Featured Monthly Discussion: Detroit, Illinois, and America’s Class Driven Political Debate

Every Month a CPEG member will be posting a brief issue analysis for discussion and comments. This month’s discussion piece was authored by CPEG member Ron Baiman, with additional commentary from CPEG member Mel Rothenberg. More information about both can be found in the “About Us” section of our site.

One of our premier cities, sitting at the center of the industrial heartland, once a symbol of democracy, upward mobility, racial integration, a growing and vibrant middle class, and opportunity and a better life for immigrants from all over the world, has gone bankrupt. The cause has been obvious for at least three decades: massive de-industrialization, free-trade, union busting, white flight and suburban sprawl, deregulation, and “Financialization.” Similarly, for the same reasons, the Illinois economy, the largest and most important in the Midwest, has been in a downward spiral for decades.

How do we stop this? The necessary policy changes are at this point, painfully obvious.1 But no, in a frenzy of class driven hypocrisy and policy blindness (if one wants to be generous), the political elite buy into the now putrid Corporate Democrat and Republican discourse endorsing further cuts in public services, reneging on worker pensions, letting the City of Detroit go to hell, and blaming the public workers of Illinois for a decades old grossly unfair and broken state fiscal system.

Neither Detroit nor Illinois have a “public sector pension problem” – pension levels are quite modest, but you’d never know this from reading the mainstream press. Rather the pensioners are victims of the class-based politics and economics of the last three decades. A politics and press that panders to finance and the powerful (the “Aryans” of our society – how could we manage without hedge fund billionaires!) and works to eliminate or make invisible, the poor, working people, pensioners, and other “undesirables”. Recall that we couldn’t dramatically cut pay and benefits for bankrupt private finance in 2008 because they had “contracts.” Similarly, we can’t cut payments to wealthy public bondholders because they have “contracts.” Rather we must jump, in crises mode, to cut public pensions in order to improve credit ratings bestowed by private credit agencies representing private finance with a record for accuracy and impartiality that is (after 2008) beneath contempt.2

CPEG has shown that by eliminating egregious business tax cuts, assessing a tiny tax on financial gambling, and enacting a graduated income tax, Illinois could easily raise sufficient revenue to pay it’s pensioners and dramatically increase funding for education, Medicaid (which was subject to a similar artificially manufactured crises induced massive cut last year) and other public services, and reduce the tax burden on low and middle income families.3 We’ve shown the same for the U.S. where a tiny financial transaction tax (of the kind that is already in place, or will shortly be in place in some of the largest non-U.S. financial centers in the world) has the potential to raise almost $ 1 Trillion in federal revenue.4 But no, this is unthinkable. We can’t tax billionaire gamblers, even as we apply sales taxes to everyone else – and especially to working class gamblers.

One of the strategies of the “public sector pension crisis mongers” and ratings agencies is to estimate pension liabilities 33 years forward and come up with huge numbers (almost $ 100 billion in Illinois and $ 3.5 billion for Detroit’s pensions) – numbers that don’t reflect any actual current shortfall in ability to pay pensioners but rather the sum of estimated liabilities for the next 33 years should the city or state go out of existence and cease to pay anything into pensions funds – and then claim to be “forced” into “bankruptcy” in Detroit or to have to dramatically cut pensions in Illinois. But these are calculations based on credit agency conventions that have little to do with the realities of public sector pensions (neither Detroit or Illinois is going to “disappear” as a private company might).

Yes, we have a pension problem but it’s the opposite problem. What’s left of the US retirement system is being shredded and the solution is very clear. Double Social Security, lift the caps on contributions and payouts, make it more progressive, and grand-father all private sector, state, and local government, pensions into one national “pay-go” system that would be fair, securely funded, efficient and comprehensive, and not dependent on raising 33 year funds for private finance to play with and raid. Like “single payer” healthcare, simple, equitable, easily funded, and beneficial to the economy.5

To make this even more viable enact a “maximum income” law, of say ten million a year. I make no claims of greater personal virtue than the average American, but surely as a society we can put an end to the unmitigated and destructive avarice and greed that is destroying our own economy, and the planet? What social benefit do we derive form extreme concentrations of wealth (and power)?6

But no. The “solution” instead is to cut pensions and let entire cities of people become industrial wastelands so that the sacrosanct contracts of private finance can be honored at the expense of the worthless promises and contracts to ordinary people!

Additional Commentary From Mel Rothenberg

What is most depressing is the absence of any political resistance, or even public outcry, to massive (private sector) financial swindles (such as Goldman Sach’s Aluminum Warehouse Operation in the Detroit area7). Contrast this to the massive outpouring of venom in response to a timid opinion piece by Ratner in the Times a few days earlier, that perhaps some public effort should be exerted in rescue Detroit from total disintegration8. A vast horde of angry right wing letter writers vented their joy at the deserved destruction of Detroit to be followed inevitably by the downfall of other major urban centers due to the residents support of the greed of public employee unions and the craven “liberal” politicians who capitulated to these unions insatiable demands.

This analysis of the source of our urban crisis, idiotic by any rational measure but very dangerous, is being promoted vigorously in respectable circles (David Brooks, University of Chicago economics graduate, and Times conservative columnist is a prominent example), and has a scarcely hidden racist and undemocratic agenda behind it-these stupid and shiftless city dwellers, in majority people of color, are unfit to govern themselves. This reveals the ugly side, the inner dynamic of austerity politics pursued in different forms by both the Republican and Democratic leadership. It is not by accident that Democratic mayors such as Rahm Emanuel, rather then being populist liberals as characterized by right wing ideologues, are in fact corporate neo-liberals, relentless foes of militant public sector unionism, and the most effective implementers of tax subsidies for major corporations. The real implications of austerity politics are unfolding with the bankruptcy of Detroit, to be followed by other major urban areas.

The other side of austerity politics is the acceptance, the normalizing of the open looting by big finance. Back in the days prior to open rule of neoliberalism such swindles often occurred but they were hidden, and when exposed deemed the exception, exceptions which could be controlled and regulated, within the generally benign and rational rule of the “free market”. Given the destruction wrought by the cancerous growth of finance over the past thirty years and in particular the international meltdown of 2007-8 such a view can no longer be maintained. We are now living in the tougher world of Margret Thatcher’s TINA -there is no alternative.

And in a sense TINA within the present framework. One valid point that right wing economists make is that regulation and regulatory bodies will be captured by the industries they are supposed to regulate. These industries have the most concentrated resources and the most at stake in doing so, while the general public with a vague and unfocused interest in regulation is indifferent as long as regulation seems to be working. The history of failed regulation proves this. That is why Ron’s proposal to socialize the finance industry is the only real alternative to the ruinous rule of speculators and rentiers.

This brings us back to politics. At the moment the initiative is in the hands of the promoters of Neoliberal austerity. While there is a lot of popular resentment what is actually happening from the destruction of the public service workers unions, the legitimatizing of racist vigilante justice with the murder of Trayvon Martin, the bankruptcy of Detroit, the dismantling of the Chicago public school system, the driving up of student loan costs, the savaging of school lunch programs, the Supreme Court invalidation of voter rights, represents a blizzard of austerity politics.

Progressive politics, aside from whining and complaining, seems to have no real focus or traction. We don’t seem to be able to go beyond small protests and endless petitions, ignored by the ruling power. The extension of the right of gay marriage, while no small achievement, doesn’t directly challenge austerity politics and in any case is being paid for by the serious limitation of abortion rights and a general retrogression in the condition of women, particularly working class women and women of color.

Unless this political environment changes fundamentally, Ron’s proposal to socialize finance, or any other proposal for radical structural transformation, has no real chance. We better find a way to make such changes or we are in for a very grim decade.

1. See for example: http://www.cpegonline.org/documents/MayDayManifesto.pdf.
2. The erroneous Neoclassical doctrine of “exogenous money” was used to justify the wisdom of an “unfair” private sector financial bailouts rather than a “real economy” bail out – and some in the administration, including the President, may have been taken in by this but this is no excuse at this point when the data is clear. Private finance by and large just hoarded the cheap money given to them to enrich themselves to the detriment of the real economy – see Keen, Debunking Economics, Chap. 14.
3. http://www.cpegonline.org/2013/07/16/cpegs-barclay-to-illinois-pension-committee-financial-transaction-tax-a-real-solution/ and http://www.cpegonline.org/2013/07/04/cpeg-provides-testimony-before-conference-committee-on-illinois-pensions-and-revenue/
4. http://www.cpegonline.org/workingpapers/CPEGWP2010-2.pdf
5. Theresa Ghilarducci has a detailed proposal of this nature (though more complex than I would prefer), see: http://www.businessweek.com/stories/2010-07-15/solving-a-looming-u-dot-s-dot-retirement-crisisbusinessweek-business-news-stock-market-and-financial-advice.
6. http://www.cpegonline.org/workingpapers/CPEGWP2012-2.pdf
7. David Kocieniewski, NYTimes (7/21/2013) “A Shuffle of Aluminum, But to the Banks, Pure Gold” http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=all&_r=0
8. Steven Ratner, NYTimes (7/19/2013) http://opinionator.blogs.nytimes.com/2013/07/19/we-have-to-step-in-and-save-detroit

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