Detroit Bankrupt: To See Detroit's Decline, Look at 40 Years Of Federal Policy

In 1960, the richest per capita city in America, according to the U.S. Census Bureau, was Detroit.

Today Detroit has filed for bankruptcy, the largest American city to do so. This tragedy is a stark reminder of the unintended consequences of federal legislation that resulted in white flight and caused Detroit's current problems.

Before we examine what truly caused the decimation of one the world’s richest cities, let us review just how rapidly the conditions in Detroit have declined.

Sixty percent (60%) of all of Detroit’s children are living in poverty. Fifty percent of the population has been reported to be functionally illiterate. Thirty-three percent (33%) of Detroit’s 140 square miles is vacant or derelict. Eighteen percent (18%) of the population is unemployed. And 10.6% of Detroit’s 713,777 residents, according to the 2010 U.S. Census, considered themselves white.

From the New York Times to the Washington Post and across the blue-to-red political spectrum, near universal agreement calls for “letting Detroit go bankrupt.”

A major reason for Detroit’s economic woes is often cited from a review of U.S. 2010 Census data, which notes Michigan lost 48% of all its manufacturing jobs from 2000-2010. The obvious follow-up question is, why?

A major portion of the answer can be found in national reporting concerning the actual effects of NAFTA. When the North American Free Trade Agreement was first signed in 1994, proponents said it would eventually create jobs for the U.S. economy. Nobel Prize winning economist Paul Krugman was at the forefront of the intellectual push for free trade.

Today, however, a growing number of academic research reports contend NAFTA cost the U.S. millions of manufacturing jobs. According to a report by Economic Policy Institute economist Robert Scott, entitled "Heading South: U.S.-Mexico trade and job displacement after NAFTA," an estimated 682,900 U.S. net jobs have been "lost or displaced" because of the agreement and the resulting trade deficit.

In Union Pacific’s 2012 report to stockholders it noted, “We anticipate by 2014 50% of all cars and light trucks sold in the U.S. will be shipped by rail from assembly plants in Mexico. UP has access to all six major Mexico/U.S. rail lines.”

In the meantime, America has seen an estimated 1.5–1.75 million service-sector jobs created, which most studies of NAFTA basically confirm. Yet it is the high-skill, high-paying manufacturing and industrial jobs lost to Mexico and other global trade partners which once made Detroit an economic powerhouse.

While many “protectionists” focus on the effects NAFTA had on Detroit and our manufacturing/industrial base as whole, economic historians trace the onset of the Rust Belt to the year 1970. This was the year both the Occupational Health and Safety Act was passed and the Environmental Protection Agency was created. The unintended economic consequences which followed devastated industrial cities from Detroit to Flint to Gary to Toledo to Pittsburgh.

Heavy industry has several basic needs, with none being more important than a dependable supply of affordable energy. The combination of the Arab oil embargo spiking petroleum prices and EPA’s cost effect on electricity production removed what was once a major competitive advantage for the United States globally throughout the '70s and beyond.

Well intended OSHA regulations not only had the desired effect of improving worker safety but had three major unintended consequences. OHSA standards made workplace injury litigation substantially easier to successfully pursue. As an additional consequence, employers found themselves with substantially higher insurance premiums while expensing billions on new workplace safety requirements.

But while NAFTA, OSHA, EPA, and even the oil embargo all contributed to Rust Belt manufacturing cities such as Detroit’s downfall, labor law itself was also a major contributor.

No public-sector pension plan or union bargaining agreement governing hiring practices I am aware of was ever planned to be able to handle a 25% dropoff in population tax base. Yet that is exactly what has occurred in Detroit. Labor law prevented public officials from scaling back the cities’ workforce while need for services declined. As noted earlier, Michigan lost nearly 50% of all its manufacturing jobs during the 2000s, with Detroit hit particularly hard.

Five decades of ongoing job losses saw white flight occur in Detroit as those with the resources to leave the city did so in search of new economic opportunities. Today Detroit is a city with the worst of all scenarios: a poorly qualified workforce and few job opportunities available.

Detroit's bankrupcy has now come. The city's history should stand as a stark reminder of the unintended consequences of federal legislation.

This story was updated on July 18.