Gutting the city's employee pension plan would be a similar kind of ritual sacrifice, designed to break the public's belief in the social contract -- and to set a national precedent. Detroit's unusually severe financial circumstances make that seem more necessary than it is.
Deep cuts to Detroit's employee pensions, together with the public sale of its property and the privatization of its lucrative franchises, would serve an anti-government political agenda. Once this process has been imposed on the first major American city, the next one will be much easier.
The fiftieth city to be gutted will be a cakewalk.
Banks, not city workers, have misbehaved
Retired Detroit employees didn't cause the financial crisis of 2008, which hit the pension plan's investment fund hard. Yet they're being handled as if they were morally equivalent to the Wall Street creditors who did. As the New York Times reports, the unelected city manager's plan would "treat bondholders the same as retirees" and ask them both to sacrifice.
Many of those bondholders are banks and other investment groups. And many of their investments are insured, which could largely protect them from the impact of a default. But most retirees need their pensions to live on.
Bankers are the city's least deserving creditors. They deceived and bilked Detroit every time the city invested money or conducted a municipal bond offering. In fact, bankers deceived every city, through the LIBOR scandal.
There's also extensive evidence that bankers manipulating many bond offerings to benefit themselves at the benefits of the cities and states that were their erstwhile clients. Banks like JPMorgan Chase are hurting our communities by manipulating energy prices, while others like Goldman Sachs are hurting them by manipulating the cost of aluminum.
City employees did none of those things. And, as Dean Baker points out, Goldman's profits are on track to exceed Detroit's entire pension liability in less than a year. And yet our nation's fiscal debate is focused on employee pensions, not the excessive profits of lawbreaking institutions.
City employees kept their part of the bargain
Detroit's employees kept their part of the bargain. In return for their promised pensions some worked at very dangerous jobs, including jobs as police officers and firefighters. Again and again in contract negotiations, city workers agreed to accept lower wages in return for these pensions. And they put in their years on the job, often at backbreaking jobs.
There is no moral justification for treating retired employees the same way that Detroit's Wall Street creditors are being treated. None.
These pensions are good for Detroit's economy
The average Detroit city pension is slightly less than $19,000 per year. For police and firefighters, pensions are their only source of retirement income. (They don't have Social Security.)
Seniors typically depend on their retirement income for living expenses. That means most of this money is immediately recirculated back into the Detroit economy. It has an immediate and very real stimulus effect for Detroit. And we agree with Rob Wile: Detroit, like other troubled cities, can come back, if we're willing to believe in it and invest in it.
Pension cuts could trigger a death spiral