Today, The Wall Street Journal has a good article titled: “After Detroit, Who’s next”. The article discussed what happens to Detroit after it worked very hard to pay retirement benefits and issued debt that was used to finance pension contributions over the past ten years. A borrow-tax-spend cycle continued.
In the last few years, to avoid default, Detroit has cuts in public service (police force, parks, city lights, etc.) and continued to increase property, income and business taxes. Bankruptcy became inevitable when people and businesses started to move out the city.
There are other cities like Detroit as referred in the article: Oakland, Philadelphia, Chicago and small cities. Who is next is a good question and it’s sad to watch.
At the same time, consider our country as a whole; we have counted on borrowed money to finance unsustainable costs. Are we going to continue raise the debt ceiling and borrow more money in order to avoid default? What could we learn from Detroit’s bankruptcy?