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  • Illinois Will End up Like Detroit if It Does Not Change Course

    Posted by Lexington Green on July 30th, 2013 (All posts by )

    Detroit was once the greatest city of the modern world. Automobiles were the cutting edge of technology in the first half of the twentieth century. Talent and genius flocked to Detroit. Innovators in engineering, technology, design, finance, marketing, and management created a concentration of economic dynamism and creativity unlike anything the world had yet seen. Detroit was the Silicon Valley of its day, except its products were made of tangible metal, rubber, and glass. The auto industry transformed America into a land of mobility and personal freedom beyond the dreams of earlier generations. Henry Ford said, “History is bunk.” He meant the old limits could be blown away, and ordinary people could have a better life than they had ever dreamed of before.

    (The rest is here.)

     

    22 Responses to “Illinois Will End up Like Detroit if It Does Not Change Course”

    1. Carl from Chicago Says:

      Yes we have to face up to our problems.

      The answers are simple.

      Welch on the pensions – give everyone up to the same small amount / year like 20k.

      Put em on medicare.

      Let everything go bust.

      Don’t forget that cities are also massively indebted. The city where they built the Chicago Fire stadium did it all on debt and cronies was pretty well documented by the Chicago Tribune, to no avail.

      We need to hit rock bottom and put in a “right to work” law. Our industries are unionized and non competitive.

      If we looked at the actual resources Illinois has they are amazing – fresh water, great land, coal, likely a lot of shale gas, a big city that actually is a draw, tons of great universities, and an immensely talented bunch of people.

      All being dragged down by the state and the cities.

    2. Lexington Green Says:

      Absolutely right.

      Illinois had no excuse to go down the road to ruin.

      But Detroit really didn’t, either.

    3. Mike K Says:

      Both Chicago and Detroit were built because of water transportation. Chicago was a huge rail complex, still is but that is less important than the city management. Once that was a negligible factor but no more.

    4. Grurray Says:

      Here’s the brass tax problem:

      Illinois State Constitution
      ARTICLE XIII
      SECTION 5. PENSION AND RETIREMENT RIGHTS
      Membership in any pension or retirement system of the
      State, any unit of local government or school district, or
      any agency or instrumentality thereof, shall be an
      enforceable contractual relationship, the benefits of which
      shall not be diminished or impaired.

    5. Bill Brandt Says:

      California isn’t far behind. I was reading at one time Detroit had the highest per-capita earnings of any major city.

      But I believe – like Carl – we have to hit rock bottom first.

    6. Grurray Says:

      Illinois is not only going to hit rock bottom, but our dysfunctional, disreputable leaders are probably counting on it. They can’t come up with any solution that will make a dent in the problem without risking legal challenge on constitutional grounds.
      Legislators are dragging their feet in a cynical ploy until they find out if
      US bankruptcy law overrides state constitutional law.

      It’s a perfect storm of insane laws and corrupt governance and idiotic financial system.

    7. Robert Schwartz Says:

      Gurray:

      The Illinois Constitution may say that the benefits may not be reduced, but, it cannot conjure money out of thin air. To the extent that the benefit plans subject to Art 13 Sec 5 are entities separate from the state (and I would guess they are) they can be debtors under Ch. 9 of the Bankruptcy Code. It seems to me that the question of state law that the Code does not override is whether Art 13 Sec 5 allows the legislature to permit the plans to file under Ch. 9.

      It should be noted that the main purpose of proceedings in bankruptcy is to obtain equity among creditors not to discharge debtors. Further, Art 13 Sec 5 says the plans are contractual relationships. Every lawyer who opines on contracts will tell you that the contract is enforceable, but that its enforcement is “subject to bankruptcy”. So I am not sure that Art 13 Sec. 5 of its own force forbids a Chapter 9 filling.

      The plans have limited assets and revenues. They will not be sufficient to pay the beneficiaries all of the promised benefits. Therefore the plans must be reorganized to achieve the fair distribution of those assets and revenues among beneficiaries. Some of them, particularly those who have retired recently with spiked benefits, will suffer quite a bit of loss. But overall the group should be better off.

      Any such reorganization should involve:

      1. haircuts of pension benefits so that they do not exceed social security and PBGC standards,

      2. disabled and over 65 health care beneficiaries should be transferred to Medicare without penalties, but without benefit enhancements,

      3. termination of the plans and their replacement with social security and defined contribution plans,

      4. damage payments by the union fiduciaries who fell down on their jobs by failing to ensure proper funding of the plans.

      5. ending the representative status of the unions that got the plans into this mess.

    8. Michael Hiteshew Says:

      Don’t feel too bad, the rest of America is right behind you. Pretty soon, Mexico is gonna look like the place to be compared to the US. Higher standard of living, less corruption.

    9. Mike Doughty Says:

      As the saying goes…..”If something can’t go on forever, it won’t”. Many entities are fast approaching that point. The Democrats’ “magical thinking” is being put to test.

    10. VXXC Says:

      YES. That’s the point.

      The GOAL is the United States of Rust Belt.

      This is what’s SUPPOSED to happen.

      Obama for instance is President Coleman Young. Except for Foreign and Defense Policy, then he’s David Dinkins. But his forte is domestic policy.

      As far as we’ll have to hit rock bottom before you come back up. Uh, NO. You’ll hit rubble and then it will be nicely cleaned up and a field planted where the Satanic Mills once Smoked.

      Which is what happens now in Detroit.

      BTW you can’t get back up if you never stood up to begin with…

    11. tyouth Says:

      - One (at least one who doesn’t live in Detroit, now) has to hope that the near-bankrupt entities will stagger along and that the economic failure won’t happen almost everywhere at almost the same time. I imagine that near simaltaneous failures would create overwhelming political pressure to inflate.

      - The feds penchant for buying votes and danegeld is SOP and the (classic) liberal empathy we all feel to some extent would amount to the strongest of motivations in Washington to “print”. Even if the failures happen sequentially the chances of fed money pouring into these places seems high.

      - The pressure for “bailouts” (or whatever it might be termed) will be enormous. “Don’t let a crisis go to waste.” The motivation for creating huge amounts of money with no corresponding creation of value by the government will be enormous. The dollar itself will be correspondingly devalued. We don’t know where the tipping point is but we feel confident that there is a tipping point: a point where the U.S. could mimic the Wiemar Republic’s economic problems.

    12. cris Says:

      despite all of the above, the voters of Illinois have you left did a veto proofdemocratic legislature for the Democratic governor.find out why that is, and find out how to change it.forgive the lack of grammar, punctuation, and spelling. Using voice recognition on my 4G

    13. Grurray Says:

      Robert,

      I agree with your assessment of the states situation and your prescribed solution.

      However, SCOTUS ruled that bankruptcy judges have no authority to rule over claims tied to state laws.

      http://www.scotusblog.com/?p=122710

      Yes the pension plans are contractual, but the next line guarantees no decrease. Is that the term of the contract or a constitutionally mandated right?

      It’s not so clear that bankruptcy can withstand a legal challenge.

    14. Tim Says:

      http://www.aei-ideas.org/2013/07/detroit-is-dying-but-neighboring-oakland-county-is-booming/

      On the other hand, there’s this. Oakland County (right next to Detroit and also dependent on Big Motor) is doing just fine. Still has a AAA bond rating. Sane government helps.

    15. CAR Says:

      Grurray:

      You said: “However, SCOTUS ruled that bankruptcy judges have no authority to rule over claims tied to state laws.”

      That wildly overstates the holding of Stern v. Marshall. The pension claims under discussion in this post would be asserted in the bankruptcy directly as proofs of claim. Stern v. Marshall does not undermine the bankruptcy court’s authority to adjudicate such a claim. The claim in Stern v. Marshall had nothing to do with any proof of claim. According to the court, it was “in no way derived from or dependent upon bankruptcy law; it [was] a state tort action that exist[ed] without regard to any bankruptcy proceeding” (131 S.CT. 2618).

    16. Robert Schwartz Says:

      Grurray:

      I agree with CAR (although more genteelly). The issue in a reorganization of a benefit plan is whether the bankruptcy court has jurisdiction. This is a “core” issue and is well within the bankruptcy court’s jurisdiction. Marshall involved a claim that was an asset of the bankruptcy estate.

      The claim that an opponent of the reorganization would make is that the legislature cannot constitutionally authorize a benefit plan to file a ch 9 because that would diminish or impair the contractual obligation to the beneficiary. However, the counter argument is that bankruptcy does not diminish or impair contractual obligations. It finds them to be enforceable in full, is deemed to be a breach of the contract and gives the claimant a claim for that amount. It is only when the bankruptcy court distributes assets equitably among all of the creditors that the claimant ultimately receives less than 100 cents on the dollar.

      It should be noted that a law like art 13 sec 5, should not be held to prevent a reorganization of a separate employer. That reorganization will affect only the amount paid to the plan, not to the plan’s members. If the plan is fully funded, the employees will not be harmed at all.

      Another argument of opponents is that the employee benefit plans are not entities separate from the state and cannot therefore be debtors in a ch 9. This will depend in turn on the details of state law and the administration of the plans.

      To the extent that these issues are key to the bankruptcy courts jurisdiction it will decide them. However, if there is an ability under state law to refer the issue to a state court, the bankruptcy court should make the reference out of comity.

    17. Veryretired Says:

      The impending collapse of the progressive social construct is every bit as much of an opportunity as it will be a problem.

      The first task is to firmly fix the blame for the bankruptcy on the tax and spend policies of the Blue political machine, and also to make very sure that their thoroughly corrupt and criminal practices are kept continuously in the public eye.

      Secondly, the inevitable attempt to scapegoat every one and everything except their policies must be refuted and shown to be false in every possible venue, from elections to various council and legislative meetings to challenging every media type or academic who tries to cover it up.

      And every single thing they try to do to save their political allies must be challenged in court, until they are tied up completely in legal cases about every sweetheart union deal and phony pension reform plan.

      Thirdly, for every statist plan proposed, there must be a carefully developed and structured free market alternative presented, from flat tax e’s to enterprise zones to decertifying public unions to right to work.

      The most difficult part of all of this will be to stop counter-punching only and start defining the terms and parameters from the outset. Instead of folding up and stuttering when the stale charges of racism and cold heartedness and so forth start flying around, these phony media stunts and slanders must be called out for what they are, and any media outlet that parrots the party line must be challenged relentlessly, and even bought out, if necessary, to turn the tide.

      These issues will not be solved in a few election cycles, or by some flashy campaign. This task will require the kind of determined, relentless, and long-term effort that the statists expended to construct this house of cards, and it will also require some dirty and gritty political organizing.

      The major political parties no longer represent the best interests of the ordinary citizen, and are long past due for a re-alignment or even some creative destruction. The recent tea party movement is a step in the right direction, but much more obviously needs to be done at all levels.

      The progressive era of expanding government and expanding budgets has run it’s course. After a century of hearing that the state is always the solution to every problem, it will take some time and serious effort to re-write the script that has been drummed into everyone’s head, and promote the message of less state and more individual freedom and responsibility.

      It is a worthy task for any free person.

    18. ErisGuy Says:

      The people of Illinois are free at the next election to repudiate the course they are on. They wil get exactly what they vote for. May they choose wisely, but even if they don’t the results are the will of the people and must be followed.

    19. Anonymous Says:

      CAR,
      what can I say man, I’m a real wildman when it comes to Supreme Court rulings.

      Robert,

      The state pension system is mandated and governed by the Illinois Pension Code which established the Illinois State Board of Investment to manage it. All the members are appointed by the governor. Illinois is a blue state that doesn’t currently believe in separating anything from central bureaucratic control.

      True Stern v Marshall did not limit a bankruptcy court’s jurisdiction over core issues.
      It did rule unconstitutional the law that defined core issues:

      “The Bankruptcy Court in this
      case exercised the judicial power of the United States by
      entering final judgment on a common law tort claim, even
      though the judges of such courts enjoy neither tenure
      during good behavior nor salary protection. We conclude
      that, although the Bankruptcy Court had the statutory
      authority to enter judgment on Vickie’s counterclaim, it
      lacked the constitutional authority to do so.”

      Under the original 1984 bankruptcy law, it’s conceivable that a bankruptcy court would have jurisdiction over the constitutional issue.

      The immediate problem in Illinois is our legislative leaders (many of whom are elected for life) are operating on the assumption that pensions are constitutionally guaranteed and not terms of a contract. They have no incentive to make any difficult decisions to solve the problem until the state is finally shut out from the credit markets. Until then they can raise taxes at will to pay for higher interest payments.

    20. Mike K Says:

      Veryretired, read some of the comments to this piece on Milton Friedman and tell me if you still think there is an opportunity. These people are credentialed, if not educated. They hate the free market and anyone that thinks it is good has to be evil.

      This is from the article: “The problem is that markets, being amoral, are necessarily immoral. Markets are essentially utilitarian, they maximize “happiness,” and each individual is free to choose what makes him or her happy. But what happens when one man’s pleasure harms another? As E.F. Schumacher writes, “Call a thing immoral or ugly, soul-destroying or a degradation to man, a peril to the peace of the world or to the well-being of future generations: as long as you have not shown it to be ‘uneconomic’ you have not really questioned its right to exist, grow, and prosper.” That is, as long as companies can make money drilling into Canada’s tar sands, who are we to question them?”

      I doubt he ever read Adam Smith.

    21. veryretired Says:

      Mike K, I agree there is plenty of intellectual and moral rot to be excised and repaired, but I simply can’t join the defeatist chorus and start singing a continuous lament that the battle is already lost and there’s nothing we can do.

      I heard that sort of song all my life about the influence and machinations of the soviets until they collapsed and left all the doom mongers gasping and stuttering.

      Yes this is a pervasive and corrosive mentality in large swaths of our society, but so was support for slavery, or jim crow, or segregation, or against equal rights for women, or religious prejudice we would find utterly bizarre today.

      We are talking about a revival of one of this country’s, and our culture’s, fundamental guiding principles. It’s not some new, unknown territory.

      Considering some of the movements and ideologies we have engaged with and de-legitimized over our national life, beginning with the rule of the nobility, and going through all sorts of variations of hostility towards religious groups, ethnic and racial groups, and sex and gender groups, the struggle to re-establish a broader definition and respect for individual rights and liberties is a fitting subject for our most serious efforts.

      I simply do not concede defeat, but rather expect continuing success.

      I reject the idea that resistance is futile, and that we will all be assimilated eventually.

    22. Mike K Says:

      I hope you’re right but I expect some sort of crisis and collapse with a recovery taking a long time to occur. These days, science folks don’t understand politics and vice versa. I am still puzzled by the leftist politics of billionaires like the Google guys. I do like Ron Unz who has enormous common sense. He gets to the topic of his fellow Silicone Valley rich near the end of this essay. In some ways he reminds me of Michael Crichton who I still miss. That article was rejected by The American Conservative which he bailed out financially.