Tuesday, March 23, 2010

detroit, detroit, that toddlin town

Detroit is dying. It is the first metropolis in the United States to be facing extinction. We have never seen anything like this in American history. It is happening
under our noses, but the media refuse to discuss it. To do so would be politically incorrect.

Two factors tell us that Detroit is dying. The first is the departure of 900,000 people -- over half the city's population--since 1950. It peaked at 1.8 million in 1950. It is down to about 900,000 today.

In 1994, the median sales price of a house in Detroit was about $41,000. The housing bubble pushed it up to about $98,000 in 2003. In March 2009, the price was $13,600. Today, the price is $7,000. There has never been a collapse of residential real estate values of this magnitude in peacetime history,anywhere.

We are unfamiliar with anything like this. The media are silent. The Powers That Be are not interested in reporting on this, because readers might ask the obvious question: "How did this happen?" Obvious questions tend to lead to obvious answers.

There is no surge of buyers to take advantage of fabulously low prices in Detroit. Can you imagine buying a home for cash for $13,600 in 2009--a house that had sold for $98,000 six years earlier--and losing half your money? It's incredible.

This is the sign of a dying city. This does not happen in a normal environment. Even with the mania created by Fannie Mae and Freddie Mac, in conjunction with Alan Greenspan's Federal Reserve, nothing like this has happened anywhere else. Yet the city planners, the Federal government's subsidy defenders, and the welfare state aficionados are all discreetly silent about Detroit.

The city funds its schools with property taxes. Property taxes have collapsed as sources of revenue. Last week, the school board announced the closing of one-quarter of Detroit's schools. The city is out of money. This is collapse. The American public does not perceive what is happening in Detroit.

The rate of illegitimacy is in the 80% range. That social phenomenon represents a moral collapse, but the participants were all educated by the tax-funded schools.

The media pundits cannot decide, so they simply ignore the collapse. "Detroit? Never heard of it." The lesson of Detroit is this: the experts do not see a collapse coming. They assume that next year will be like today, give or take 3%. They do not believe that anything as complex as a city can collapse. So, they believe that things will continue, as they always have. Taxes need not be cut. Spending need not be cut. Schools should be allowed to educate. Tax-funded welfare programs should be increased. When it comes to tax evenues, "there's always more where that came from."

And then, overnight, the system collapses. The assumptions were wrong.
--Gary North

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