And the Natural Result of "Planned Obsolescence" is... (Drumroll)... Bankruptcy!

Detroit finally filed for bankruptcy yesterday. We’re surprised it took so long. It goes down as the largest municipal bankruptcy in United States history. The runners-up for most indebted municipality to go bust don’t even hold a candle.

Municipality, Debt and Population at the time of Bankruptcy

“The news hit CNBC’s Twitter feed shortly after the close yesterday,” wrote Dave Gonigam in Friday’s 5 Min. Forecast.

CNBC Twitter Feed 1

“…followed nine minutes later, without an inkling of irony, by this”:

CNBC Twitter Feed 2

Oy…

The follow-up news came out just as the Motor City was throwing in the towel. Just another brain-dead victim of planned obsolescence.

Let us explain…

Detroit started its slow decline after the Flint sit-down strike of 1936-37. At the time, many workers in America weren’t unionized. Then the United Automobile Workers (UAW) invaded the plant in Flint, Mich., and took it hostage. The Flint plant held General Motor’s dies — the pieces that stamped out the car parts.

They were essential to GM’s operation. The strike caused GM’s weekly production to drop from 53,000 down to 1,500 units.

The police tried to kick the strikers out, but the workers had made weapons out of factory materials and drove the cops out in what was called “the Battle of the Bulls Run.”

The strike lasted 44 days, until GM gave in. It marked the rise of the UAW and the slippery slope of capitulation that would kill the automaker’s competitiveness. GM started to decentralize its production process so it could never be hijacked again. Detroit’s population became decentralized along with it.

Enter planned obsolescence.

Detroit was the fourth-largest city in the nation. As people left, the tax base shrunk. To keep revenue up, taxes were raised on things that couldn’t be moved out of the city limits, like property.

Because of high property taxes, people stopped improving buildings. Eventually, it wasn’t worth it to pay the property taxes. So people just left for greener pastures in taxpayer-friendly jurisdictions. (As we look out the window of our office here in Baltimore… we can’t help but see the same thing happening.)

It was a Pyrrhic victory. City hall continued to keep up revenues by raising taxes. People continued to leave with their money and businesses. Basic services like police and fire safety suffered heavy cuts — much like our mother-of-all financial bubbles scenario.

The city’s prosperity languished:

Detroit's Jobless Rate and Population

Detroit’s mayors came and went trying to solve the city’s problems to no avail… until the planned obsolescence reached its endgame.

In 2010, the city’s mayor, David Bing, had a plan to tackle Detroit’s problems. It was proposed that the city relocate citizens to more densely populated areas in the city. Then it would demolish the buildings in the areas that weren’t populated so the city could return to nature.

Here’s a satellite image of an area in the city limits. Look at all that green…

Google Maps Aerial Image

Move over Motor City… Mother Nature’s takin’ over…

We’re of the opinion that when governments try to plan things… things go badly. It’s only worse when they use planned obsolescence. It’s playing with fire. It could be city planning… or, as we’ve discussed this week, monetary policy.

Hrmm… if only there were a man who was an astute, outspoken critic of these types of government follies.

“I voted for him for N.Y. governor,” chimes in a reader. “Lehrman is a great man!”

Ah, there we go. Lewis Lehrman.

We ventured into the belly of the beast yesterday to introduce our friend Mr. Lehrman and his new book, Money, Gold and Historyat the Cato Institute in Washington, D.C.

Lewis Lehrman at Poduim

By way of introducing Lehrman’s work and as if on cue for this morning’s Detroit news, we described the “planned obsolescence” of the U.S. dollar. The Fed targets a little bit of inflation — say, 2% per year. That’ll help them achieve their mandate of price stability and maximum employment, they claim.

Heh. Let’s see how it’s worked out.

“Over the 40-year period since Nixon ended the gold standard,” writes Lehrman, “the purchasing power of the dollar has fallen drastically. The purchasing power of real goods and services today is worth about 12-15 cents compared with then.”

Regards,

Addison Wiggin
for The Daily Reckoning

Ed. Note: If you don’t subscribe to the Daily Reckoning email then you missed Mr. Lehrman’s illustration on how the current reserve currency regime helps Wall Street kick your savings account in the cojones, time and again. Click here to get the Daily Reckoning email in your mailbox everyday for free.