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Ghost Town Detroit

This is a post on demographics inspired by a conversation I had earlier today.

Detroit was, in its heyday just after World War II, when the US auto industry was literally firing on all cylinders, the fourth largest in the U.S., Its population was 1.85 million in 1950. Today, fewer than half that number reside in the city.

Detroit is a ghost town.

This was brought home to me this morning when a friend told me of his work to help sell off shuttered Detroit schools.  He said they had already sold off some 30-odd schools, with many more planned. The fact is Detroit doesn’t have the student population to support all the schools it has. And the city is losing massive amounts of money as a result.

Wikipedia says:

On December 8, 2008, State Superintendent of Public Instruction Mike Flanagan said that the district’s inability to manage its finances was crippling the students’ learning environment, and declared a financial emergency. Michigan Governor Jennifer Granholm appointed Robert Bobb as the fiscal manager of Detroit Public Schools in 2009 to manage the school districts finances… The school district began selling 27 previously closed school buildings. On 3 March 2009, Bobb initially estimated that DPS’s current year deficit would be no less than $150M…To begin to erase this deficit, the district put twenty nine vacant buildings up for sale in early 2009.

Detroit Public Schools is also burdened with a shrinking population of students. Between the years of 2002 and 2008, the number of enrolled students dropped from 157,003 to 94,054, a 64,929 person decrease… Detroit Public Schools had a goal of closing 95 schools by 2009.

The indications of decay are everywhere. Read my post “That’s what happens when a town full of broke people gets a whiff of free money” and you will get a sense of what has happened there and how much worse the recession has made it.

Now, it’s not as if the Detroit Metropolitan Area is shrunken. There are still 4.5 million people there. The larger CSA has 5.5 million, ranking 11th in the US. But, Detroit, the city itself, is being abandoned.  "Black Flight is the New Worry for Detroit" writes the Wall Street Journal. As a result, abandoned property is everywhere, both residential and commercial. The Guardian writes "Detroit homes sell for $1 amid mortgage and car industry crisis" and The Detroit News wrote "Detroit to purchase old MGM Grand casino for new police HQ" .

Even Mitt Romney’s childhood home, where his parents lived from 1941 to 1953 is a blight on the community and being torn down. And his father was both chairman of AMC and Governor of the state at one time.

(video below)

 

All I’m saying is this is what depression looks like.  When you get away from all the numbers and statistics, there are real communities, real lives and real people who are being affected by this. While I usually write about the numbers, I haven’t lost sight of the people because that’s what this is all about.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

16 Comments

  1. wmartin46 says:

    > All I’m saying is this is what depression looks like.

    With the possible exception of the “Dust Bowl”, the Depression of the 1930s didn’t look like this. This is the effects of deindustrialization, which started after WWII. It is also one of the byproducts of toxic labor unions and the results of “Liberalism”.

    • Don’t bring your political agenda to the comments here. Of course Detroit is about de-industrializations and unions. I said the peak was 1950 after all. But the point of the post is to reinforce the fact that we are talking about human lives. This is not a political post, thank you.

      • wmartin46 says:

        It wasn’t a “political” comment .. it was a realistic one. Having worked in a “rust belt” steel mill that was shut down, and then torn down (on a latitude not too different from Detroit) .. I’ve seen this with my own eyes.

        The point of my comment is that this is not “depression”, so much as de-industrialization. Labor unions were a prime contributor to the inability of the industrial sector to reorganize, or automate. Management was also a huge component in the failure, as was low cost steel from Germany and Japan.

        But this is well-documented history .. that had nothing to do with “depression”, which tends to be a more general collapse in the economy.

        • Of course, it’s a political comment.

          I didn’t mention white flight for instance. Nor did I mention the fact that the German auto industry is also heavily unionized. Nor did I mention the fact that every industrial city in America has lost population from Philadelphia to Buffalo to Pittsburgh to Baltimore. Yet, the problems in Detroit are uniquely large. I didn’t mention the fact that Detroit was the only non-bubble city to be in the top Case-Shiller ranks for house price falls post bubble. I also didn’t mention that Detroit has one of the largest increases in unemployment since the recession began. Nor did I mention that Germany’s unionized employers don’t pay healthcare because the state does.

          The point is it’s NOT just about the auto industry’s de-industrialization and unions. If it were, then we should have seen the same in Germany. if it were, then we wouldn’t see such a large drop in employment and house prices solely due to the recession. It’s facile AND political to point only to de-industrialization when Cleveland, Rochester and Milwaukee all have faced the same problem. Detroit’s problems are unique and not just an issue of de-industrialization.

          This post is about the human face of recession and not just because of a de-industrialization of one city that has been in process for more than 30 years. Your response tells me your empathy for the people is certainly lacking regardless of the causes of their plight.

    • My point is focusing on one issue “unions” when this post is clearly about the human story (” While I usually write about the numbers, I haven’t lost sight of the people because that’s what this is all about.”) shows a clear bias that distorts your analysis of the situation. Detroit’s problems are much deeper than unionized labour.

      I am not a fan of unions in the auto industry, in the public sector, or in the airline industry. They have overplayed their hand and are bankrupting their employers as a result. But, as I said before, that is a political conversation, when I am more focused in this post on what this downturn is doing to our communities and the lives of real people.

  2. Justsaying says:

    Sorry Edward, but the article did trigger many different angles as i read it. Here’s a couple angles on how what’s happening there can be conceptualized; Yes population did peak post ww2. Why? Easy to answer, because of real job growth demand coming from the auto manufacturers. Though i hate to say it but American Auto manufacturing superiority is a bit of a myth / misconceptualization. In retrospect it’s clear that it’s easy to be the world’s largest auto manufacturers when the majority of ww2 participants industrial capacity is zero because of the war being fought on their land. To clarify the point further it only took japan until the 70′s before they rebuilt and began redominating, let’s not forget two nukes were dropped on them, and another 30 before 2 out of the big 3 went bankrupt. In addition to this there was the huge demographic shift that occured due to the “baby boom.” Yeah it can be called a pyramid. As long as the base of the population keeps getting bigger the system / demand is stable. Unfortunately there is what can be conceptualized as a “baby bust” generation post “baby boom,” decreased birth rates, yes some people call it progress, unfortunately it makes the pyramid base unstable. there are not only hundreds of shrinking cities / ghost towns / ancient ruins but there are whole countries like Russia, Japan and South Korea who will be having shrinking populations. Watch what happens then.

    As far as the schools, well it needs to be done, but more interesting is the fact that Community Land Banks / Trusts are created. Wall Street advisors raise cash for them by selling bonds, vacant homes are purchased and then “reclaimed” bulldozed. Someone figured out that the interest paid on the borrowed money is less than the amount of money lost because of reduced tax revenue collections due to low property values. Yes supply is being artificially reduced…

    The reality of the order of things is ugly. It is a system which will eventually fail. Usually it’s the ones that leave early that fair better, but this is nothing new, look at how america was populated. Everybody from the rest of the world came here. Soon “brain drain” will get worse as more and more of Americas top _____ (fill in the blank) pursue opportunity elsewhere…

  3. Philrack says:

    Ed, I hope you don’t consider this political commentary, but it’s truly personal observation from living there for 15 years.

    I took a job right out of college at the “New Chrysler Corporation” in 1983 or 1984. Working and living in Detroit was a real eye opener for me having grown up in a rural Indiana town and attending college in Columbus, Ohio. The dynamics and rifts were dramatic in that Detroit. It seemed that it was always, Union vs. Non-union, White Collar vs. Blue Collar, and Black vs. White.

    I actually have family that live in a very upscale development in Canton, and the number of homes that are empty and being foreclosed upon — well it seems like every third or fourth house. I can’t lay blame on any one group but there is a welfare mentality that took hold up there and it was perpetuated by the unions and state government. I personally think this was the primary social and economic factor for the decline and ruin of South East Michigan. There very few people who were willing to take a change and start a business or develop an idea or product because once they stepped out of the arms of security, they were at risk.

    I left Detroit in the middle 90′s mainly for two reasons. First, because I wanted to start my own consulting business and the political and economic climate (read taxes) just made it an absurd proposition to stay there and try to build a business. And second, I was driving down I-75 near 5 mile road and I saw a billboard that had the number of kids under 18 who had been murdered to date. It was in the high 300′s and this was on a Labor Day weekend. I remember thinking, “Why am I living here?”

    • I appreciate the anecdote. I think the last part of what you wrote is really what a lot of people are asking themselves and was the impetus for the story in the Wall Street Journal about black flight. Originally, I had wanted to tack on a piece I remember seeing a few years back from Marc Faber i believe about the decline of cities in ancient societies. he mentioned some in the Middle East and in China in particular.

      It really does look like Detroit has seen a permanent decline. WMartin46 mentions the Dust Bowl and I think he’s right in suggesting the populations are not going back to Detroit any more than they did to those areas.

  4. One more comment: This post was originally supposed to be about migration and exodus and the real economic burden of the “unstable pyramid base” which justsayin points out. Ed Hugh has a post coming up talking about the same thing in the Baltics. But these demographic issues are evident everywhere: in Japan, Ireland, etc.

    Cities that collapse like Detroit usually have a vicious cycle of demographics associated with them that seals their fate.

    • Gary Bateman says:

      \\\”Cities that collapse like Detroit usually have a vicious cycle of demographics associated with them that seals their fate.\\\”

      If it were a foreign land that the united states had intervened in, we\\\’d have no trouble finding the federal will to break off 20, 40, even 100 billion for the sort of massive overhaul required to change a broken city into a place where people want to live.

      Short of that, I don\\\’t see any possible exit. The cycle is too far along with systemic decay, corruption and polarization for anything short of a marshall plan to break it.

  5. EP3 says:

    thanks for bringing this up Ed. It’s a very sad time in our history.

    When’s the last time Pres. Obama came to Detroit? And not the airport in Ann Arbor, but real Detroit?

  6. Yeah, and the only comment I got was about de-industrialization and unions which misses the entire point of the post. It’s not about the big picture all the time. It’s about people’s lives. But some people have absolutely no sense of empathy for anyone not like themselves.

  7. What we could REALLY use is some trickle up economics.

  8. and address how people profit off all this misery.