Detroit Has Been Governed To Death: How To Save It

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The largest municipal bankruptcy in American history has focused minds on one crucial question. Will Uncle Sam try to bail out the failed Motor City, much as Germany has been hopelessly bailing out Greece? Or will bond holders and public pensioners be left to strip what assets remain of a dying metropolis, whose prospects remain dim even if its massive debts are written off?

The odds don't look good. While General Motors, Chrysler, Fannie Mae, Freddie Mac, AIG, Bank of America, Citibank, and a laundry list of TARP recipients proved that investing in campaign dollars pays off, no bipartisan crony capitalist coalition exists to save Detroit. A dysfunctional federal government heading for its own day of reckoning is unlikely to muster the political consensus to bail out an even more dysfunctional Democratic one-party town.

Yet, there is a way out of this mess. With the stroke of a pen, the people of Detroit-and others who would flock there-could be empowered to turn the city into another bustling Hong Kong entirely through their own efforts and without the infusion of a single federal dollar. All it would take is to follow the advice of an oft-maligned fictional character on how to turn around a dying economy-"Get the hell out of my way!"

That's right. Issue a 15-year moratorium on federal regulations and taxes within the Detroit city limits and watch the Motor City rise from the ashes faster than you can say, "What, no income taxes?"

Imagine what would happen in a city where both the personal and corporate federal income tax rates were set to zero. Imagine, further, if all federal labor laws were suspended-hire whomever you want to do whatever job you want at whatever pay they will accept without having to ask the National Labor Relations Board and Citizenship and Immigration Services for permission. Start any business you please-no Interstate Commerce Commission, Equal Employment Opportunity Commission, or Federal Trade Commission to get in your way. Only the laws, rules, and regulations of the State of Michigan would apply to protect citizens from acts of force or fraud.

Sound frightening? More frightening than the status quo-a murder rate 11 times higher than New York City's, one third of the land either vacant or derelict, the number of daily arson fires exceeding the number of arson inspectors, and the schools so bad that 47% of the people are functionally illiterate? Does anyone seriously believe that things will get worse if the federal government isn't there to hoover up half of every successful worker's paycheck while enforcing thousands of job-killing regulations? Or does a federal moratorium sound like an experiment worth discussing in a city that has no future if something radical isn't done to put it on a new path?

Detroit has been governed to death. Former city employees now hold pension IOUs that, along with debt service, consume 38% of the city's operating budget. While bankruptcy will help get that monkey off the people's backs, an economic revival can only come through the sort of self-generated economic activity that was a matter of course back when government was a small fraction of its current size and entrepreneurs were free to bootstrap Detroit into one of the largest and most successful cities in American history.

Of course, the odds of this happening are quite small, given political realities. The only thing that could scare Washington's political class more than Detroit failing would be Detroit succeeding once freed from their rule. But the case for such a policy needs to be made. Pouring ever more dollars into local basket cases like Detroit will accomplish no more than pouring more euros into national basket cases like Greece. Deny the citizens of Detroit an opportunity to help themselves and you might as well bulldoze what's left of the city and let it revert to pastureland.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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