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Megan McArdle

Should We Bail Out Cities?

Do we bail out cities that have become insolvent?

In the latest City Journal, Steve Malanga writes about an issue that hasn't yet gotten a lot of attention but is virtually guaranteed to become a serious topic of national debate in the not-so-distant future: Do we bail out cities that have become insolvent?

Malanga quotes a Steve Rattner op-ed from the summer: "The 700,000 remaining residents of the Motor City are no more responsible for Detroit's problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them." Rattner is right, of course; Detroit was largely undone by massive structural changes in the auto industry, which now employs only a small fraction of the people that it used to. And yet, there's more to the story, isn't there? Detroit's biggest problem is the combined burden of its pension funds and retiree health benefits. And the reason that its pensions are in such a state is that they were bizarrely mismanaged by people who apparently didn't quite get fifth-grade math.