Wednesday, 24 July 2013

Today Detroit, tomorrow the world


If you discount the life-giving value of continuing economic growth and progress, then check out what happens in a city that has abandoned both.

It teeters on the brink of bankruptcy. Members of the City Council have simply stopped showing up for work. Whole blocks are seemingly abandoned. Emergency calls to 9-1-1 take, on average, almost an hour for help to arrive. Police solve – this is apparently true – 8.7% of crimes. 8.7%! The only reason the sky-high crime rate isn’t higher is, apparently, a shortage of available innocent victims.

And look at this description of Detroit from this week’s Observer:

What isn’t dumped is stolen. Factories and homes have largely been stripped of anything of value, so thieves now target cars’ catalytic converters. Illiteracy runs at around 47%; half the adults in some areas are unemployed. In many neighbourhoods, the only sign of activity is a slow trudge to the liquor store.

Just a few decades ago, Detroit—aka “Motown,” the world’s centre of automotive production—was arguably the world’s richest city. Now, it’s a dystopian shithole.  A hovel carved out of industrial greatness,  A bankrupt degenerate wasteland.

There, but for the grace of profits, goes every city.

A lesson for every city and country in the world that thinks prosperity is forever—and today’s prosperity can be borrowed from tomorrow’s.

Like the death of every American industrial centre, and like the slow strangulation of Japan, the death of Detroit was a man-made disaster. Detroit was once the world’s showcase of capitalism. It is now the place that shows the world you can’t kick the can down the road forever.

Like the entire western world, Detroit was built by profits. It was destroyed by those who took those profits for granted; who thought the profits would last forever, no matter what was done to destroy them. Now, all the vultures have to pick over is the rotting carcass their policies produced.

Chrysler, Ford and General Motors built their profits on delivering automotive excellence to the world. But the unions thought those profits were rightfully theirs. They began the transformation of the companies into carcasses upon which they could feed while tying their hands and feet with arbitrary work rules that prevented them from competing. And the companies caved in. And the Asian competition took over.

To keep great companies going, it is not enough just to reproduce the innovations that made you great. You have to continuously re-innovate or die. But from Ralph Nader on the notion grew that men from government centres could write rules about how cars should be produced, how they should run, and how they should be constructed. They shackled the companies with safety and “pollution” rules in which the big companies acquiesced, thinking the regulation of the industry would help raise barriers to entry for smaller competitors. Instead, the calcification of the industry it produced opened the door to the foreign competition that killed them.

And all that regulation everywhere else made everyone at least 75% poorer, and less able to buy what was produced.

To keep great companies growing, it is necessary to continually reinvest the profits in maintaining the capital goods that are producing the profits, and invest in new capital goods to produce more.  This is the process of capital accumulation that represents real growth and progress, built on the reinvestment of profits that constitutes real saving. But politicians riding the welfare gravy train to electoral success were busy sucking those profits dry with their taxes. 

And as those politicians printed money to pay their welfare bills, the inflation the money-printing caused raised the taxes those companies paid even more, while also raising the price of new capital goods, making new investment increasingly more difficult—until, bit by bit, it finally became impossible.

Yet as the profits declined, the welfare politicians kept on going back to the well. The well their policies have finally run dry.

They were helped in their economic genocide by the intellectual poison produced by John Maynard Keynes—especially by the Keynesians’ manic hostility to saving. i..e, the process whereby consumption is delayed so that prior production can be reinvested into new production.  As economist George Reisman points out,

The Keynesians' preoccupation with the utterly fictitious problem of saving as a cause of poverty bears major responsibility for the very real problem of growing poverty as the result of a lack of saving. Based on their hostile economic analysis of saving, the Keynesians have brought about the enactment of correspondingly hostile government economic policies towards saving. The result has been economic stagnation and decline, whose nature and significance are captured in the words: the rust belt. Over a span of approximately two generations, the intellectual rot of Keynesianism has helped to bring about the physical rot of the industrial heartland of the United States.

Detroit is the bastard child of Keynesian economics and welfare politics.

British MP Daniel Hannan recognises today’s Detroit in the rotting industrial city of Starnesville Ayn Rand described prophetically in her novel Atlas Shrugged.  “Statism is turning America into Detroit, he says in this week’s Telegraph. “It is Ayn Rand's Starnesville come to life.”

Hannan sets his sights too low. Because every country in the western world suffers from the same intellectual rot as America.

And if that rot can eat out the soul of the richest industrial city the world has ever seen, it can consume anything.


  1. Don't forget the huge eminent domain issues:"For many years, Detroit aggressively used eminent domain to promote “economic development” and “urban renewal.” which were driven by these companies.

    There are no guiltless "capitalists" in this saga.

  2. Hi Berend,you said "there are no guiltless "capitalists" in this saga.

    No, there certainly aren't, any more than there were in Starnesville.

    As George Reisman said in discussing the demise of General Motors, "General Motors has now perished, brought down by a kind of philosophical and economic tapeworm that consumed the company from within."

    Unhappily, that tapeworm inhabits more than just the companies in Detroit.

  3. I think America will become a land of two halves - one half will have to shoot the other half. If the socialists win it will be a hollow victory as they will have killed the golden goose and will themselves starve shortly after.

  4. That photo with the shanty town and skyscrapers - that ain't Detroit.


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