Tag Archives: community

Exit, voice, and loyalty in cities

Economist Albert Hirschman’s 1970 book Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States presents a theory of how consumers express their dissatisfaction to firms and other organizations after a decline in product or service quality. In terms of interjurisdictional competition exit is demonstrated by migration: dissatisfied residents migrate to a community that better matches their preferences for local government services, externality mitigation, and fiscal policy. Voice, on the other hand, requires staying in place and is usually manifested through voting. Other methods such as protests, letters, and public comments directed at officials may also be effective ways to create change.

Loyalty plays a role in whether voice or exit is employed. Someone who is loyal to a city will be less likely to exit due to a given deterioration in quality. Hirschman argues that loyalty serves an important function by limiting the use of exit and activating voice. If exit is too easy, the quality-conscious people most capable of using voice to elicit change at the local level will tend to leave early, sparking a “brain drain” and generating cumulative deterioration. If some of the most quality-conscious residents are loyal they will remain in place, at least initially, and try to fix a city’s problems from within i.e. they will use some method of voice.

The presence of loyalty within a city’s population has implications for city population decline and growth. The diagram below, based on one from Hirschman’s book on p. 90, shows the relationship between city quality and population.

Exit and loyalty diagram

Quality deteriorates as one moves up the y-axis and population increases along the x-axis, which enables a depiction of the relationship between quality and population similar to that of a traditional demand curve.

The example begins at point A. If quality declines from Q1 to Q2, the population will decline from Pa to Pb. The relatively small population decline relative to the decline in quality is due to the presence of loyalty. Loyalty can be conscious, meaning that the loyal residents are aware of the quality decline and are staying to try to improve the situation, or it can be unconscious, meaning that some residents are unaware that quality is deteriorating. These unaware residents appear loyal to outsiders, but in reality they have just not perceived the decline in quality. Perhaps the decline has not impacted their particular neighborhood or is so gradual that many people don’t realize it is happening. Hirschman notes that unconscious loyalty will not spark voice since by definition the resident is unaware that decline is occurring.

As quality continues to decline from Q2 to Q3 it becomes more observable and even the most loyal residents accept the fact that voice will not save their city. Additionally, the unconscious “loyal” residents will finally notice the decline. Both groups of people will then exit the city in order to reside somewhere else. This leads to a larger drop in population and is shown in the diagram as a movement from Pb to Pc.

This pattern is repeated as a city recovers. An initial quality improvement from Q3 to Q2 induces a relatively small amount of migration back to the city (Pc to Pd), since most people will need confirmation that the city has actually started down a path of sustainable improvement before they will return. Further improvement from Q2 to Q1 will generate a larger increase in population, represented by a movement from point D to point A (Pd to Pa).

What is interesting about this theoretical analysis is that it generates two different populations for the same level of quality. At quality Q2 the city’s population will be relatively large (Pb) if the city is declining in quality and it will be relatively small (point Pd) if the city’s quality is improving. This means that a declining city such as Detroit, Baltimore, Cleveland, Buffalo, etc. will have to make substantial quality improvements before they will see a large influx of people. So even if a city such as Cleveland returns to its 1970 level of relative quality we shouldn’t expect a drastic increase in population, as this model predicts that its population will be less than its actual 1970 population since it will be on the returning curve (CDA) rather than the exiting curve (ABC).

A city that is consistently losing population over a long period of time faces a variety of problems such as increased crime, declining housing values, a decline in the quality of public services, and higher costs in the provision of public services. Fixing these problems is often expensive and this model implies that the costs required for increasing quality from Q1 to Q2 will not result in substantial population gain, which means per capita costs to taxpayers are unlikely to decline by much and may even increase as the city begins to improve. This model predicts that revitalizing America’s struggling cities is a more difficult task than many politicians and policy makers are acknowledging.

Pennsylvania taxpayer’s new “boutique” apartments

Eric Blumenfeld Realty Management (EBRM) recently secured $44 million in financing to restore the Divine Lorraine Hotel in Philadelphia. According to the article:

“EBRM will renovate the 9-story property into a boutique residential community comprised of 109-rental units to sit above 20,000 s/f of restaurant and retail space.”

But Blumenfeld did not receive ordinary financing. Instead EBRM largely circumvented the private sector capital markets and received a substantial portion of its financing courtesy of the Pennsylvania taxpayer:

“The hotel’s revitalization involved coordinating with an array of state and city governmental agencies and programs, including the Philadelphia Redevelopment Authority which provided a $2,500,000 loan and $1,000,000 grant, the Pennsylvania Redevelopment Assistance Capital Program which provided a $3,500,000 RACP grant, the Philadelphia Industrial Development Corp. which provided a bridge loan for the state grant, and the parks department which is anticipated to provide $8,000,000 in historic tax credits financing.”

In total EBRM received over $15 million in government grants, loans, and tax credits, including a RACP grant, which my research shows simply shuffles economic activity around Pennsylvania and puts taxpayers on the hook for paying back the bonds that fund the program – with interest.

I appreciate the renovation of historic landmarks but I don’t think taxpayers should have to help with the financing. Boutique apartments are a private good and as such their provision is best left to the market, without assistance from public funds. Some businesses choose to pursue government grants and subsidies rather than create a business plan that private investors are willing to finance – and who can blame them? It’s often easier to work with local governments that are just waiting to throw money at any business venture that promises jobs than to go through the trouble of creating a profitable business capable of attracting investors.

If you’re a Pennsylvania taxpayer thinking about moving to Philadelphia I recommend a new unit in the remodeled Divine Lorraine. At least that way you might get something for your money.

Scranton, PA and the failures of top-down planning

City officials in Scranton, PA are concerned that a recently released U.S. census map used as a basis for distributing federal grant money doesn’t reflect reality. The map was created using 2010 census data and identifies which neighborhoods meet the U.S. government’s criteria for low-to-moderate-income classification. Such neighborhoods are eligible to receive Community Development Block grant (CDBG) funding.

Scranton Councilman Wayne Evans stated that:

“A lot of us feel that the map is inaccurate, knowing the neighborhoods like we do,”

The city is hoping to conduct their own survey of the area and then use the results to petition the federal government to change the designations of the areas city officials believe are misclassified so they can receive funding.

This situation is a great example of the importance of local knowledge. Economist F.A. Hayek wrote the seminal paper on the importance of local knowledge in 1945. In his book Doing Bad by Doing Good, economist Chris Coyne builds on Hayek’s idea and defines the “planner’s problem” as “the inability of nonmarket participants to access relevant knowledge regarding how to allocate resources in a welfare-maximizing way in the face of a variety of competing, feasible alternatives.” The primary goal of the CDBG program is to create viable urban communities. In order to accomplish this a top-down planner needs to take certain steps: 1) the place to be developed needs to be identified and the goals of the development need to be established; 2) the availability of the resources needed for the development project needs to be confirmed and the resources need to be allocated; and 3) a feedback mechanism needs to be identified that can confirm that the goals are met. If any of these steps are not taken effective economic development will not occur.

As the example from Scranton shows, sometimes the planner – in this case the Department of Housing and Urban Development – fails to carry out step 1 effectively: Scranton officials and HUD can’t even agree on the place to be developed. Instead of letting the local officials who are knowledgeable about the area allocate the CDBGs, HUD officials in Washington bypass them by identifying the areas that need help via census data. Sometimes this approach might work, but when it doesn’t resources will be given to relatively prosperous areas while poorer areas are ignored.

The misallocation of resources will be an issue as long as the ability to allocate the funds is severed from the people with local knowledge of the communities. Cities and municipalities are receiving more and more of their revenues from the state and federal government, as seen in the graph below for Pennsylvania, and this contributes to situations like the one in Scranton.

PA intergov grants

As shown in the graph, total intergovernmental revenue and state intergovernmental to local governments in Pennsylvania increased in real terms from 1992 to 2012 (measured on the left vertical axis). In 1992, total intergovernmental revenue to local governments was equal to 59% of the revenue that local governments raised on their own (the orange line measured on the right vertical axis). In 2012 it was equal to 69%, an increase of 10 percentage points. This means that local governments became more dependent on higher-level governments for funding.

Funding from higher-level governments usually comes with restrictions and conditions that must be met, which prevents local citizens from using their local knowledge to alleviate the problems in their community. The further away decisions makers are from the region, the more likely they are to misidentify the problem areas. In Scranton’s case, city officials now have to expend scarce resources conducting their own survey and petitioning the federal government to change the neighborhood classifications.

Local knowledge is important and it should be utilized by decision makers. State and federal governments should limit intergovernmental transfers and allow local communities to keep more of their own tax dollars, which they can then use to address their own local issues.

Boom towns and bust policies

Stephen Walters, Professor of Economics at Loyola University Maryland, has written a new book called Boom Towns. I’ve written a review for the Library of Law and Liberty. Here is the beginning:

Capital, in the 21st century, has a bad rap. Many say that because it is the source of “passive income,” it does nothing but pad the pockets of the idle rich, driving a wedge between the haves and the have-nots. It’s helpful, then, to be reminded that capital in all its forms is the source of human betterment. Capital is the accumulated stock of stuff (financial assets, physical equipment, human knowhow, even social connections) that helps us make and do more stuff. So policies that drain capital from a community or discourage its formation in the first place are likely to leave a trail of destruction. This is the central lesson of Stephen J.K. Walters’ Boom Towns: Restoring the Urban American Dream.

Here is another excerpt:

In some cases, reformers’ cures for urban decay have been worse than the disease. Title I of the Housing Act of 1949 is a case in point. It made federal dollars available to cities that bulldozed property in blighted areas and turned it over to private developers. While earlier reforms had sought to replace tenements with public housing, Title I allowed funds to be used for “shiny new office towers, upscale apartments, convention centers, or hotels.” By 1967, some 400,000 housing units had been razed, but only 10,760 low-rent dwellings had been built to replace them. The result was “an intra-urban diaspora” as about two million, mostly Black, residents were displaced. Though it is impossible to quantify precisely, Walters rightly emphasizes the significance of this unfathomable loss in social capital as people were driven from the communities that had sustained them for generations.

After I wrote this, a friend pointed me to this moving Reason video, written and produced by Jim Epstein and narrated by Nick Gillespie:

Environmental Injustice at the EPA

This past week, the EPA’s science advisory board held a public hearing on efforts to measure the “environmental justice” (EJ) impacts of EPA rules. EJ refers to adverse human health and environmental effects of government policies on minority and low income populations in the US. The EPA has released draft guidance to agency analysts who measure these effects, and this hearing was intended to find ways to improve the guidance before it is finalized.

While holding a public hearing is a sign that the EPA is committed to getting this issue right, significant improvements need to be made to the EJ guidance if the EPA does not want the entire EJ project to backfire. Specifically, closer attention should be paid to the costs EPA rules impose on low income and minority populations. Further, improvements in the transparency of agency procedures will help ensure that those with modest incomes are allowed to participate in decisions that will have significant impacts on their health and well-being.

Currently, the EPA is focusing far more on the benefits of its rules to low income and minority groups than on the costs. As evidence, the 81-page draft guidance document contains only two pages related to costs of EPA regulations. In those two pages, the agency argues that costs are often not relevant to environmental justice issues, saying:

Consideration of the distribution of costs in the context of EJ is not always necessary. Often the costs of regulation are passed onto consumers as higher prices that are spread fairly evenly across many households.

This is a striking statement because regulatory costs are regressive exactly in the instances that the EPA describes in this statement. Any time costs of a policy are spread evenly across all citizens, the dollar amount paid to implement a regulation consumes a larger percentage of a poor person’s income than a wealthy person’s income. This is precisely why sales taxes are regressive.

Additionally, as incomes fall due to the costs imposed on citizens complying with regulations, people have fewer resources available to use toward risk reduction and outlays related to improving health. Meanwhile, there is evidence that private risk reduction can be much more effective than public methods of risk reduction, especially when regulations are addressing very small risks that are dwarfed by the other risks individuals face in their everyday lives.

A step in the right direction would be to ask analysts to identify the distribution of costs of EPA regulations, especially for rules that increase the prices of products that EJ populations purchase (e.g. rent, fuel, food, electricity).

Another important component of EJ is to gather meaningful feedback from low income and minority persons before implementing policies. The notice announcing last week’s public hearing was published in the Federal Register on Christmas Eve, making it unlikely that many in the EJ community, especially those with little political influence and low alertness to EPA actions, will even be aware this hearing is taking place, let alone will participate in the event.

If the EPA’s science advisory board is truly committed to improving the lot of the less well-off, it should tell the EPA to do more to measure the costs of environmental rules on low income and minority persons, and to improve transparency of agency procedures so those with less political clout can participate equally in the democratic process.

What the Affordable Care Act Can Teach Us about Government Failure

Most people probably believe that the recent failures of the Affordable Care Act (ACA) are an anomaly, and that most areas the federal government involves itself in, from education to transportation, operate quite smoothly, or at least adequately well. This belief is misguided, however, and the issues we see from the ACA should not be viewed as anomalies. Problems like unintended consequences of policy, privilege granting to special interests, adverse selection in insurance markets, and other issues, are widespread in countless areas of public policy. It just so happens that we usually fail to associate the pernicious effects of laws with their source: public policy.

First, public policies create many unintended consequences. People will change their behavior in response to altered incentives from policies and when these behavior changes are not anticipated by lawmakers, unintended consequences occur. As an example, the ACA has altered incentives for many employers. Business owners are now likely to cut worker hours and keep their staffs under 50 employees in order to avoid paying penalties imposed by the law. The intention was that people will get insurance through their jobs, while a result is that many people will lose their jobs or work fewer hours.

A similar effect occurred after passage of the Americans with Disabilities Act. This well-intentioned Act of Congress was supposed to level the playing field for disabled workers by requiring that businesses with disabled workers provide accommodations, such as wheelchair access. The Act also sought to prevent discrimination of disabled workers, such as firing someone for having a disability. The reality once the law was in place was very different, however. Economists have found that the law was followed by a steep decline in employment among disabled workers, likely because of increased costs associated with hiring them, exactly the opposite result the law intended. Perhaps the most famous unintended consequence of all is the fact that minimum wage laws actually hurt low skilled workers.

A lot of these effects, while unintentional, are actually quite predictable and any good economist should be able to identify potential unintended consequences before a law is even implemented. So why do these policies get adopted? A big reason is because special interests have enormous influence in shaping policy. The Affordable Care Act literally has provisions allowing handouts to insurance companies to make up for losses they face in the new government health insurance exchanges. Unfortunately, cronyism like this shapes policy at all levels. For example, a recent USDA regulation will require additional food safety inspection of imported catfish. This may sound like a sensible idea, until one finds out there is no evidence of a significant problem from tainted catfish. The new program was actually lobbied for by domestic catfish producers who wanted to hurt their foreign competitors by driving up the price of imports, all at the expense of American consumers.

A final problem created by the Affordable Care Act relates to adverse selection in insurance markets. Adverse selection occurs because of information problems between buyers and sellers of insurance. Healthy people may have trouble signaling that they are a low risk to insurers, and so the healthy drop out of insurance markets when insurers don’t offer them a low priced product that serves their needs. This can lead to mostly sick people signing up for insurance coverage, while the healthy decide to go without coverage. Over time this leads to higher prices, causing more healthy people to decline coverage and the pool of insured to become ever sicker.

The ACA creates this problem through community rating requirements and other regulations, like guaranteed issue, that don’t allow insurance companies to price policies based on the riskiness of the applicant. As insurance premiums rise (because of regulations and because insurance companies must cover many new services), more and more healthy people will find these policies unattractive. The insurance pool will become ever sicker over time. To avoid this problem, the ACA includes a mandate that everyone purchase insurance. However, it is far from clear whether the current mandate is strong enough to prevent adverse selection problems from taking place.

This problem is hardly new. New York State passed extremely strict community rating regulations several decades ago. This led to higher premiums and lots of young, healthy people dropping out of the insurance pool. I should know, I lived in New York and went without insurance for most of my 20s. The prices of policies were simply too high for me to justify paying.

The list of government failures likely to result from the Affordable Care Act is too long for one blog post. The ACA also has regressive effects that tend to favor the wealthy at the expensive of the middle class, and the law will add to moral hazard problems in our healthcare system (i.e. people over-utilizing medical services or not taking adequate care of themselves because the costs of their behavior are passed on to others).

The ACA may have serious problems, but it works great as a teaching device. Nearly every day we see another example of government failure in action.  Maybe once Americans see the effects of the ACA, they will look more closely at the effects of other policies as well.

Obama Administration will bailout Detroit

The Obama administration announced today it plans to send Detroit $320 million to “aid in its recovery,” according to The Hill.

The dollars come from existing federal money that is being re-purposed. It includes $24 million to rehabilitate buses and install safety cameras, $1.35 million for a community policing program, and the underwriting of 150 new firefighters. There are also funds for streets lights, police bike patrol, $3 million to hire new police, dollars for urban revitalization, and $25.4 million for demolition. A few months ago the administration said Detroit would have to work with creditors to resolve its bankruptcy issues. The city owes its creditors $18.5 billion.

Another example of how Detroit ended up in this awful position is highlighted in yesterday’s New York Times report of how Detroit City Council members skimmed $2 billion off of the pension system’ “excess earnings” to give employees ‘extra payments’ that had nothing to do with their pension benefits. This practice which spanned a 23 year period was justified as follows, quoting the NYT:

“People were having a hard time, living hand-to-mouth, and we thought we would give them some extra,” Ms. Bassett said.

Of all the nonpension payments, she said, 54 percent went to active workers, 14 percent went to retirees and 32 percent went to the city, which used its share to lower its annual contributions to the fund. The excess payments were often made near the end of the year, when recipients needed money for the holidays, or to heat their homes.

Of course the practice sounds wrong. Except it’s really another example of what happens when pensions value their liabilities based on asset returns. Detroit gave workers these “excess earnings.” New Jersey and scores of other states believed they were overfunded also and they “skipped payments” when the market was hot in the 1990s and early 2000s. The accounting gave them the illusion that this would all work out in the end. It is a dangerous fiction that these pension systems operate under.

That illusion of “overfunding in boom years” flows from the practice – discussed often in this blog – of discounting liabilities based on expected asset returns.The math really matters. For a long discussion, see here. 

How much damage has this accounting assumption and all the behaviors that flow from it caused? For Detroit – a significant amount. The city reports its pensions are underfunded by $634 million. It’s actually $9 billion underfunded on a market basis. 

I am not entirely surprised by the bailout, which sounds like a mini-stimulus via federal municipal grant programs. And I openly wonder what it portends for other cities that find themselves looking at similarly dire economic and financial situations.

To merge or not to merge?

Princeton Image

Consolidating municipalities is a common policy prescription from across the political spectrum. In New Jersey in particular, many democratic and republican elected officials have thrown their support behind merging municipalities. In part, this support is based on the experience of Princeton. In 2011, Princeton Borough and Princeton Township moved, the first New Jersey municipalities to do so:

New Jersey GOP Gov. Chris Christie as well as governors in Ohio and Pennsylvania have been urging local governments to seek savings by eliminating unneeded costs. Christie endorsed the Princeton plan and offered to pay 20% of the $1.7-million unification cost, Bloomberg News reported.

The forecast is that Princeton taxpayers will save $3.1 million annually by consolidating services, including those for police and fire protection.

“We have redundancy in government,” borough resident Cole Crittenden told NJ.com in explaining why she supported the merger.

Framing municipal mergers as a way to get more bang for the taxpayer buck makes the proposal difficult for anyone to oppose except for those municipal employees who are redundant after a merger. However, the cost savings of consolidation are not well-understood. In an article in Governing Magazine earlier this week, Justin Marlowe writes:

It turns out that consolidations rarely save money. In fact, for the majority of citizens directly affected in these cases, consolidation has meant higher taxes and spending. Some cities consolidated because a larger government could improve local infrastructure. This has usually meant new debt and new taxes to repay that debt. Others offered generous pensions and health-care benefits to employees pushed out in the consolidation, thus saddling the new government with expensive legacy costs. In the consolidated town of Oak Island, N.C., per capita spending is two or three times higher than before consolidation, and that’s by design. Consolidation allowed this coastal community to offer new services needed to build a vibrant tourist economy.

Superficially, municipal consolidation looks like an opportunity to reduce taxes or to provide increased services for a given level of revenue. However, as Marlowe indicates, larger jurisdictions do not always result in anticipated efficiencies. As policymakers’ gain control of larger jurisdictions and in turn the ability to access more funds from revenue from the state and federal level, they may spend more, rather than less, per capita.

Burden of DC’s Wal-Mart Minimum Wage would be Borne by City’s Poor

Plans to bring six Wal-Marts to the District of Columbia may fall through over city requirements for the big box store to pay an hourly wage of $12.50, more than a 50-percent increase over the District’s $8.25 minimum wage. Yesterday, the DC City Council voted 8-5 to approve this higher minimum wage, creating a higher wage requirement for stores with over 75,000 square-feet and retailers that make over $1 billion annually.

The council passed Large Retailer Accountability Act under the rhetoric that raising the minimum wage would benefit the District’s workers and that Wal-Mart can afford to pay higher wages:

Vincent Orange was one of the most vocal supporters of the bill. “We don’t need Wal-Mart, Wal-Mart needs us,” he said. “The citizens of the District of Columbia demand that we stand up for them.”

While supporters of higher minimum wages say that they are helping their least well-off constituents, in fact raising the minimum wage for Wal-Mart will hurt the very members of the city’s labor force that  council members say they are trying to help. That raising a minimum wage raises unemployment is uncontroversial among most economists. When the employment rate falls with a higher minimum wage, those left without a job will be lowest-skilled workers with the fewest job choices. While a higher minimum wage will benefit a group of employees who keep their jobs and otherwise would have made the lower minimum wage, policymakers must acknowledge the tradeoffs involved in a minimum wage law and that by supporting a minimum wage, they are hurting society’s least well-off members.

Furthermore, by discouraging Wal-Mart from opening stores, DC’s council is doing another disservice to residents by reducing availability of low-cost goods. Again, the burden of this policy decision falls hardest on the city’s lowest-income residents. Because those with lower incomes tend to spend a higher percentage of their income on food and other basic goods sold at Walmart, discouraging the company from opening DC locations is a regressive policy. Even for those who don’t choose to shop at Wal-Mart, the retailer’s low prices create pressure for other city stores to reduce their own prices to compete, benefiting an even wider net of consumers.

Mayor Vincent Gray has the option to veto the bill, which would require a ninth vote from the Council to overturn. If the DC City Council actually wants to benefit the city’s low-income residents, allowing Wal-Mart to provide jobs and affordable goods would create broader, lasting benefits to the community than a restrictive minimum wage. Requiring large stores to pay a higher minimum wage than other retailers would limit consumer choice, especially for consumers who have few choices, and it would eliminate job opportunities for the least-skilled workers.

Detroit’s Art is Not the Key to its Revival

This post originally appeared at Market Urbanism, a blog about free-market urban development.

Detroit’s art assets have made news as Emergency Manager Kevyn Orr is evaluating the city’s assets for a potential bankruptcy filing. Belle Isle, where Rod Lockwood recently proposed a free city-state may be on the chopping block, but according to a Detroit Free Press poll, residents are most concerned about the city auctioning pieces from the Detroit Institute of the Arts’ collection.

I’ve written previously about the downsides of publicly funding art from the perspective of free speech, but the Detroit case presents a new reason why cities are not the best keepers of artistic treasures. Pittsburgh’s Post-Gazette contrasts the Detroit Institute of Art’s situation with the benefits of a museum funded with an endowment:

As usual, Andrew Carnegie knew what he was doing.

The steel baron turned philanthropist put the City of Pittsburgh in charge of operating the library he gave it in 1895, but when he added an art museum to the Oakland facility just one year later, he kept it out of city hands.

“The city is not to maintain [the art gallery and museum],” Carnegie said in his dedication address. “These are to be regarded as wise extravagances, for which public revenues should not be given, not as necessaries. These are such gifts as a citizen may fitly bestow upon a community and endow, so that it will cost the city nothing.”

Museums and other cultural amenities  are a sign of a city’s success, not drivers of success itself. The correlation between culturally interesting cities and cities with strong economic opportunities is often mistakenly interpreted to demonstrate that if cities do more to build their cultural appeal from the top down, they will encourage job growth in the process. Rather, a productive and well-educated population both demand and supply these amenities. While an art museum may increase tourism on the margin, it is unlikely to draw additional firms or individuals away from other locations. Detroit is sitting on an estimated $2.5 billion in art, enough to put a dent in its $15 billion long-term obligations.

On a recent episode of Econtalk, Ed Glaeser explains that over investing in public amenities relative to demand is a sign of continued challenges for municipalities:

It is so natural and so attractive to plunk down a new skyscraper and declare Cleveland has ‘come back.’ Or to build a monorail and pretend you are going to be just as successful as Disney World, for some reason. You get short-term headlines even when this infrastructure is just totally ill-suited for the actual needs of the city. The hallmark of declining cities is to have over-funded infrastructure relative to the level of demand in that city.

Similarly, cities throwing resources at museums and other amenities designed to attract the “creative class” are highly likely to fail because bureaucrats are poorly-positioned to learn about and respond to their municipalities’ cultural demands. When cities do successfully provide cultural amenities, they are catering primarily to well-educated, high-income residents — not the groups that should be the targets of government programs.

I think it’s highly unlikely that Detroit will sell off any taxpayer-owned art to pay down its debts based on the media and political blow back the possibility has seen. However, seeing the city in a position where it owns enough art to cover a substantial portion of its unsustainable long-term debts demonstrates why municipalities should not be curators. Tying up municipal resources in art is irresponsible. The uncertainty that the city’s debt creates for future tax and service provision is clearly detrimental to economic growth. While assets like museums are nice for residents, they do not attract or keep residents or jobs.

Detroit does have an important asset; new ideas need cheap rent. Detroit’s affordable real estate is attracting start ups with five of the metro area’s young companies making Brand Innovator’s list of American brands to watch. While these budding businesses could be key players in the city’s economic recovery, top-down plans to preserve and increase cultural amenities for these firms’ employees will not.