What happens when a government spends too much money

December 4th, 2013 at 9:00 am by David Farrar

Stuff reports:

is eligible for the biggest municipal bankruptcy in US history because the city is broke and negotiations with its thousands of creditors were unfeasible, a federal judge has said in a wide-ranging ruling that also said the city could cut retiree pensions.

The ruling by US Judge Steven Rhodes marks a watershed in the history of Detroit, once the cradle of the US auto industry and now a symbol of urban decay and mismanagement.

The state of the city today is bad:

Detroit is burdened by US$18.5 billion in debt as it struggles to provide even the most basic services to the city’s 700,000 residents. About 40 per cent of the city’s streetlights do not work and about 78,000 abandoned buildings litter the city, whose population peaked at 1.8 million in 1950.

Live within your means.

Tags:

26 Responses to “What happens when a government spends too much money”

  1. flipper (3,268 comments) says:

    Kaipara, writ big !

    Auckland if the nutty rail project rolls?

    Vote: Thumb up 6 Thumb down 0 You need to be logged in to vote
  2. gravedodger (1,426 comments) says:

    Is Detroit a glimpse of the future for NZ Inc if Noddy Norman and Silent t get their day in the sun.

    Vote: Thumb up 15 Thumb down 0 You need to be logged in to vote
  3. queenstfarmer (696 comments) says:

    Alternative title: “What happens when Democrats govern a city for 50 straight years”.

    Vote: Thumb up 17 Thumb down 0 You need to be logged in to vote
  4. dave_c_ (205 comments) says:

    Indeed – NZ is not immune from the dingbat council’s we endure

    Vote: Thumb up 9 Thumb down 0 You need to be logged in to vote
  5. scrubone (2,971 comments) says:

    DPF, are you seriously trying to say that governments cannot spend their way out of trouble?

    What sort of nonsense is this? /sarc

    Vote: Thumb up 13 Thumb down 0 You need to be logged in to vote
  6. scrubone (2,971 comments) says:

    Just waiting for someone to point out that Detroit has houses you can buy for $1 and then claim DPF is against affordable housing…

    Vote: Thumb up 8 Thumb down 0 You need to be logged in to vote
  7. davidp (3,319 comments) says:

    Detroit is also a lesson about the effect of unions in the automotive and government sectors.

    Vote: Thumb up 17 Thumb down 0 You need to be logged in to vote
  8. mpledger (428 comments) says:

    If the US government had let the auto-indutries fail decades ago rather than subsiding their failure than the current mess would have been avoided. But then the American love corporate welfare…

    Vote: Thumb up 18 Thumb down 0 You need to be logged in to vote
  9. berend (1,599 comments) says:

    Fifty yours of Democrats only rule?

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  10. Nigel Kearney (747 comments) says:

    “The problem with socialism is that at some point you run out of other people’s money.” – Margaret Thatcher.

    Vote: Thumb up 16 Thumb down 0 You need to be logged in to vote
  11. wreck1080 (3,522 comments) says:

    I disagree somewhat with your logic — while overspending is the reason, I think you need to look what is causing the overspend.

    I don’t think many cities would cope well with a 60% population drop.

    What does a city do? As infrastructure crumbles and jobs decline, people move elsewhere. So, does the city maintain the infrastructure with the optimist view that it is temporary and people will return or , do you take the pessimist view and demolish 60% of the city? (costs of which would probably cause bankruptcy too).

    I agree with some of the above, that subsidies are bad — Detroit never should have become as big as it did in the first place.

    Vote: Thumb up 2 Thumb down 7 You need to be logged in to vote
  12. burt (7,085 comments) says:

    Why don’t they just print more money ?

    Vote: Thumb up 4 Thumb down 1 You need to be logged in to vote
  13. metcalph (1,293 comments) says:

    I don’t think many cities would cope well with a 60% population drop.

    Many cities weren’t governed as abyssmally as Detroit was to cause a 60% population drop.

    Vote: Thumb up 14 Thumb down 0 You need to be logged in to vote
  14. metcalph (1,293 comments) says:

    If the US government had let the auto-indutries fail decades ago rather than subsiding their failure than the current mess would have been avoided. But then the American love corporate welfare…

    Auto-bailouts aren’t the cause of Detroit’s withoutapaddleness. What happened was they gave more and more money to their public sector workers and less and less on making the city attractive for people to live in. Most US cities pulled out of this self-destructive path in the 80s but Detroit didn’t.

    Vote: Thumb up 8 Thumb down 0 You need to be logged in to vote
  15. peterwn (2,933 comments) says:

    There is an example closer to home – Kaipara District Council – saddled with a $80M technically illegal loan. See:
    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11166481

    Now, loans to local bodies are guaranteed by the ability to levy rates on land within the Council’s area, but ratepayers groups feel aggrieved about this and consider they should be let off the hook.

    Interestingly in the old days there were two safety mechanisms -
    a. Ratepayers poll if money was to be borrowed (A % could petition for one)
    b. Approval to borrow from a relevant Government agency eg Ministry of Works.

    Vote: Thumb up 6 Thumb down 0 You need to be logged in to vote
  16. All_on_Red (941 comments) says:

    The generous public service Pension’s have to bear a lot of the blame. They are huge and the Trustees continually gave existing recipients “bonuses” over the years and even when they reached the point where all future liability was unfunded they carried on, purely because they believed the Government would bail them out.
    In the end the City couldn’t fund ambulance’s, the Police and even Fire fighters, let alone service the huge debt they had amassed and the neighbourhoods began a long slow period of decline (un mowed berms being the first sign…).
    The pop dropped from 1.8 mio to 700,000 as people fled- mainly South to growth areas like Texas.
    IIRC unemployment is 70% and over 50% of the remaining population cant read or write.

    Vote: Thumb up 5 Thumb down 0 You need to be logged in to vote
  17. david (2,482 comments) says:

    What else it highlights is the Achilles Heel of democracy. The voters paid no real attention to the direction being taken and kept on returning the spendthrifts thus effectively mandating their own demise. Self-interest trumps the greater good in the mind of the individual.

    Now I am not a looney leftie by any means and would shoot myself before endorsing bigger government or nanny state so I suppose what I am saying is that the ignorant will inevitably rule as long as politicians can offer policies that are economically unsustainable.

    California is going the same way except that the population have nowhere to go so it will take longer and will be a collapse of monumental proportions when the inevitable happens.

    Vote: Thumb up 6 Thumb down 0 You need to be logged in to vote
  18. kiwi in america (2,330 comments) says:

    Here’s a couple of excellent articles on this

    http://www.powerlineblog.com/archives/2013/07/how-coleman-young-ruined-detroit.php

    http://www.claremont.org/publications/crb/id.2091/article_detail.asp

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  19. metcalph (1,293 comments) says:

    The pop dropped from 1.8 mio to 700,000 as people fled- mainly South to growth areas like Texas.

    Not quite. The population drop was due to white flight as people moved to suburbs beyond the Detroit municipal limits.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote
  20. davidp (3,319 comments) says:

    metcalph>What happened was they gave more and more money to their public sector workers and less and less on making the city attractive for people to live in.

    It’s still a widespread problem. These days many US state governments are essentially pension schemes that deliver a few services to the public on the side. It’s what happens when government is captured by public sector unions and run for their benefit. It happens in NZ too, where the school system is run for the benefit of teacher unions, rather than the benefit of students.

    Vote: Thumb up 4 Thumb down 0 You need to be logged in to vote
  21. DJP6-25 (1,229 comments) says:

    Wow, a sinkhole run by Democrats. Just like California, Louisiana, and Illinois. Who’d a thunk it? Coming soon to another state or city run by spendaholic Democrats.

    Vote: Thumb up 3 Thumb down 0 You need to be logged in to vote
  22. tedbear (119 comments) says:

    “Detroit never should have become as big as it did in the first place”

    Now’s the time to put a stop to the Auckland sprawl then.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. Odakyu-sen (248 comments) says:

    Let Detroit file for bankruptcy. Let the pensions be cut. Maybe that will teach people to live within their means. (It’s a harsh lesson, but it may help others from repeating the same mistakes down the road.)

    There always has to be consequences for one’s actions.

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  24. wikiriwhis business (3,276 comments) says:

    Detroit was sabotaged by the Motor industry execs who bailed out on the local market and left everyone to dry.

    Vote: Thumb up 0 Thumb down 2 You need to be logged in to vote
  25. OneTrack (1,957 comments) says:

    “What happened was they gave more and more money to their public sector workers and less and less on making the city attractive for people to live in.”

    You mean like Len and his Living Wage for 16 year olds employed by the council?

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  26. Tom Jackson (2,235 comments) says:

    It’s a typical American story. Making car companies responsible for auto pensions was a stupid idea.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.