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.
no longer entertain its middle class.
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.
at the end of the 20th century.
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.
much smaller part of America's
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.
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.