Paul Krugman is worried that Detroit will become the next Greece, an exceptional case used ad nauseum to make dire and unfounded predictions about bankruptcies to come -- unless, of course, Americans are willing to submit to the harsh austerity measures advocated by the people making those predictions.
It's a legitimate fear, but here's another one: Cuts to city pensions could start a death spiral which removes much-needed consumer spending from an already beaten-up economy. Detroit could become "the new Greece" in another way: Victimized by austerity cuts, its economy could sink quickly -- and outcome which would then be used to justify additional austerity cuts.
Cities deserve a plan
Detroit has unique problems. It also shares many of the challenges of other American cities. Those challenges include: poorly planned residential and commercial real estate development; tight concentrations of impoverished minority populations, which hurts children's health and limits their chance for economic advancement; inadequate public services; and a lack of working infrastructure.
(Richard Wolff has some interesting thoughts about the long-term implications of our failure to address these problems.)
As for public pension funds: Yes, they need more revenue, although experts differ on exactly how underfunded they are. One thing's for sure: This Wall Street-heavy "blue ribbon panel" (a term that is used much too loosely nowadays) is not the crowd to turn to for advice.
But whatever the shortfalls may be, they should be manageable, and might best be addressed as part of a comprehensive plan for America's cities.
If they get these pensions, Social Security is next
This has all the markings of a larger game. The heavy doses of symbolism in the sell-offs and pension cuts serve a number of purposes, and one of the biggest is to reinforce the idea that the United States can no longer afford the financial security of its middle class.
Next stop, Social Security. The same myths used to push pension fear -- changing demographics and worker-to-retiree ratios, "greedy geezers" -- will have been subliminally "verified" by these pension cuts. That opens a door that should remain closed, for sound economic reasons as well as ones of basic fairness.
The case for a bailout
As we said earlier, Detroit may not need help with its pensions. This is, more than anything else, a thought experiment. But Federal support would be morally defensible. It could provide a down payment on Detroit's economy, and those of other struggling cities. It could serve the same purpose that the architects of the bank bailout intended for their plan (without the lack of accountability in that plan): It could tell our nation, and the world, that the US stands behind these institutions -- in this case, the institutions of local government.
If Detroit fails it will hurt our nation as a whole. It will send a message to minority and urban youth that their futures are as hopeless as they seem and the country doesn't care. It will add to a national atmosphere of hopelessness and decay. And we will have missed an opportunity to turn the tide for America's cities.
Our cities were once engines of growth and prosperity. They're still rich with potential resources, both human and material. But restoring them will require faith -- in the future, in our people, and in our ability to meet and overcome challenges.
And that could be the start of a great comeback -- for urban America, for the middle class, and for our national economy.
It wouldn't be a bailout. It would be an investment.