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Source link: http://archive.mises.org/12721/detroit-keynesianism/

Detroit Keynesianism

May 15, 2010 by

Keynesian policies used to be all about building infrastructure, bridges to nowhere, and the like. Put people to work, replace private investment, prop up aggregate demand and all of that. Remnants of FDR’s New Deal are still standing, not to mention projects constructed by the Roman Empire. But Detroit’s new mayor Dave Bing is shooting and scoring with a plan to “right-size” the Motor City. Not by building new homes but by knocking down old ones, even in well-to-do neighborhoods.

The Wall Street Journal says there’s federal funding for Mayor Bing to knock down 3,000 houses by September.

The Hall of Famer Bing scored 18,327 points in his NBA career and is looking to bulldoze over half that many homes just during his first term. One of the first houses to go is the old Romney place that sold for $645,000 just eight years ago.

With millions of vacant homes and commercial building sitting empty around the country, this is an idea that could catch on. Don’t laugh, after all the government killed cattle and poured milk on the ground in compliance with the Agricultural Act of 1933 to support prices even as people where starving. Most farmers at the time couldn’t afford not to take the government money.

Is it too far-fetched to think that Washington, in yet another way to bail out the banks, would pay financial institutions to knock down repossessed homes and buildings? This would cure the glut, clean up public nuisances and blight (like the Romney place), with the added benefit of helping out homebuilders. Plus, good high-paying jobs knocking down buildings would be created: a right-sizing of employment if you will. This is a win-win-win-and then some policy.

Bing may be leading the fast break on this one. There could be a bubble in demolition company stocks coming. Is Halliburton in that business?

{ 29 comments }

HL May 15, 2010 at 4:13 pm

Bold and decisive, he is a true master. A lesser leader with his heads in the clouds would have come up with some kooky plan to eliminate the regulations and taxes that turned such splendid homes into burned-out blight.

Hard Rain May 15, 2010 at 4:25 pm

“Build then destroy. Build then destroy.”

And this is supposed to be the path to prosperity? Only with the logic of the State…

Capt Mike May 15, 2010 at 4:37 pm

Geez, I hope they’re not breakin’ any windows!!!

Dave Albin May 15, 2010 at 7:36 pm

I was going to say that, Henry Hazlitt style!!!!!

Russ May 16, 2010 at 12:16 am

Perhaps if they bury milk bottles full of paper money in the homes before they demolish them, that would help stimulate the economy even more!

Curt Howland May 15, 2010 at 7:47 pm

I was watching _The Fifth Element_ last night, and witnessed again Gary Oldman’s wonderful restatement of the Broken Window Fallacy.

TeejCee44 May 15, 2010 at 9:39 pm

Great Idea! That is what we could do in Arizona. That way there would be no place available for the coyotes to house the illegals as they keep them against their will until their families in Mexico send them more money to free them. And at the same time increase the value of the blighted homes around them, and reducing the number of foreclosed homes being held by the banks. In fact the foreclosed homes should be the first to go since the money that the banks lost has already been paid to the banks using TARP money, so the homes are in essence already bought and paid for. WOW! That sounds like win win!

Vanmind May 16, 2010 at 1:15 am

Just don’t knock down the Old Shillelagh. That place is a legend.

Ha, I just went to their web site, this was the info under Type Of Music: “Drunken Sing-along
Beer Drinking Irish Music”

Sweet.

Capt Mike May 16, 2010 at 4:18 pm

Aaaaah!

The Pogues!

Rex Rhino May 16, 2010 at 1:21 am

Well, if you don’t know about the situation in Detroit:

Detroit’s population at its peak was probably close to 2 million. Its current population is closer to half a million. The city has likely lost 3/4 of its population.

Urban areas have socialized costs that don’t scale… the costs of repairing the roads, the costs of maintaining sewer service, cost of police patrols, cost of fire protection, sanitation, animal control, etc… Most of these costs are fixed costs that don’t change, regardless of the population density.

At some point, the population density of an area gets so low, that the tax base can no longer economically support the urban infrastructure. Nor is maintaining infrastructure for low-value areas any cheaper than it is in high value areas. Maintaining government services for these neighborhoods is a loss.

Not only that, but there is a massive over-supply of housing (remember, population dropped by 3/4, the housing did not disappear). Supply and demand dictates the value of these houses will be quite low. In fact, in most cases, housing is so cheap that the cost of repairing these dilapidated homes far exceeds the value of the house. (Home Depot isn’t giving any discounts because your house is only worth $2000)

Where as, if the city tears down the abandoned neighborhoods and stops providing services & infrastructure, the city saves massive amounts of money in the long run.

If you try to understand what is happening, instead of looking to make a trite insults, you would understand that what the government of Detroit is doing is *DOWNSIZING*! The cost of tearing down abandoned neighborhoods is more than offset by the long term savings of no longer having to provide sewers, roads, police, fire, etc. for that area.

The government of Detroit is looking to spend less and do less, as a consequence of taxing less… And a bunch of libertarians are complaining?

Now, I understand that the U.S. federal government providing the funding for tearing down the houses is not what we would support. And I understand that in some hypothetical anarcho-capitalist society that doesn’t really exist, this wouldn’t be a problem in the first place (great, I will just hop in my time machine and travel back 300 years to change things!). I understand that what Mayor Bing’s policy does not perfectly meet our high classical liberal standards. But really, given that the only other politically viable solution is that the federal and state government subsidize the infrastructure in these dying neighborhoods (which it has been doing for a generation or so now, to a far greater cost than tearing down houses), I would say this plan is the best we can expect right now in the real world.

This isn’t a case of Keynesianism run rampant, or the broken window fallacy, or any of that. The goal isn’t to stimulate spending on new houses, or to create jobs tearing down the old houses. The goal is to save money by reducing government. I am deeply disappointed that a blog I respect didn’t exercise a little bit more reading comprehension or do a little more research.

Seattle May 16, 2010 at 6:19 am

While I understand your point, the article linked in French’s post is pretty clear the city isn’t planning to just tear down the houses and leave the space empty, the plan is to build over the area with “parks and farmland.” Not to mention the countless number of people who will be forcibly evicted from their homes because of this little program.

Russ May 16, 2010 at 9:25 am

What would actually make sense is for the city to find large areas that are “blighted”, and sell them at a discount to large companies as manufacturing sites. Lowering taxes to attract businesses to the city would help. Then they might have enough revenue that they could actually afford to keep up their infrastructure, keep the population that still exists, and maybe even attract new people to the city to “gentrify” currently “blighted” areas.

Making the “Motor City” a place where cars are actually manufactured again! What a concept, huh?!

Seattle May 16, 2010 at 9:37 am

A state, forfeiting its own power for the good of its victims? Madness!

ABR May 16, 2010 at 2:43 pm

Here’s another idea: sell the roads within a blighted area to a developer, who then buys up homes within, who then fixes them or builds new ones. The developer than transfers ownership of the roads to the owners of the homes. The owners keep out anyone they fear might be a criminal wishing to damage their homes. That would include policemen.

Sorry, I’m a bit late on April Fools.

bob May 17, 2010 at 11:19 am

Why spend a dime to destroy the homes?

Just cut off services. Don’t do the sewage and road maintenance, etc. Maybe even privatize them and sell them off. It makes no sense to destroy the homes, unless you’re a Keynesian.

If no one lives in the homes, obviously their price doesn’t reflect supply and demand. Let them keep getting cheaper and cheaper. Knocking them down isn’t going to entice more people to move there – it makes it more expensive to do so!

It seems clear Detroit’s government is attempting to build a city through fiat. They will fail. They may even shrink the city further.

They’re just trying to avoid a Robocop scenario.

Russ May 17, 2010 at 11:35 am

“It makes no sense to destroy the homes, unless you’re a Keynesian.”

Well, no, it also makes sense if you’re trying to prevent people from using the abandoned buildings as crack houses or meth labs.

Beefcake the Mighty May 16, 2010 at 7:31 am

“Detroit’s population at its peak was probably close to 2 million. Its current population is closer to half a million. The city has likely lost 3/4 of its population.”

This, of course, is the only way in which the population of Detroit has changed.

Michael May 18, 2010 at 8:35 am

I get it

Rob K May 16, 2010 at 10:45 am

Rex, if Detroit wants to proceed this way on its own then fine, more power to them. BUT don’t subsidize them with MY tax dollars!!!! I don’t live any where near Detroit nor do, dare I say, most who’ve posted here. Why on earth should we be paying for Detroit efforts to become beholden to the Feds? And why on earth would Detroit want a bunch of outsides from DC dictating what they can and can’t do to their fare city? Its beyond me why so many are so quick to give up their sovereignty to a bunch of idiots in some other city. Isn’t this the sort of thing we fought a revolution over?

The Nationalization of our sovereign states is going to be the death of a once great nation.

JMHO

DixieFlatline May 16, 2010 at 11:00 am

When was America ever great?

I mean, outside the minds of its own citizens, which frankly is not a unique phenomenon for any country, as Frenchmen are as passionate about France, and Germans about Germany as Americans are about the Homeland of Security.

Seattle May 16, 2010 at 11:22 am

I’ll take you one step further: Why should ANYONE have to subsidize it?

Rex Rhino May 17, 2010 at 11:20 am

Rob K,

I agree, the federal government should not bail out Detroit. But that is not the choice we have.

Right now, the choice we have:

1. The state and fed can help Detroit tear down houses, in order to save money on infrastructure, in order to create a financially self-sustaining city.

2. The state and fed can pay to maintain the infrastructure.

Thus, choice #1 is the most libertarian of several un-libertarian possibilities. It is a step in the right direction.

Rob K May 17, 2010 at 9:06 pm

Rex, I beg to disagree. This is EXACTLY the choice you need to make, Fed involvement or no Fed involvement. If you choose Federal involvement then you give up at least part of your sovereignty especially with the current federal government. This government isn’t interesting in helping, this government is interesting in controlling.When the only choice you have is to give up even a smallest portion of your freedoms, than it is not a choice at all. In the long run you are much better off NOT being beholden to the idiots here in DC.

Dave Albin May 16, 2010 at 4:40 pm

“The goal is to save money by reducing government.”

We can only dream that this is what they are intending……I’m a little disappionted that you may actually believe that.

Phil May 16, 2010 at 3:54 am

It just proves the point that they are prepared to destroy the “real” values ( of having built those “real” houses ) just to support their fiat-paper Ponzi scheme.

I’d like to see all those Central Bankers sent out to labor camps to rebuild everything they have already destroyed and are currently still destroying … to protect their Ponzi scheme.
Maybe only then , will they appreciate “real” value !

Alternatively, send them out the Afghanistan onto the front line and see if they still think their system is worth defending.

Ed McFarlane May 16, 2010 at 10:57 am

This is an old idea. In The Hitchhikers Guide to the Galaxy, a wonderful satire by the late Douglas Adams, the ancestors of the human race land on Earth, and declare leaves as currency. Finding that the going rate for a peanut is three deciduous forests, they then embark on a massive defoliation programme to bring inflation under control.

At least that showed an understanding of cause and effect!

Jack Roberts May 16, 2010 at 1:33 pm

“there is no stimulus in detroit mo fo !”

Artisan June 7, 2010 at 3:26 am

The greatest value that is being destroyed here is truth and sanity.
The only things that keep men from waging permanent wars I’d say. It looks bad… and what I like about this site is no matter how bad it looks, bloggers keep a straight face.

delores July 8, 2010 at 9:50 pm

Detroit has some of the most beautiful early 20th century architecture in the country; in part, it remains because the city has been too poor to knock them down, until now.

Not everything should stay, granted. But the Romney home was not like a house on W. Robinwood, say, or a long abandoned crack house in a bad area. That beautiful house in a still-nice neighborhood was victim of a home improvement scam in which a home improvement loan was secured, minimal work done, and the perps absconded with the rest. Abandoned, the property was ransacked. Real estate crimes abound in Detroit, banks do not allow neighbors to place curtains in windows or lights in windows. In short, there’s a lot more to the problem than your article alludes to. But that would be another article entirely, I suppose.

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