Category Archives: American Innovation

Solving America’s Energy Needs Will Take Better Government, Not Less Government

wind-energy-2We search for systemwide solutions that will minimize the cost of competition and that will maximize each citizen’s contribution to society. Many suggest that we eliminate government from the equation and let perfect competition work its way through the economy so that all will have the opportunity to contribute. Yet, America has anything but perfect competition.

The reason Thomas Paine’s pamphlet was so important to the Revolution was that it laid out in clear, laymen’s terms the true purpose of government in the evolution of society to be that merely as a representative extension of man through a larger society and not an ordained right of an individual to rule other men.

It was inspired by and dedicated to the writing of James Thompson’s “Liberty” that exclaimed society should not exist in the extreme of every man for himself. This is to a greater or lesser extent what we have today, built on the economic structure of imperfect capitalism. Why imperfect? many reasons….

One involves our energy system. It’s history is anything but perfect competition as you may know. In the beginning, utilities were something of wild west type competitors. Some emerged through mergers but most went the way of petitioning government to set up regulated monopolies to avoid duplication of assets. What then developed were cost plus entities that served local geographies. Some made better economical choices and were better run than others, resulting in much lower costs to their customers than might be experienced just 50 miles in either direction

And grids were designed to manage a local infrastructure as well. For protection against blackouts, utilities connected to each other and began to devise ways to allow physical power to flow between utilities, but the emerging transmission line structure was haphazard and contained many bottlenecks.

Much later, within the past couple of decades, a means to sell excess power to other utilities as a profit center developed, but it was hampered by several physical and political realities. First, power flows through least resistance physically and not by how utilities sell it. Therefore, there are few financial reasons to fix bottlenecks to the grid. Second, utilities are not purely for profit, they are cost plus, and do not have real competitive reasons to optimize profits, only to ensure they make annual targets to meet dividends and to allow the regulators to grant further expenses to continue building and expanding the utility. Therefore, the nation’s true supply optimization does not occur in a regulated environment.

And with such a regulation hindered system, no utility has the economic incentive to build electric grids to areas that could house wind or solar farms to sell to other utilities. And no utilities have the regulatory incentive to buy from such an economically optimized, national asset. For their incentive is not to optimize profits but to meet barely and consistently their annually set, regulated cost targets so they may increase next year’s costs and gain additional “plus” for their investors who invest for the consistent dividend returns.

America is not designed for perfect competition regarding a major segment of our energy needs. We have been hamstrung by government systems of regulation from the beginning and no outlet exists to fix this monstrosity but by redesign of the government infrastructure.

These are the simple facts that cannot be covered up by free market rhetoric. Every problem must be managed within the complexity of a systemwide solution set that pursues societal optimization.

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Filed under American Governance, American Innovation, American Politics, City Planning, Energy Policy, Jobs, U.S. Energy Policy

Robots Haven’t Stolen Men’s Jobs, Capital Flaws Have

4.1.2For thousands of years, men toiled with nothing more than the work of human hands and draft animals. The vast majority plowed the fields and labored from dawn to dusk. Yet theirs was a life in tune with nature and they were well connected with their sense of God.

After 5,000 years of recorded history, man invented work through carbon based fuel. No longer was production bound by labor alone. Little by little, men’s minds were released from the drudgery of forging furrows in the fields. Year after year, the miracle of the industrial era happened upon us, and the minds of men multiplied output through new inventions of machinery.

Lives that at one time supposedly spanned centuries but that had devolved into just a few decades began to expand again as men were free to create new ways to increase life expectancy. And those lives, while freed from some of the past drudgeries and dreadfulness, were still filled with ever specializing forms of work.

As machinery thrust man into highly productive generations, items such as books that were once expensive luxuries became available to the common man, expanding his access to knowledge even more. And work that had once been deemed that of the most refined now began to thought of as the new drudgeries. These tasks would later be consumed in the information era. Yet, even as drudgeries continued to be eliminated from the workplace, more and more previous luxuries became commonplace, and the masses in wealthier countries began to live better than kings of old.

But they now provided to each other services that heretofore would have seemed frivolous luxuries of the wealthy. Life became ever more livable even while all continued to work. Only that periodically, sometimes without warning, economies would shut down and work would dry up for want of demand.

It seemed that economies were built on credit and that providers of credit could accelerate and decelerate the economy on their whim. They could also pick and choose to whom they would provide credit, and who would prosper from their decision. For when credit was available, man was ever increasingly finding new inventive ways of employment and services to expand livability of mankind. But when credit was pulled, these newly expanded, inventive forms of employment suffered.

Did machinery stop man from working? No, it allowed him to expand his portfolio of work. Did computers stop man from working? No, they exponentially expanded his capacity to devise new work. Did robots stop man from working? No, they eliminated new drudgeries and created opportunities to elevate livability to more of the masses.

Man will work to fill the limitless void of undiscovered livability upon the Earth. Yet the yoke of our capital system flaws must be lifted for that to occur.

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Filed under American Innovation, China, Full Employment, U.S. Energy Policy

DETROIT’S SOLUTION

Anniversary Rededication CollageIf the key to a successful Detroit Revival is lowering crime, and if the key to lowering crime is to reform our schools and to put everyone to work making living wages, can we not just get on with putting everyone to work making living wages? Well, it is not that simple. For one, there is a cost to putting everyone to work making living wages. Yet putting everyone back to work also has benefits.

We will examine both the cost of putting people back to work and the benefits of doing so. Yet, before we get started, I can tell you that the benefits of putting everyone in Detroit back to work are at least 10 times the cost. If I am correct, isn’t it a slam-dunk decision that we should get on with paying the cost, and putting everyone to work. The short answer is of course, absolutely yes!

However, the political difficulty of such a decision is in determining fairly who will pay the cost and who will gain the benefit. For instance, all levels of government will benefit to some degree. Yet, no mechanism exists for government to share in the cost in proportion to benefits received.

Since the benefits outweigh the costs by so much, and in fact are the difference between Detroit thriving and withering, we absolutely must find the way to overcome the political obstacles that have held back the city for so long, and have cost Detroit a trillion dollars in the last half-century.

That said, let us start by just examining the direct costs and direct benefits of putting people back to work. Remember that the direct benefits are only a fraction of total benefits, and yet as we will see, direct benefits are already twice the cost even before determining fair payments and benefits.

What is the cost to put 100,000 people to work? If factories are profitable after employing them, then the net cost is zero. But we know that 40,000 labor-intensive factories have left our shores for the East, partly because the cost of labor in America made them unprofitable here.

Yet at $4 per hour, a factory might be able to compete with overseas factories that have shipping costs on top of labor. If a government were to subsidize the factory’s labor cost so that the factory could pay a worker $12 per hour and yet have an equivalent labor cost of $4 per hour, the factory could have a net profit and the cost to the government would then be $8 per employee hour worked.

If for instance, a government entered into contracts for companies to build factories in Detroit and those companies employed 33,000 workers, the cost to that government would be $550 million dollars annually.

What about the 140,000 businesses in the Detroit area, could they hire more employees? Businesses generally hire people in response to demand, yet there is a gray area of demand that makes businesses begin to think about hiring without actually making the decision to pull the trigger and hire.

What if businesses were given an economic incentive to hire? Could an additional 33,000 employees be hired this way? What would the incentive need to be to increase demand for employees? One way to determine an acceptable incentive would be to have each individual business tell the government what the incentive must be and for the government to decide whether or not that incentive was acceptable.

A formal method to accomplish this task would be to hold a job subsidy auction each month and to have companies bid on acceptable subsidies. Then the government could decide how many jobs to subsidize each month and what the clearing subsidy price must be each month to incentivize hiring. Suppose that 33,000 employees were hired through this process at an average $5 per hour incentive rate. The annual cost of incentives plus administration of the program might be $350 million.

In addition, as factories come to Detroit and as businesses expand, adding labor, the money spent by these business multiplies through the local economy. More money is spent in restaurants, more is spent at the barber, more is spent on Doctors. Additional labor is needed to cover the needs of an expanding economy. Suppose the remaining 34,000 are hired to support the growing economy without subsidy. The total gross cost then for a government to expand the economy by 100,000 workers would be $900 million dollars annually, or $9,000 per employee, a rather inexpensive investment.

So if the cost to government of creating a hiring mechanism for 100,000 employees is $900 million, what is the direct benefit just to government of having these 100,000 employees hired? These individuals will now be taxpayers and the direct costs of social safety nets will be lessened. The revenues generated through their new employment that is directly attributed to them is almost double the expense of employing them. Yet these benefits only begin to scratch the surface of benefits.

(in millions)
Federal Income Tax….100
State Income Tax…….175
City Income Tax…… …60
Utility Tax………… …..10
Additional sales tax……40
Social Security……… 375
Unemployment…… ….50
Social Services…… ..420
Bus fare…………… …..25
Health Care………… ..120
Property tax……… ….190
Corporate tax………….200
Total…………… ……1765

Still, just looking at the benefits to the governments that provide the initial funding, how many times do the incomes of these 100,000 individuals multiply through economy? I have assumed 0.5 in the hiring process, yet we know that it is much higher, perhaps 4 times, perhaps 7? At 4 times, the benefit listed about jumps to $7,060,000,000.

What about the benefits to the justice system? People working aren’t scrapping or burglarizing. They aren’t being arrested, arraigned, sent through the court system, or jailed. They are not causing property damage, maiming or murdering others. Cutting crime in half by employing Detroit’s downtrodden would save the city conservatively $500 million annually, half of which would be saved by government.

How about property values? Employing these 100,000 would improve neighborhood appearance, would reverse blight, would reduce crime, and property values across the city would increase conservatively $20,000 per house or $7 billion dollars. The 25,000 acres of empty lots would increase in value conservatively by $5,000 each or $120 million dollars. Now some of these properties are owned by the city, and those dollars directly translate. But one thing is for sure, tax collection would go up dramatically on tax sales. In addition, the mill rate value of an additional $7 billion dollars of property value would increase annual government revenues by $440 million annually. Plus the stamp tax on sold houses would also benefit by increased home values. More homes would sell as well. Stamp tax collections would increase by $50 million. And with city services now able to be provided, the collection of an additional $150 million in unpaid property taxes would be easier to collect.

We have only touched on benefits to the governments for we haven’t even explored the benefits of wage increases over time for employees that are gaining skills, nor have we even begun to explore the improved performance from school graduates, their increased income potential and all of the tax benefits that will accrue the governments from students that graduate high school, not to mention college. We haven’t even begun to explore the dollars spent by the businesses that enter Detroit and their tax implications, or of the taxes generated by the the businesses themselves. And these are just the benefits to government, not even calculating the value to the individuals, their families, and the community.

But thus far, the initial investment of $900 million has returned the governments $8 billion and will easily surpass the 10X figure I initially posited. The pay back is obviously enormous. The value accrued is different to each government entity, but all benefit. This investment in Detroit’s people is a no brainer. It is simply a matter of determining how this paradigm shift can be accomplished through the cooperation of all levels of government.

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Home Ownership’s Role in the Downfall and Rebirth of Detroit

24ferry-boardupThe New York Times article is a good read on an important facet of the continuing story…

http://www.nytimes.com/2013/04/14/business/dan-gilberts-quest-to-remake-downtown-detroit.html?pagewanted=all&_r=1&

An acre of land in Manhattan goes for $90 million. An acre of land in Queens goes for $2 million. An acre in the slums of Tremont, Bronx goes for a half million. An acre of land in Detroit goes for $3,000. Iowa farmland goes for more. The price for an acre of land in Livonia, Michigan, a suburb of Detroit, can go for about $300,000.

Mr. Dan Gilbert purchased a downtown skyscraper that should have gone for $200 a foot for $5 a foot. He sees a gold mine that just hasn’t yet struck gold and is willing to invest in Detroit. Detroit will either continue to wither until it is forced to be broken apart, dispersing the gold nuggets to those that would cart them off, or it will recover, saving the city’s heritage for those that have remained and for those that wish to come back. My bet is on the latter, that Detroit is on the verge of recovery if concrete steps will be taken, for Detroit is critical to the success of Michigan and for the United States.

Detroit is ripe for those that would brave the elements, for once cured of its ills, the 88,000 acres that are the city of Detroit will eventually be worth a mega-fortune. The questions surrounding this fortune include, who will be the beneficiaries of the windfall, and how quickly will the fortunes of Detroit turn around, and will Detroit’s recovery create a livable city for those citizens that have remained in the city and that will be required to do heavy lifting.

Would it be wrong to expect that the current residents of Detroit should have a stake in the financial rewards of creating a more vibrant, crime reduced city as well as a better quality of life? At the end of the Civil War, black leaders asked for 40 acres and a mule, the tools of a financial start at that time. A home and a job are today’s equivalent.

Mr. Orr has the responsibility to create a path forward for the city that includes its citizens’ ability to prosper in their efforts to collaborate with those that will come forward to inject new life and new prosperity. A vision that is inclusive of the citizens who remain in Detroit is required.

Home ownership is an institutional privilege of capitalism. The perspective owner must have good credit, must have secured a down payment, must not have accumulated debt obligations, must have a history and prospect of adequate, must apply during reasonable economic times, must be in a location that is not wrought with undue competition for homes that drive their cost beyond reach, and in a location in which the lender feels adequately assured that the home will maintain its value.

Home ownership is a thread that weaves through the story of the African American. So few could own property before the end of the Civil War. So few could afford it afterward.

Most ex slaves were forced to endure plantation housing after the war. The capitalist system requires capital to start a free life. The minimal capital of the era was enough farmland to sustain a family. Yet without a means to acquire it, generations of ex-slaves would resort to share-cropping.

Lincoln’s Homestead Act made land available to hundreds of thousands of immigrants but a mere 20,000 blacks could afford to take advantage of 160 acres of free land offered. Most could not afford the travel and survival while planting the first year, nor could they afford the requirement that they build a house on the land. Yet, the Homestead Act was the impetus for Europe’s flood to the promise of America. Millions of descendants of Europeans in the generations that followed would benefit from the millions of acres freely given.

The 20 year “Long Depression” of 1873 was caused by a bank binge, housing bubble in Europe that sent thousands of immigrants scurrying for jobs in America’s cities, many of whom ended up in the slums of Detroit, competing for housing with newly arrived black migrants during the 1910s.

Housing would be discriminatorily kept from blacks in the 1920s, as restricted covenants supported by the National Association of Real Estate Boards became commonplace. Throughout the 1920s until the Supreme Court ruled them unenforceable in 1948, covenants would segregate neighborhoods.

By the late 1920s, banks created another housing bubble that burst at the start of the Great Depression. Out of the Depression came FHA housing insurance that made buying a home easier for millions of whites, but that continued to discriminate against blacks through a federally accepted practice of redlining. Through redlining, even though they had equal qualifications as whites, many more blacks were denied FHA backing and therefore did not “qualify” for homes.

This social engineered, institutionally racist, discrimination had a major impact on black communities, for housing was the major way middle class America grew and passed on wealth to heirs. Generations used their accumulated wealth to advance their families through such means as home equity loans to pay for college educations. Yet, this necessity of the industrial era, this replacement of 160 acres and a mule, was denied blacks.

The combination of FHA financing, a post WWII boom and the introduction of the Federal Highway system helped fill the suburbs. Thousands of whites exited Detroit. Restrictive covenants and Redlining kept blacks back in the city with 20% lower home ownership. At the time, 88% of blacks supported integrating neighborhoods and only 12% of whites found integration acceptable.

The remnants of restrictive covenants that were socially enforced and redlining that was institutionally supported continued through the 1970s, even after Congress passed Title VIII of the Civil Rights Act for fair housing in 1968. The efforts of grass roots organizations led to the Home Mortgage Disclosure Act of 1975 and finally to the Community Reinvestment Act in 1977.

The idea behind the CRA was to attempt to redress a century of housing discrimination that had preceded it through what would amount to racial balancing of loans going forward. Yet America’s bankers had already shown that they were capable of creating housing bubbles back in 1873 and 1929. Given the need to fund China’s gold rush that had just begun in 1979, it was only a matter of time for bankers’ greed to use the principles of the CRA as a means to create yet another housing bubble.

In Detroit, the housing bubble was a vehicle for middle class blacks to leave the city when loose credit and anti-discrimination housing laws made home ownership more possible. Yet, as the bubble burst, foreclosure hit blacks twice as hard as whites, continuing our nation’s housing saga. While banks used foreclosures to recoup losses in most parts the country, many banks, faced with plummeting house prices in Detroit, left them abandoned rather than pay the taxes, adding to the blight that earlier banking policies had exacerbated.

Abandoned housing can be assets for Detroit going forward. They can be a component of a more stable, safer Detroit. If allowed to continue to ferment, they may also be yet another stitch in the continuing thread of discriminatory housing as part of institutional racism that fed Detroit’s downfall.

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This emergency manager phase for Detroit Should not be about loss or regret but about hope and rebirth

rebirth
Yet an important phase of rebirth must be letting go…When memories of what Detroit was, or visions of what one hoped it might become are released, then we can be free to see Detroit as it is and to plan for what it can really become.

After the economic burdens of Detroit’s collapsing past are lifted, the city must be ready to finally let go of old paradigms that have kept Detroit from transforming. We are free to state the starting point.

* Detroit is not safe

Detroit will initially still be a city that few will want to move to or to invest in until a clear path is created for Detroit to grow and to prosper. In fact, many will still want to leave if they can if crime is not dramatically reduced. But Detroit can become a very livable city if opportunity replaces hopelessness and if strong incentives for a prosperous future are introduced for newcomers. These are not just platitudes but very achievable goals.

* Detroit is blighted

After Mr. Orr and Detroit’s leadership make the tough choices, Detroit will still not be the vibrant city that downtown represents it to be. But it will have pockets of strong neighborhoods and it will continue to craft a fairly clean, brownfield canvas from which to build a future. Blight will continue to be cleared. Building exteriors, yards, sidewalks and vacant lots can be vigorously maintained by incentive and enforcement, main thoroughfares can be maintained to represent Detroit’s future, key growth centers can be enhanced to seed growth.

* Detroit is spread out and unwieldy

Detroit has three times the land that Walt Disney World had when it acquired 47 square miles in Central Florida. Speckled throughout the city, Detroit’s has liabilities but many can be transformed into assets. And Detroit’s land is one of its biggest assets. The West was settled by the draw of land. Given a well-defined land use vision, clear principles of growth, strong incentives for investment, and a culture recreated to support growth, Detroit can rapidly emerge, and positive signs of growth can simultaneously spread throughout its various neighborhoods, while highlighting the call for entrepreneurs, innovators and industry to return to Detroit’s key economic centers.

* Detroit is Gentrified

In 140 square miles, Detroit’s master plan has room for gentrification. It has room for high tech, for entrepreneurial centers, for commerce, education, and art. But Detroit is already the residence for 700,000 people, many of whom have been the forgotten ones, downtrodden, unemployed, poorly educated. Many have experienced the violence of Detroit. Most are hoping for opportunity and a better life.

Many of Detroit’s residents travel outside the city each day to give of their talents. Most can produce viable products and services right in Detroit, once employed. Yet, from Detroit’s existing population, workers must be matched to work they can readily perform. High wages for low skilled work is gone. Yet, the paradigm that living wages for low skill work cannot exist in an America that must compete in the world, that paradigm must be obliterated to put Detroiters back to work. There is a way.

* Detroit has stagnated in stalemate for decades.

A dynasty of political structures that preserved Detroit’s old economy must give way to equitable sharing of political powers for a new economy. A workforce power structure of high union wages for low skill work must give way to an economy that provides a living wage for low skill work and a city that promotes education and training for higher wage opportunities. Old prejudices that allowed Detroit’s neighborhoods to be underserved must be isolated through economic incentives that change behavior until prejudiced views can be reduced by stereotypes of a new economy.

* Detroit is isolated

A metropolitan region that has walled off communities from one another must be reconnected and interconnected to allow regional collaboration and regional growth. Solutions that can bring innovators, investors, and employers, those key components of growing economies, into the heart of Detroit will require agreement from regional, state, and federal governments, as well as support from entrepreneurs, local, national, and international industries to be dynamically effective.

As age-old paradigms are let go, Anticipation and new expectations can be formed to start rebuilding Detroit’s identity and to create a productive economy that provides jobs and a thriving future for all.

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Mayor Dave Bing Tweets His Progression Of Thought Toward Revitalizing Detroit

Dave BingMayor Dave Bing, 2009 to present

After Mayor Kenneth Cockrel briefly assumed office in Mayor Kilpatrick’s absence, Dave Bing was elected Mayor in 2009. Mayor Bing had been a 12 season basketball star, played for the Detroit Pistons, Washington Bullets and Boston Celtics, and was a successful businessman, having owned an auto parts manufacturing business prior to moving to Detroit to run for Mayor. He took office in May 2009.

Selected tweets from Mayor Dave Bing show his progression of thought toward getting Detroit on Track…

2/4/10 Yes, Governor Granholm we are indeed on the path to creating a new Michigan…and a new Detroit!

3/2/10 The plan to address land use changes for Detroit is still being developed. The complete plan will be introduced before any action is taken

4/23/10 Detroit we still need your help in identifying SPECIFIC illegal dumping site for attention during Motor City Makeover.

7/8/10 The residential structure demolition program continues to make progress

7/30/10 Mr. President today was a great day for the nation’s auto industry. I look forward to your next visit FOR DETROIT!

8/16/10 Welcome to Detroit Quicken Loans! And, thank you Dan Gilbert for your vote of confidence.

9/9/10 Thank you for continuing the land use conversation. We are not “rightsizing.” We intend to plan for ALL of Detroit’s 140 sq mi.

10/4/10 This year alone 2,085 abandoned and dangerous residential have been demolished. We plan to continue at that pace through 2013

11/18/10 The success of Turino’s philanthropic partnerships may provide a model for Detroit

12/9/10 The City of Detroit cannot continue to operate as if we are 2 Million residents strong.

1/26/11 The Detroit Works Projects beginning meeting with communities to discuss specific neighborhood concerns and needs.

5/11/11 Yesterday I shared with City Council a detailed plan to eliminate the City’s deficit.

5/25/11 GM confirms it will build Impala at Detroit-Hamtramck plant, add 2,500 jobs. Good news!

6/3/11 Detroit’s greatest asset beyond people is its land. Land presents a great opportunity for the city not a liability.

6/19/11 Lighting is a major issue. We are working to improve the 100 year old system and provide every neighborhood with reliable lights.

8/22/11 Citizens Banks has partnered with the City of Detroit offering grants and loans to help area residents purchase homes

12/1/11 Detroit needs to be run by Detroiters. We know what needs to be done and we are ready to do it.

12/12/11 I look forward to working with the Detroit Delegation on legislative reforms in the MI Legislature that move the City forward.

12/14/11 We decided that RRT [rolling rapid transit] would be the most effectively means to connect Detroiters to job centers throughout the region .

1/11/12 We are working to stem crimes committed by 16-24 y/o through the Youth Violence Prevention initiative. We are also making changes that will put more DPD officers on the street.

2/1/12 The City of Detroit of Detroit has no plans to close any city recreation centers.

2/2/12 Members of the City’s non-uniform coalition of unions have reached tentative contract agreement. This agreement is the first meaningful step in achieving the necessary concessions and structural changes.

2/21/12 Mayor Bing is in Lansing today presenting his budget stabilization plan to the Senate Democratic and Republican caucuses.

3/7/12 500 letters sent to Detroit property owners saying they can buy adjacent vacant lots for $200.

3/9/12 The Citizens Bank Home Grant Program Was A Success

3/15/12 The nine-member advisory board resembles an emergency manager with majority of the votes going to the state. My staff began meeting Wednesday with Detroit City Council staffers to draft a counter-proposal to Gov. Rick Snyder’s draft Agreement.

4/4/12 The Detroit City Council’s vote tonight represents a pivotal moment in Detroit’s history. It is time now to begin the monumental task of stabilizing Detroit’s financial operations, which has always been [my] mission.

4/12/12 The budget reflects a new fiscal reality for Detroit. We can no longer spend money we don’t have.

5/18/12 We’ve got to figure out how to make people who live in Detroit feel safer.

6/7/12 Transforming Detroit is an ongoing interactive campaign highlighting the transformation of Detroit

7/18/12 I want to thank the four council members who took a tough vote yesterday in their efforts to restore financial stability to the City.

7/26/12 the consent agreement process isn’t perfect, but it was our best option to ultimately, avoid an emergency manager and allow us to continue to work to financially stabilize the City and transform Detroit.

9/25/12 The lease creates a cooperative agreement between the City of Detroit and the State of Michigan to manage Belle Isle as a state park

9/26/12 Chrysler’s move to downtown an indicator of confidence in the long term economic growth of Detroit

12/5/12 Breaking News: Mayor Bing Announces Six New Police Mini Stations:

1/23/13 If we can’t hire more police officers then we must restructure and redeploy the officers we have.

2/21/13 We have reduced the number of employees on the City’s payroll from 13,420 to 9,696. As a result, the City‘s payroll and benefits’ costs have been cut by nearly a half-billion dollars.

3/15/13 Kevyn Orr, told The Detroit News they plan to work quickly to turn around the troubled city

3/121/13 ATF, FBI, State Police and others working together along with the community will make Detroit One successful

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Innovation Built Detroit

oldsmobile-pirate-2Innovation created the car. The car built Detroit. Between 1895 and 1900 when 69 auto companies were started, none were in Detroit. By 1909, 270 auto manufacturers competed in the auto industry, which is really wild. Yet, still only 41 of those were in Detroit in 1909. How then did Detroit come to dominate the auto industry?

Detroit did have some natural benefits of transportation routes and of being close to iron, fuel, wood, and other northern industrial cities. And, Ford and Olds were truly genius innovators. But as or more importantly, Detroit generated a critical mass of innovators. A total of 141 auto companies spun off from parents in Detroit when their founders thought they had better mousetraps.

By 1915, the top selling autos came from Detroit and hundreds of suppliers relocated to Detroit to meet the needs of the largest selling auto manufacturers. This close proximity of cross innovation accelerated Detroit’s growth, and isolated manufacturers could not keep up with the pace of Detroit’s collective innovation.

Eli Whitney’s two innovations changed the world. His first was the assembly line. In 1914, his assembly line became the cotton gin of the north as Ford adapted it to cars and they began flying out the factory doors, driving down costs and price.

By 1929, with over 21 million cars in America, the more continually innovative companies like Ford had absorbed most of the spin off companies, and the Big Three in the Detroit region produced 80% of the cars in America. Detroit owned the market.

With such a prolific production of cars, other industries across America grew rapidly in response. Metal industries, rubber, fuel and fueling stations, highways, the tourist industry, hotels, road construction, and even real estate and construction grew as the car led to an urbanization of America. The Auto industry transformed America.

To fund this transformation, the financial industry also had explosive growth, spiking in the 1920s. The majority of Americans could not afford cars, radios, and homes on America’s average income, so just as we saw a financing bubble in 2008, extraordinary credit was extended in the 1920s, spurring more growth and more consumer debt until it reached its breaking point.

As a result of such credit-driven spending on cars, radios and homes, millionaires were created. By 1929, the top 0.1% of America owned 42% of America’s wealth. By 1929, Ford was one of the richest men in America with an annual income of $14 million compared to his well-paid workers making $750. By 1929, America had expended its credit economy, the bubble popped and the Great Depression hit.

Car production dropped in half, and industries supporting cars fell precipitously. Reduced output brought wage cuts and layoffs in the auto industry, further exacerbating the depression. Reacting to the income disparity that occurred before the depression and sympathetic to the plight of affected workers, Social Democrats passed the Wagner Act of 1935 supporting unions. Immediately upon passage, strikes changed the face of Detroit.

Now, combining a growing, pent up demand for autos after WWII, the need for additional production capacity, the need for land in a landlocked Detroit, continuing innovation leading to new manufacturing techniques, a desire to move away from the increased risk and cost of Detroit’s unions and to create parallel operations to reduce union power, and the change from people to automation driven by excessive labor costs, the auto industry began its migration away from Detroit.

In the next decade, the Big Three built 25 plants, all of which were at least 15 miles out from the city of Detroit. In the following decade with the advent of new highways and FHA housing available mainly to whites, whites migrated out of the city and took small businesses with them. Between 1947 and 1963, 134,000 manufacturing jobs left Detroit, enough for a third of the working population.

In same time period, auto manufacturing in the state of Michigan would drop from 58% of the total to 40%. During the exodus of auto manufacturing and the beginnings of white flight, the U.S. Department of Defense piled on with the decision to diversify armament production away from Detroit.

Within this timeline of the rise and the beginning of the fall, innovation was a key factor that led to accelerated production, which paid for the 300 people per day moving to Detroit. The influx of a million and a half people, paid for by the car, brought in the taxes and built the infrastructure of Detroit that allowed Detroit to annex lands to grow from 39 square miles to 109.

What was left when the majority of companies and people left the city were citizens that stayed, a government that cared to help them, some good assets, some obsolete ones, a considerable amount of empty buildings, a lot of brownfield sites, and a need for a viable plan to use what assets and strengths that were left to turn the city around.

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Detroit Failed to Adapt to the Major Threats to Cities During the Twentieth Century

vibrantDuring the 1900s, cities dealt with the issues surrounding institutional racism with various degrees of success. In the midst of these internal issues, external threats to survival would emerge that would threaten American cities’ survival. The Great Depression hit America’s capitalist system hard, causing a drastic reset of economic principles that would remain intact for another half century as economic tools for city growth. Many cities used these tools successfully. Some cities, like Detroit, used them to excess.

The civil rights movement of the 1960s would begin a dramatic shift in the hierarchy of needs requirements of cities that would leave those cities failing to adjust with worsening economic consequences. The entirety of the South suffered as boll weevils destroyed their cash crop and investors shunned Southern industrial enterprises during the second reconstruction era.

After the Viet Nam War, business migration and emigration began draining cities of lower skilled jobs and exposed a rust belt as the most visible sign of maladaptation. Some cities reformulated strategies for economic success better than others during the transition.

The latest threat to city survival has been a series of financial boom/busts that created misguided incentives and that misdirected investments into real estate assets rather than productive capabilities. Some cities survived the lure of building excess housing, office, and retail real estate stock better than others in the transition.

Detroit was one of the cities that did not adapt through the maze of external threats as well as some of America’s other major cities. While Detroit prospered initially as a result of the New Deal, unions created excess gains that did not adapt to the external threat of business migration. Detroit’s highly ingrained institutional racism became more militant in response to the militancy of those it oppressed during the civil rights era. And in a desperate attempt to correct for its inability to heal racial tensions, Detroit fell headlong into the temptations of investing in real estate as a cure for lack of productive industry.

Detroit failed to adapt those attributes of a growing, or indeed thriving city that were necessary to overcome both internal and external threats of the last half of the twentieth century.

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Filed under American Governance, American Innovation, American Politics, City Planning, Immigration, Jobs, Racism, social trajectory, Unions

The Kings of the Auto Industry’s Failure to Plan was a Plan to Fail

fordIn spite of terrible odds, there are those that rise above their circumstances to do great things. The same can be said for Detroit. Out of the slums come leaders of every profession that have excelled by their own merits. That means that even in Detroit’s inner city, there is a path to be found to make it. Just like Lewis and Clark, there are those that can take the right steps to avoid all the hazards of the journey and make it to their destination intact

However, take those same people that are put through that gauntlet and put them through a better upbringing and they most likely would still succeed. And with them, would succeed millions more that do not under the bitter circumstances of the inner city.

So when we saw businesses failing at 5 times the rate of normal business cycle turn downs in this last great recession, we can certainly say that the owners that made the decisions they made were responsible for their business failures, we can also say that 80% of those businesses that did fail would not have in a better environment that they did not have direct control over, same for those that lost their homes and jobs through the collapse. Under the environment, they made the decisions they thought best for their families and turned up way short.

I write to affect the global circumstances so that more can make it. The 68% of kids that sat in those classes expecting to learn the skills necessary to survive that didn’t make it because of all the support structures that failed them need something better than they are getting. The question is can we create a system solution that can turn around present circumstances and that can create better odds for future kids?The rules in Detroit were pervasively written in the institutions that governed the city, institutions run by the big three auto makers.

Every city has its elites, those few that have made it into the rarified air that makes them appear to themselves as gods. These are the ones that shift the economy, that pioneer its path before the masses tread on it.

I can imagine the CEOs of the big three auto manufacturers coming together at the Detroit Club in 1914 talking about the war and how they might prosper from it. Of course they expected that the windfall would be temporary so no provisions would be made for city planning to accept the hundreds of thousands of new workers and their families. No, everyone would sacrifice for the war effort and when the war was over, these wonderful immigrants and southern blacks would be persuaded to go back home.

The city was run by these captains of industry and their selections for who would run the wards. City planning was thus built upon the premise of greatest efficiency of industry as opposed to any livability factor. The city was growing exponentially and perhaps the chaos of growth could energize the police officers being deputized from southern cities for Detroit to handle the influx of blacks and Poles they thought.

As opposed to America’s growth, which climbed at a rate of 1.1% a year, Detroit’s population was growing at 4 times that rate. Certainly car production alone could not sustain such a growth rate as was occurring for military production. Certainly, the substandard housing that was going up at record pace wasn’t meant for the long haul, for no one would expect that after the war boom would come a depression followed by an even bigger war boom, in which Detroit would play a pivotal role.

After two big wars and an extended industrial war boom, Detroit could not have expected to ride on its past. But where was the planning? Was the only planning scarcity, and to let the rats abandon a sinking ship? Was the only planning to put a volatile mix of people into a beaker and to stir in the catalyst of fewer jobs?

This is why city planning ought to be left for those that consider all the people of a community as stakeholders in the city’s future, not just the chosen few who employ strategies to maximize short term goals, without considering it their responsibility to care for the community they have recruited as immigrants and migrants to do their bidding.

Here is a quick history of racially divided Detroit from it nascent auto days until the first big Detroit riot in 1943. It tells of industry drawing in masses of European immigrants, southern blacks and southern poor whites, and poorly preparing the city for them only to have racial prejudice surface and then finally explode in 1943.

Detroit Automobile Company August 5, 1899 – the first plant

Ford assembly line – starts the boom town and immigration

.1914 – Ford announces $5 a day pay – starts African American migration

Tension mounts in slums for housing and at factories for jobs between blacks and Poles

.1920s – rise of Detroit KKK membership to 20,000. KKK emphasizes racial segregation in housing

.1925 – During year, Racist Detroit police kill 40 blacks

Osian Sweets, a black man, kills a man in a mob attacking his new home in a white neighborhood. Goes on trial for murder and is eventually acquitted. In response, Detroit white neighborhoods pass restrictive “whites only” covenants.

Great Depression hits – Autoworkers unions organize

Klan clashes with the unions and the fades into background for awhile

.1940 – Franklin Roosevelt names Detroit as the Arsenal of Democracy, declaring the city to be strategic to winning the war.

.1941 – Executive Order 8802 – Roosevelt forbids work discrimination based on race

Detroit would need workers on a massive scale for the war effort so its demand for workers started the second great migration of African Americans North.

This massive influx of new labor brought Detroit, already in a housing shortage, to a boiling point.

Housing shortages and black shanty towns – Federal government builds 700 units at Sojourner Truth Housing Project to ease shortage amidst white protests

February 28, 1942 move in day ta Sojourner. White mob riots, KKK burns a cross, police tear gas and arrest 220 blacks. For two months, the city does nothing to allow blacks to move in or to protect them. Finally, they are allowed to move in.

Poor urban planning – government earmarks 17 billion for new war factories in Detroit but only 5 million for new housing in a city that was still short 12,000 units.

July 1942 – Life Magazine writes an article called “Detroit is Dynamite” where it tells the world how Detroit, the manufacturing bastion of hope for America, could not build if it continued to be so factious and bickering.
Migrants vs. Nativists
Blacks vs. Southern Whites
Protestants vs. Catholics
Communists vs. Conservatives
KKK vs. Blacks
Poles vs. Blacks for lowest paying jobs

.1943 – Efforts by Fair Employment Protection Committee to enforce fair labor practices result in several race strikes protesting blacks in the workplace. Many blamed the Klan for staging these strikes.

.1943 – Catholic Trade Unionists declare that a subterranean race war is raging in the city and will explode in violence if nothing is done to stop it.

City officials meet with police to plan for race riot

Hot summer of 1943 – people flock to parks.

Early June – a small brawl breaks out between Blacks and Whites in park and spills over to neighborhood before Police break it up.

Mid June – brawl breaks out at amusement park as whites try to chase blacks out of the park

June 20 – Brawls break out in parks, continue to resurface in the night. Groups roam downtown. Whites spread a false rumor that a black man raped and murdered a white woman on a bridge. Blacks spread a false rumor that whites threw a black woman and her baby off that bridge. Then the whites and blacks begin to riot in two separate parts of town.

Police stood aside and watched the white riots go on for 36 hours as white rioters dragged blacks from their cars and beat them. The Black riots centered on damaging white storefronts in black parts of town and in response the police used force on black rioters. 17 of 25 dead blacks from the riot were killed by police. 433 were injured. Police arrested 1,800, mostly black. Stories surfaced of savage police beatings and murders. Martial law was declared and federal troops were brought in to quell the riots.

This was the basis of institutional racism that was pervasive in Detroit as a result of its volatile mixture. Even more violent race riots would erupt again in 1967 demonstrating the lack of the city’s success in dealing with this destructive social issue.

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Revitalize Our Inner Cities to Reduce Gun Violence

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Why is it that we do not talk about root causes? We instead dabble in cliches and whitewashed sanctimony about gun control and move on hoping not to upset the politically correct balance we have made with all the factions of those that represent the political quadrant of our beliefs. How is it then that we expect to reach any conclusions regarding anything resembling viable solutions that have any reasonable chance of not only passing our Congress but of actually helping to reduce homicide rates?

Let’s instead go bold with multifaceted solutions that go at the root of reducing gun violence like the following:

1. Decriminalize and corporatize drugs, eradicating illegal transportation, distribution and sales and reducing the incentive for gang violence defending their markets.

2. Create a work visa program for illegal immigrants to work in the U.S. legally while going through a legal, normal, citizenship process same as others, while paying taxes and raising their families transparently and stably in safe neighborhoods. The transient nature of youth violence in these communities will diminish.

3. Create viable, inner city enterprise zones that subsidize employers up to the full cost of worker salaries and raise minimum wage to $12 per hour in those zones, creating real opportunities for corporations to bring factories back home, creating real opportunities for inner city jobs that can raise families and stabilize communities, and creating real opportunities that give school kids hope for a better life.

4. Subsidize the full cost of worker training in enterprise zones again subsidizing corporations and equalizing the international cost of American workers while building capable workforces in the inner cities. With higher paying jobs in enterprise zones and with corporations reintroducing factories into these zones, opportunities to earn a decent wage with normal working hours will expand and parents will be more accessible to their children. In addition, with promise of opportunity burgeoning in these communities, the desire to do well in school will increase as students see a future after school.

5. Make high school mandatory for all students through 12th grade or age 18, strengthening the workforce that must entice corporations to invest in them, while dismantling truancy.

6. Eliminate ability of teacher unions to protect teachers from firing. Immediately increase teacher pay and begin to eliminate the bottom 3% of teachers each and every year from the school system. Free up schools to invest in innovative teaching and teachers to give students who must now spend their first 18 years in school the best opportunity at future success.

7. Fully subsidize up to 100% of state college costs based on ability to pay, and all tuition for state colleges. Fully subsidize those degrees most needed for a national workforce strategy intended to maximize the capabilities of every citizen to meet our growing GDP goals. For those students that have the aptitude, free college for inner city school kids represents a real light at the end of the tunnel for both them and their parents, who did not have that opportunity and could not afford it for their kids otherwise. This is a real incentive to a better life than gangs for some.

A bold strategy will not only incredibly decrease gun violence but will also create a new economy in our inner cities that will compare with the opportunity presented by China in 1978.

Similarly to affirmative action, my plan will take years to fully effectuate root changes in society. However, some of the actions will have immediate effect and all will pay for themselves in decreased violence and increased societal productive output. In the end, our cities will be revitalized, our citizens will enjoy full employment, and our nation will be internationally secure.

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