The United States Of Detroit

No one questions that the most economically devastated geographic region in the US during this recession is Detroit. GM, Ford (F), and Chrysler have eliminated tens of thousands of jobs as have their suppliers. The “tri-county” area around The Motor City is the picture of what America would have looked like if the severe recession had continued to worsen during the first quarter of this year. It is also what many parts of the country will look like next year if the recession turns out to have the “W” shape that a minority of economists predict and fear.

The unemployment rate in Michigan reached 15.2% last month. This number does not include part-time workers looking for full-time jobs or people who could work, but have given up. Retail workers outnumber manufacturing workers in Michigan now. This was probably last true, if ever, before the history of recorded job statistics. Most retail jobs are low-paid, so the income of people in Michigan is down in addition to the unprecedented loss of jobs. Economic historians will say that when this level of job loss occurred last, during the Great Depression, the manufacturing needs for WWII weapons saved Detroit. No war is coming now. The people in Michigan who have lost their jobs are not getting them back.

The unemployment problem is even worse close to the city itself. Economists at the Institute for Research on Labor, Employment and the Economy at The University of Michigan expect unemployment in the tri-county area to be 16% by the end of 2009 and 17% in 2010 and 2011. When all people who are out of work are factored in, the jobless number is probably very close to 25% of the population.

Even if the national economy does make a slow recovery and does not slip or dive into another recession next year, the Detroit job situation is an example of what the government faces over the next two or three years with huge areas of intractable unemployment. There are other large pockets like Detroit in California, Florida, Rhode Island and portions of states where entire industries have been wiped out permanently.

Detroit is an example of a problem that the municipal, state, and federal government cannot solve because it has now become too expensive to solve them. Some local governments in southeast Michigan face insolvency. The state does not have the money to bail them out, and neither does Washington. These areas are tax revenue sinkholes where real estate values are down 50% or more so both property and income tax receipts have been decimated. The unemployed people who could afford to move elsewhere to seek work have done so, leaving permanently smaller communities behind. Local services like police and fire departments are being dismantled because of destroyed tax bases. Some cities will not be able to pay for the medical bills and pensions for their retirees. It may take a year or two before these problems are completely clear which means it will be a year or two before they are recognized as acute problems.

The federal government is supposed to be able to solve most socio-economic problems, whether it should not, but since the Treasury has become more indebted this capacity has become compromised. The Census Bureau recently said that the number of people below the poverty line increased to 13.2% last year. Problems like the one in Detroit will certainly cause that number to go up and increase for several years.

Congress and the Administration have to consider the needs of three distinct groups of families and individuals as the economy makes a painfully slow turn for the better. The first group is those people who are well-to-do enough so that they can solve their own financial problems, if they have any. These people may have lost some of their net worth but most still have jobs or trust funds. The second group is what is called the middle class. Many of these people are unemployed or underemployed and are having trouble making mortgage and credit payments. A large percentage of this part of the population is well-educated or skilled. Some of the people in this group will require government aid, but they will get back onto their economic feet even if it takes two or three years.

The group for which there is no solution is the group of people who had jobs for many years and have now seen those jobs completely eliminated from the economy. They may have been factory workers, or home construction workers, or bank tellers.  California has 12.2% unemployment and construction companies there employed hundreds of thousands of people. Building levels in California have fallen to $23 billion this year from $63 billion in 2005, according to the Center for the Continuing Study of the California Economy. The oversupply of real estate in the nation’s most populous state will continue for years. The people who prospered in the solid middle class by working in this industry have virtually no way to find jobs.

Economists still debate whether unemployment nationwide will keep rising through 2010 into 2011.  The economic recovery may be short lived if joblessness continues to increase. Whether the economy dips again or marches haltingly toward health, there is Detroit and Detroit won’t go away.  Detroit is not just a symbol of what the recession has done.  Detroit is an example of what cannot be undone, at least not by any actions that the government has the capital and capacity to take

Douglas A. McIntyre