It is hard to imagine now, but Detroit was once known to some as the Paris of the West. At its peak, it was one of America's largest cities, boasting a population of 2 million, spectacular architecture, a host of mansion-dwelling industrialists and a world-class art collection currently valued at over 4.6 billion dollars. Yet after decades of decline, the city that gave birth to Motown Records and Henry Ford's Model T filed for bankruptcy last July; it was the largest municipal bankruptcy case in American history.
The simplest explanation for Detroit's decline in both population—the city has lost about 1.3 million residents since the 1950s—and revenue is the American auto industry's inability to respond effectively to German and Japanese competition during the post-World War II era. The collapse of General Motors, Ford and Chrysler effectively broke the backbone of Detroit's economy. Motown has lost 90 percent of its manufacturing jobs, and nothing has replaced them.
Detroit has also had more than its fair share of social problems over the years—race riots, corrupt labor unions and the highest violent crime rate of any major American city. But at the heart of the city's record setting 18.5 billion dollar debt is its government, which owes at least 9 billion in unfunded healthcare and pension liabilities. more >>
NEW YORK — The #FloodWallStreet campaign converged in lower Manhattan on Monday, bringing Wall Street to a screeching halt as thousands of protesters sought to bring attention to "the climate crisis" and made calls for the end of capitalism.
"Join the flood on September 22 starting at 9 am," reads the pledge for potential protesters on floodwallstreet.net. "The economy of the 1 percent is destroying the planet, flooding our homes, and wrecking our communities. After the People's Climate March, wearing blue, we will bring the crisis to its cause with a mass sit-in at the heart of capital."
One of the calls to action in the pledge was for interested participants to "join the sea of bodies disrupting business as usual (and risk arrest)," which essentially describes what happened today, with the iconic Charging Bull statue serving as ground zero for the protest. more >>
This week the Federal Open Market Committee (FOMC) of the Federal Reserve will meet to consider the next phase of monetary policy. The Fed, through the policy decisions of the FOMC, has been engaged in a policy known as "quantitative easing", or QE. You would not be too far off the mark if you interpret QE as the equivalent of printing money. The Fed has been slowly reducing QE for the past year, and it is expected to finish QE this fall. You may wonder what all the attention on the Fed is about, and how the Fed's actions affect the economy, and possibly your own family?
The Fed controls the money supply; essentially the amount of cash on hand, and in bank accounts. They attempt to maintain the money supply at just the right level; enough to facilitate transactions in the economy, but not so much that prices start to rise out of control. As a rule, the Fed aims to manage the money supply so that prices rise two percent per year. They hope that two percent inflation is just the right level to facilitate necessary price adjustments, but will not distort the economy too much.
Prior to the financial crisis, the Fed controlled the money supply by raising and lowering short-term interest rates. Raising short-term rates would reduce the money supply, while lowering short-term rates would increase the money supply. (It is more intuitive if you think of the causality going in the other direction.) Since 2009, short-term interest rates have been near zero. It is difficult to lower interest rates below zero. (But not impossible-there are negative interest rates afoot in Europe today.) So the Fed has used QE, in the face of zero percent short-term interest rates, as the mechanism to increase the money supply. more >>
While the United States remains the wealthiest nation in the world—first by Gross Domestic Product, seventh by average income—many Americans have been struggling financially in recent years. As The Washington Post reported in April:
Wages for millions of American workers, particularly those without college degrees, have flat-lined. Census figures show the median household income in 2012 was no higher than it was 25 years ago. Men's median wages were lower than in the early 1970s. Meanwhile, many of the expenses associated with a middle-class life have increased beyond inflation.
While politicians continue to bicker about the best way to combat these problems, there are some attitudes that clearly do more harm than good. First, we must keep American problems in perspective. The Post article highlights very real issues like leaky roofs and broken dishwashers as consequences of wage stagnation. But it is important to remember that worrying about money is not the same thing as living in poverty. The United Nations Food and Agriculture Organization estimates that, worldwide, 870 million people suffer from chronic undernourishment, mostly in Asia and Sub-Saharan Africa. Nearly half the world survives on less than $3 a day. It is important to distinguish between real poverty and first world middle class problems because the prosperity we enjoy America is actually quite rare. more >>
America is supposed to be the land of the free and the home of the brave.
But as we become bogged down in our many problems, I see, unfortunately, a mentality in which we are becoming increasingly a nation of the unfree – the victim – and the timid, in how we're approaching these challenges.
Ohio Republican Senator Rob Portman wrote a column this week drawing attention to the latest dire projections from the Congressional Budget Office. more >>
One of the lessons I learned in my first management course is you can't improve something unless you can measure it. Let's apply that to government.
As ambitious government programs go, it's hard to top the "Great Society," which recently marked its 50th anniversary. President Lyndon Johnson, after all, vowed "to give every citizen an escape from the crushing weight of poverty."
That's a tall order. Five decades, nearly $22 trillion and roughly 80 welfare programs later, it's fair to ask how we're doing. The short answer? Not well. more >>