Making an Example of Detroit

Let’s imagine there exists a city which has the following characteristics, each a major component of the Democratic platform:
-a high living wage, far above the federal minimum wage, for all employees public and private
-a school system that spends significantly more per pupil than the national average
-an effective teachers’ union providing exceptional pay and benefits
-an effective labor union providing exceptional pay and benefits
-a tax system that actively redistributes income from businesses and the wealthy to the poor

There is a city, of course, which looks like this. Detroit, MI has been dubbed “the most liberal city in America” and has voted Democratic consistently for decades. Each of the preceding characteristics are embraced heartily by the city. Newt Gingrich, in an address last week at a think tank in DC, expressed his hope that in the upcoming election conservatives would point to Detroit as an example of what the enactment of the progressive agenda does for a city.

In 1950, Detroit was per capita the wealthiest city in America. Today, the Census Bureau records it as per capita the poorest major city. This time period corresponds with a leftward turn by the inhabitants of the city as unions gained power and the government bureaucracy and business regulation grew. In short, the embrace of the Democratic agenda. And while correlation is not causation it cannot be mere coincidence that what economics predicts would occur when wage controls are implemented, regulation increases, and taxes are raised has occurred there without exception.

Price theory predicts that artificially high imposed wages like the so-called “living wages” will lead to an increase in unemployment. Detroit’s living wage is a whopping $7.40/hr, over $2 above the federal minimum wage when enacted and pressure groups are pushing for more. Additionally, any company working for the city or receiving aid from the city must pay its employees $8.23/hr with benefits or $10.28/hr without benefits. Such high wages make the low-skilled, low-education citizens of Detroit unlikely hires. Struggling and heavily taxed businesses simply cannot pay that high of wages. In a situation that must mystify the well-intentioned progressives at City Hall, yet is understood and predicted by mainstream economists, poverty is rampant and Detroit boasts the highest unemployment rate among large cities.

It is now conventional wisdom among Democrats that if you pay teachers well, support strong teacher unions, and increase spending per student, teacher quality and student performance will improve. We see in the Detroit public schools that this theory must be rejected. The story of the Detroit Public Schools is tragic. The public schools chronically underperform and reforms are vehemently opposed by the powerful teacher unions. The Michigan Education Association is the third largest teacher union in the nation and has negotiated for tremendous compensation for its teachers. Median compensation for a DPS teacher is $76,000 and Detroit spends the third highest amount of money per student among seventy-seven cities nationwide. Statewide, Detroit’s spending per pupil is 91st percentile and Detroit public school teachers are paid at the 96th percentile. And of course, Detroit schools have for decades failed their students.

Despite this massive flow of funds from tax-payers into the schools, Detroit’s public school students perform at the 3rd percentile in the state. People vote with their feet and the DPS loses around 10,000 students each year to charter, private, and suburban schools (called “black flight”). This school system is begging for mass firings for unsatisfactory performance. Of course, teacher unions make this impossible and major reform is opposed at every turn. Major reform was plopped in Detroit’s lap in 2003 at no cost, and again in 2005. Indeed, philanthropist Bob Thompson (an amazing man, look him up) offered public school administrators $200 million to build fifteen charter schools. The offer was turned down both times when the teacher unions revolted and staged walkouts when the mayor considered the offer. Charter schools are public but are not unionized, hence the unions’ opposition. Non-unionized competitors would not be tolerated since it would put their safe and well-compensated jobs at risk.

The MEA is not the only union hurting Detroit. Detroit is of course home to GM, Ford, and Chrysler, three car companies which have contracts with powerful and effective labor unions. The unions have served their workers well over the years. Wages and benefits are phenomenal and workers receive an estimated $71 per hour in total compensation. This is about $25 more per hour than Japanese car companies pay their American workers who are not unionized. Due to this disparity Japanese car companies make over $2000 more profit per car than the American companies. Meanwhile, the Detroit Big 3 are posting billions in losses in recent quarters and suffer the accompanying loss of market share. They have been struggling mightily against bankruptcy since the 80s (and helped along by federal protectionism and tax-payer funded bailouts). Despite this the labor unions won’t accept lower compensation even as plants close.

There are social reasons as well for Detroit’s slide into poverty. Progressive judges in the 1970s court-ordered busing of white students into the failing black neighborhood schools. This coercion of private citizens was resisted, of course. Those who were able simply moved to the suburbs. One infamous mayor told criminals to hit the wealthy and white neighborhoods which didn't help race relations. Finally, a factor that caused the flight of the middle-class and businesses is Detroit’s excessive tax burden, which is currently 170% the national average. Welfare, regulation, bureaucracy, and unions are not cheap.

Detroit is an example of the compassionate welfare state, a system progressives would like all of us to live under. Tom Bray of the Detroit News says this,

“Detroit, remember, was going to be the ‘Model City’ of Lyndon Johnson's Great Society, the shining example of what the "fairness" of the welfare state can produce. Billions of dollars later, Detroit instead has become the model of everything that can go wrong when you hook people on the idea of something for nothing—a once-middle class city of nearly 2 million that is now a poverty-stricken city of less than 900,000.”

Let’s hope Democrats will revise their platform after being made aware of the disaster their policies helped produce in Detroit.