Chicago votes to go the way of Detroit

Reuters

Article Highlights

  • Old-line Democratic cities, it seems, have learned nothing from Detroit’s collapse.

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Chicago mayor Rahm Emanuel is increasingly a textbook example of how far the Democratic party has moved to the left since Bill Clinton's day.

Emanuel, who cut his teeth in Clinton's administration, just presided over a $1.9 billion increase in Chicago's debt, only months after Moody's downgraded the city's bond ratings three notches based on its growing and unsustainable spending and debt obligations. Supported by a supine city council, Emanuel has just tacked another mountain of borrowing onto what the city already has to do, split almost evenly between unspecified "general obligations" and bonds for Midway Airport.

All told, according to the Chicago Sun-Times, the Windy City has $29 billion in long-term debt. When challenged on the most recent round of borrowing, Emanuel dismissed the questions, comparing the city to "a lot of families" who refinance their homes. 

Old-line Democratic cities, it seems, have learned nothing from Detroit's collapse. Wishful thinking, ignorance of the parallels, and misleading excuses are the common defenses trotted out by city administrators who have no intention of having to deal with the mess they have either made or worsened. Indeed, Emanuel explicitly rejected the Detroit comparison, arguing that, unlike the Motor City, which was fatally dependent on the auto industry, Chicago has "an extremely diverse economy where no one sector is more than 13 percent of the employment."

That may be true now, but surely Emanuel knows that Illinois's and Chicago's high tax rates are causing a business exodus. The Chicago Tribune recently highlighted ten major companies threatening to leave Illinois and the Chicago area, including the Chicago Board of Trade, U.S. Cellular, and CME Group, the world's biggest futures exchange company. Part of Chicago's problem is being stuck in Illinois, which has the country's third-highest unemployment rate, a dysfunctional state government, and crippling taxes that have led over 30 companies to cross over the state line to Indiana recently. But Chicago's own borrowing and profligate pension promises will continue to eat away at its credit rating and desirability of doing business there. All this will help hollow out the city and its tax base, and eventually could lead to an all-too-familiar downward spiral once the productive elements of the city decide the benefits of staying don't outweigh the costs of moving.

Rahm Emanuel did get one thing right, though, in explaining the latest borrowing binge: "This problem wasn't created overnight. It's inherited from a set of practices years [in the] making."

Exactly right. Unfortunately, the mayor and city council of America's third-largest city aren't don't anything to abandon those practices and reverse the problem. Chicago, which retains a diverse and vibrant socioeconomic base, may or may not suffer Detroit's fate, but it will be no surprise if it does.

 

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About the Author

 

Michael
Auslin
  • Michael Auslin is a resident scholar and the director of Japan Studies at the American Enterprise Institute (AEI), where he studies Asian regional security and political issues.


    Before joining AEI, he was an associate professor of history at Yale University. A prolific writer, Auslin is a biweekly columnist for The Wall Street Journal Asia, which is distributed globally on wsj.com. His longer writings include the book “Pacific Cosmopolitans: A Cultural History of U.S.-Japan Relations” (Harvard University Press, 2011) and the study “Security in the Indo-Pacific Commons: Toward a Regional Strategy” (AEI Press, 2010). He was named a Young Global Leader by the World Economic Forum, a Marshall Memorial Fellow by the German Marshall Fund, and a Fulbright and Japan Foundation Scholar.


    Auslin has a Ph.D. from the University of Illinois at Urbana-Champaign, an M.A. from Indiana University at Bloomington, and a B.S.F.S. from Georgetown University.


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