OK

This is only a Preview!

You must Publish this diary to make this visible to the public,
or click 'Edit Diary' to make further changes first.

Posting a Diary Entry

Daily Kos welcomes blog articles from readers, known as diaries. The Intro section to a diary should be about three paragraphs long, and is required. The body section is optional, as is the poll, which can have 1 to 15 choices. Descriptive tags are also required to help others find your diary by subject; please don't use "cute" tags.

When you're ready, scroll down below the tags and click Save & Preview. You can edit your diary after it's published by clicking Edit Diary. Polls cannot be edited once they are published.

If this is your first time creating a Diary since the Ajax upgrade, before you enter any text below, please press Ctrl-F5 and then hold down the Shift Key and press your browser's Reload button to refresh its cache with the new script files.

ATTENTION: READ THE RULES.

  1. One diary daily maximum.
  2. Substantive diaries only. If you don't have at least three solid, original paragraphs, you should probably post a comment in an Open Thread.
  3. No repetitive diaries. Take a moment to ensure your topic hasn't been blogged (you can search for Stories and Diaries that already cover this topic), though fresh original analysis is always welcome.
  4. Use the "Body" textbox if your diary entry is longer than three paragraphs.
  5. Any images in your posts must be hosted by an approved image hosting service (one of: imageshack.us, photobucket.com, flickr.com, smugmug.com, allyoucanupload.com, picturetrail.com, mac.com, webshots.com, editgrid.com).
  6. Copying and pasting entire copyrighted works is prohibited. If you do quote something, keep it brief, always provide a link to the original source, and use the <blockquote> tags to clearly identify the quoted material. Violating this rule is grounds for immediate banning.
  7. Be civil. Do not "call out" other users by name in diary titles. Do not use profanity in diary titles. Don't write diaries whose main purpose is to deliberately inflame.
For the complete list of DailyKos diary guidelines, please click here.

Please begin with an informative title:

Detroit didn't die when it filed for bankruptcy -- but the city isn't the only symbol of 20th century middle-class prosperity the bankruptcy threatens.  Defined benefit pension plans in general are endangered by this move, and Social Security itself is the ultimate target.

The abandoned Starlite Lanes in Detroit.
Detroit's mid-century Starlite Lanes
no longer entertain its middle class.
Detroit, of course, was once a thriving city of over 2,000,000 people, many of whom comfortably supported families by working jobs in clean, safe factories with little more than a high school diploma.  A livable retirement was guaranteed by a generous pension.

But as the middle of the 20th century turned into the end of the 20th century, the U.S. economy changed.  The industrial production that had supported vibrant middle classes like Detroit's headed overseas, and America's economy -- and wealth -- flowed increasingly through the financial services sector.

The financial services sector grew rapidly at the end of the 20th century.
The financial services sector grew rapidly
at the end of the 20th century.
Although once-mighty blue-collar powerhouses like New York, Chicago, and San Francisco also suffered from the turn of the economic screw, they were able to revitalize by grabbing a slice of the new economic pie.  Detroit's interface with this new economy was less salutary: "ill-considered debt schemes and manipulation by big international banks exacerbated the problem" in Detroit.  The problem today is that with essentially its entire middle class relocated to the suburbs, white and black alike, Detroit is now a city of people who produce little tax revenue but make heavy use of government services.  It's not a great financial model for any government.


Detroit doesn't even export wise-cracking, sweet-smart detectives to Hollywood anymore.

Given its role in the 20th century, Detroit's bankruptcy this month is a symbolic nail in the coffin of that old middle-class dream.  But the bankruptcy actually has much more than symbolic ramifications for us today.

That's because Detroit's bankruptcy is, at its core, basically a scam to defraud retirees of their pensions.  Along with its declining ability to operate schools, fire houses, and police stations, Detroit no longer has the ability to pay the pensions it owes its retired public employees -- employees who often accepted lower salaries, worked nights and weekends, and/or put themselves in danger with the promise of a guaranteed retirement.  

Michigan's constitution has strong protections for these pensions, but if the city is in bankruptcy, the unelected emergency manager who has taken authority there would no longer need public workers' unions to sign off on a plan to renege on those pensions.

And pensions, specifically defined benefit pensions, are one of the great symbols of mid-20th century middle-class prosperity -- just like Detroit is.

Defined benefit pensions have become a much smaller part of America's middle-class landscape.
Defined benefit pensions have become a
much smaller part of America's
middle-class landscape.
Some corporate types, like Michigan Governor Rick Snyder (formerly of PricewaterhouseCoopers) and the unelected emergency manager he appointed, hate defined benefit pensions.  They're not very flexible: once you make people promises about their retirement, they get pissed when you yank the rug out from under them.  They're also not as useful to the financial services titans who now run the economy as 401(k) plans: pension funds can be powerful activist shareholders, and 401(k) investors primarily dump their money in mutual funds for the titans to do with as they see fit.

If the Detroit bankruptcy succeeds at lifting anyone's obligation to keep pension promises, that could spell trouble for workers in other parts of the country, too, as likeminded corporate governors and legislators try to replicate Michigan's approach.

U.S. income inequality has exploded
U.S. income inequality has exploded
But there's a more progressive way to solve the "pension crisis that's eating the state budget alive," as one business-oriented writer in Illinois put it -- raise taxes on the rich.  In a country with an exploding income gap between rich and poor, where 4 out of 5 people struggle with joblessness, poverty, or reliance on welfare, this model could be one piece of the puzzle that restores a modicum of middle-class security and reduces income inequality.

The progressive solution is unlikely to come out of Detroit's bankruptcy, but it could actually start with the fights over the nation's biggest defined benefit pension plan: Social Security.  Republicans would love to privatize Social Security as a cover for making huge cuts, but Social Security can be saved -- and even expanded -- by raising the cap on earnings eligible for FICA taxes so that wealthier people pay a higher effective rate.

Expanding Social Security may not return Detroit to its heyday, but it's not too late to save to save this important piece of mid-20th century middle-class prosperity.

Cross posted from willbunnett.com.

Intro

You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

Extended (Optional)

Originally posted to I voted for Kodos on Tue Jul 30, 2013 at 11:13 AM PDT.

Also republished by Motor City Kossacks and Community Spotlight.

EMAIL TO A FRIEND X
Your Email has been sent.