Tuesday, December 21, 2004

Government - Chicken or Egg

Detroit has many of the problems that large cities face including below average schools, high taxes, high crime and shoddy infrastructure. Unlike most large cities, however, Detroit has lost a large part of its population.

Oh, the downtown area may be gaining some renewal, but the rest of the city is dying slowly. A map of southeastern Michigan's vacant properties shows Detroit with an extraordinarily high number of vacant properties... somewhere between 40,000 to 70,000. Exact counts seem to be unavailable... even close counts.

What is available are the census data that show since 1950 that Detroit has gone from 1,850,000 to 950,000 people in 2000... almost 50% population loss. The 2004 Detroit population estimate is just over 910,000. This while the region total has increased from 3.3 to 4.7 million.

One can debate all day about reasons... bad economy, racial intimidation of whites, cheaper land elsewhere, better schools and government elsewhere. The point is that Detroit is dying. It is becoming a downtown without a city. And the effect is not being reversed by the current Detroit administration.

The reality is that Coleman Young set the tone for the city during his 20 years as mayor during the 1970s and 80s. Today, he is revered by most remaining Detroiters for his "leadership", but the reality is that instead of addressing the city's problems when he took office... he exacerbated them with his "race card" politics.

So, today Detroit is a "city of minorities". It is also a city from which better-educated minorities have departed. It is a city of crumbling, vacant houses and streets without lights. It is a city too big for its present dynamics. It is a city in need of radical surgery to save its life.

Take a look at the map if you haven't done so... click on the blue link above. If we presume 50,000 vacant properties is a good number, then that property represents enough housing or business opportunities for at least 200,000 people... maybe more. That's 20-25% of the present Detroit population. Then let's presume that 10-20% of the inhabited property is substandard by any standard.

So now we have 1/3 of the city that is rotten. That's equivalent to an arm and a leg. The city is crippled. And the state is hobbling along so it lets Detroit do what is has been doing and getting what it has been getting.

What's the answer... the solution? The answer is that Detroit has been in decline for 1/2 a century and any turnaround must either be based on a total change in government... or a turnaround will take at least 1/2 century given current government processes. The solutions are myriad... and painful.

  • confiscation of vacant and abandoned property
  • rezoning from residential to public and forced buyouts - creation of green zones
  • closing of 20% of schools, renovation of the rest, and a takeover by the state
  • reduction by 30% of government employees and state supervised restructuring of departments and processes
  • creation of tax-free "enterprise parks"
  • establishing a tax structure that is "competitive" with suburbs
Among others...

To accomplish this, U.S. senators and representatives from Michigan need to push for return of Michigan dollars back from the federal government. The enormous drain of money from this region to be given to others is preventing Michigan from addressing its very real problems. Southeastern Michigan, particularly Detroit, cannot rely on the automobile industry to make up the tax outflow.

It is unlikely that the federal government will give up its power to collect taxes; therefore, it is time for Michigan to become more assertive in its demands for the return of those revenues to this state to be used to address problems the state and Detroit are not capable of addressing. Money is needed to accomplish the changes necessary to restore the dying city of Detroit... money, not rhetoric.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)