Much of the commentary about Detroit has barely touched the surface of the real problems in Detroit and many other rust belt cities. Joe Stiglitz points us to the underlying problems that require resolution. Metropolitan Detroit is doing very well compared to the inner city which has lost half its population and its tax base. Some of its problems are the result of deindustrialization and the loss of auto manufacturing jobs, but Detroit is also a victim of urban sprawl. The wealth that was created in the inner city has been allowed to dissipate because it cannot be supported by those who remain in the city. The suburbs surrounding Detroit are indifferent to the loss of wealth. They benefit indirectly from Detroit but they are separate tax entities that do not help to pay for the infrastructure that they left behind. Our cities run the risk of becoming urban ghettos unless we develop policies to deal with white flight and urban sprawl.
Detroit is also subject bankruptcy proceedings. This has become a battle between creditors who loaned money to the city and public employees who own pension contracts. One of the city's largest creditors are those who sold Detroit $300 million derivative contracts. The bankers usual win in these battles when private firms go into bankruptcy. Stiglitz believes that those who sold the derivatives should take a back seat to those who have pensions. They are better protected legally because the bankruptcy laws are different from the laws that govern private bankruptcy. The process is overseen, however, by a Republican governor and his appointee. Its not hard to determine whose interests they will try to protect.