Harvard public finance expert comments on Detroit

Harvard expert says public employees and the poor could become the face of injustice.

“The ruling on municipal pensions in the Detroit case has caused understandable concern and anger for public workers well beyond the Motor City. Despite the rhetoric, it is too early to tell what will happen to pensions in Detroit or to what extent Detroit represents a sustainable legal or political precedent. What is clear is that innocent people have been and will continue to be harmed by bad public policy.

Now the courts will decide how to allocate the pain among three groups: (1) public workers and retirees, many of whom may live out their years in poverty; (2) a poor population that has endured and will continue to face third-world public services; (3) investors in Detroit bonds, many of whom will not suffer significantly from a diminished return on their investment.

Although Judge Rhodes, the Governor and the Emergency Manager, Kevyn Orr have the background and demeanor appropriate to their duties, they are participants in a process that will be – at best – unfair to perhaps thousands of innocent retirees and citizens. They may come to be viewed as the face of injustice, but they were not the cause of it.

The news media is almost always better at describing a one-time event, rather than explaining a decades-long process. Judge Rhodes’ ruling was a news event, but it is not the more important story. The broader story involves the broader national failure to improve the lives and schools of Detroit and many other poor communities. Elected officials in Detroit compounded the problems of poverty and divestment with many, many years of financial mismanagement, including irresponsible transactions with prominent Wall Street firms.

A financial bankruptcy in Detroit can not be seen in isolation from the moral and intellectual bankruptcy of the political class 500 miles away. In the past quarter century as Detroit lapsed further into poverty, Washington DC has grown remarkably prosperous. Republicans and Democrats, Blacks and Whites, Liberals and Bankers have all participated in the demise of a great American City. It did not begin and will not end with Detroit.”

Shelby Chodos is a public finance expert and an adjunct lecturer in public policy at the Harvard Kennedy School.