Detroit: The Triumph of Progressive Public Policy

How did this great city fall so far?

(Editor's note: This is an updated version of an article that originally appeared on July 6, 2009.)




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Specifically, "price theory" predicts that artificially high business costs caused by excessive regulation and above-market labor compensation rates imposed by so-called "living wages" will lead to an increase in unemployment. Detroit's minimum wage is more than $2 above the federal minimum wage; and pressure groups are pushing for more. Additionally, any company contracting with the city must pay its employees $11.03 an hour if they offer benefits or $13.78 an hour if they do not.

Such high wage mandates are especially hard on individuals with a poor education and low skills. If struggling and heavily taxed businesses cannot pay such high wages, then they are more selective about the few workers they do hire or simply go out of business altogether. Those who have promulgated these polices may be well-intentioned, but mainstream economists have warned for decades that such policies were very likely to bring about the abject poverty and unemployment that characterize Detroit today. The city has the highest unemployment rate among all large U.S. cities.

A similar pattern has played out in public education. It is now conventional wisdom among the political class that higher pay for teachers and increased spending per student lead to improvements in teacher quality and student performance -— Detroit Public Schools strongly suggests that this theory must be rejected. It has chronically underperformed state averages, yet reforms are vehemently opposed by the system's powerful school employee union.

At the same time that union, the Detroit Federation of Teachers, has won rich salary and benefits packages for its members. Detroit spends one of the highests amounts of money per student nationwide and the district's spending per pupil is eighth highest out of Michigan's 551 school districts. For all that, by almost any measure Detroit schools have for decades failed their students: test scores, safety, drop out rates, etc. Detroit's public school students perform among the lowest in the state. On a 2009 test for urban districts from the U.S. Department of Education, DPS students performed "barely above what one would expect simply by chance, as if the kids simply guessed at the answers."




Of course it would be unfair to place all the blame for the city's decline on public employee unions. Detroit is home to the Big Three, whose contracts with their own powerful unions provided the model for those public employee arrangements. The UAW successfully extracted wages and benefits estimated at $73 per hour before the recent shake-ups began.




Today, Detroit is down 25 percent over the past 10 years; to just over 700,000 and dropping fast.
