The Economic Dysfunction Behind Detroit's Decline

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July 22 (Bloomberg) -- Robert Kaplan of Harvard Business School and Bloomberg View columnist Margaret Carlson explain the function of bankruptcy for a city, what needs to be done to fix Detroit's debt and whether or not the federal government will provide a bailout. They speak on Bloomberg Television's "Bloomberg Surveillance."

Bankruptcy in a minas -- municipality and country, most municipalities do not have much debt but they do have fixed obligations for pensions and retirement.

So, you could do a haircut of the bondholders and not get much done.

So, the trick is, you they have to figure out how to do restructuring, but they've got to put other economic actions in place that will attract is this is to detroit , -- businesses to detroit, encourage population growth, and they have to haircut the retirement obligations and pensions.

Margaret amo when you look at this in washington, there have to be a lot of politicians of the detroit ilk in other urban areas saying we have to stop it here so it does not end up in my town.

They are saying that, but getting something done would be hard in a congress that doesn't even want to help hurricane sandy victims.

I think this is a killer point.

If it requires money, it will not get voted on.

This is a congress -- the house certainly does not have sympathy for the cities, and they blame detroit's problems on detroit.

There is a reluctance to do it.

I don't see the federal government coming in and bailing out detroit.

No matter who has to pay the bill, the bottom line is how the city turned itself around and what is the road to recovery.

This is what the michigan governor told me.

I spoke to him on friday about how to get detroit under control.

A very challenging process and this is a very serious step.

But it is positive because now we have one for them to bring all the creditors to give her -- together, thoughtful discussion under a judge to make sure we're moving forward to get better services to citizens and solving the debt question.

They have a big uphill battle when it comes to technicalities, but the governor also says he looks to the automakers and the restructuring, general motors and chrysler as an example.

I read other articles from steven rattner and others -- not quite, because that was about retirement obligations but it was heavily debt restructuring.

Yet, gm can products all over the world.

Detroit's problems have to be sold within the demographics of detroit -- solved within the demographics of detroit.

The fact of the matter is, they have to go back on promises they made to pay retirement benefits.

That is tough to do.

Talk about demographics, so many of the bondholders are pensioners.

Not only in detroit but across the nation.

That plays into what as well, in discussing whether a government, whether this eight or local or federal government coming in.

Remember wisconsin?

Remember the brouhaha over the unions, right to work laws.

That will be brought up again all over the country.

These municipal unions, can you really afford their obligations?

You've got somebody who has worked -- let's take the republican view.

They were overpaid to begin with, but the fact is they've got a pension plan, if the 4000 -- $54,700. if that goes away, the person will end up on the government dole regardless.

These people are not to blame.

There unions negotiated deals.

They probably took less in wages.

What you have is a string of politicians who wanted to get reelected, bargaining, giving away the store -- giving away too much, probably.

They are long gone.

Those politicians won their elections.

Now the liabilities are there.

Reading a volume "from lincoln to roosevelt," the late 19th century in washington and the united states.

You look at your, it is history -- ulysses s. grant, it is history repeating itself.

The one thing you can say about detroit in bankruptcy, at least they will face their issues, but they still have to make fundamental changes.

At least they are facing it.

In all of your studies of leadership, is there an example of a state or local government official or leader that we can look to?

Mitch daniels is the one in particular i have looked at in indiana, where he was there specific -- he was very specific, attract jobs to this date the -- to the state.

He passed reform, right to work law, and was single-minded in his focus of attracting jobs to the state.

The press corps wanted mitch daniels to run for president because he did have such a good record.

Another problem with detroit is, they don't have a product like gm and chrysler did.

Detroit takes 58 minutes for the police to answer a call.

Almost no streetlights.

You have blighted areas next to areas with populations so you can't get the services to function again because it is a sprawling blight problem.

I look at it as an urban exercise of titanic size.

Somebody mentioned over the weekend -- the industry has moved on from detroit, and to professor kaplan's point, now what?

The renaissance in the auto industry certainly not helping detroit.

How do we help detroit?

How we prevent another detroit?

First, at the national level, we need to create more economic growth in the united states.

That will help every city.

We have to fix -- we have to address the fixed retirements like medicare, medicaid.

We probably need stimulus, particularly infrastructure.

And that will help every city if we have a little more growth.

What the professor described is not happening in washington in any way.

You presume it will happen in december of 2014 or january of 2015? then we go right on to the presidential election.

We are into presidential politics and we do not know the composition.

Will the senate vote republican?

We have had a lot of retirements.

If you have the house and senate vote republican, you certainly will not get help for the cities.

This is not where they live.

The discussion, the stumbling nature of the.

Like any normal discussion of detroit.

You wonder if we will have the same discussion in four years.

It could be very messy and take a long time.

The story of our generation is what to do about all the fixed obligations.

We are overleveraged as a country and we lived through debt grows our entire lives come a greater promises by government, and now we are on the flip side where we have to be -- it sounds like europe.

Just like europe, exactly.

I love how professor caplan

This text has been automatically generated. It may not be 100% accurate.


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