who lived in a fantasy world all their lives. They are no longer politically viable. They are merely a tiny voting bloc that has no money to give to campaigns. Not any more they don’t. The New York Times reports:
In recent years, public sector pensions have often emerged as a political point of contention, earning scorn from taxpayers who work in the private sector, where defined-benefit pensions providing a guaranteed stream of income in retirement have grown increasingly rare.
The Times collected a list of “betrayal!” stories. We will see variations of these stories for the rest of our lives. One by one, cities and states will avail themselves of the bankruptcy laws. This is their way out. They will take it. They are already taking it. Then they will start over, running up bills to stupid bond investors. “Fool me once, shame on you. Fool me twice, shame on me.”
Shame on them. Latin America has been doing this to stupid bondholders for 200 years. It’s so easy. Run up the bills, and then default. New suckers always come back for more.
Red ink has consequences. Bankruptcy is one of them. The defenders of perpetual red ink cry: “It’s unfair! It’s just not right!” That’s the thing about red ink. It has defenders right up until the inevitable day of reckoning. Then the suckers who believed deeply in fantasy budgets get their lesson in reality.