Joseph Simon: Detroit Continues Its Comeback

This is one of two guest posts today from students in my “Monetary and Financial Theory” class. Joseph Simon wrote an excellent post on the internal class blog about what has been happening to Detroit. He gave me permission to share it with you. Here is what Joseph has to say: 

There has been some recent buzz about the continuous upswing Detroit has in its’ hand. A previous post of mine a couple weeks back talked about the donations of several foundations helping to save the Detroit Institute of Art and the famous painting and other pieces of work that are currently on display. Throughout the New Year, Detroit has continued to make progress. With the recent help of Detroit’s emergency financial manager, Kevyn Orr, and Mike Duggan, the new mayor, Detroit continues to move forward.

Leaders like Kevyn Orr have been working on the city’s debt in many ways. Even though it may not be a proud thing to talk about in my opinion, Detroit has found a way to cut back its debt; Detroit has recently filed a lawsuit and is suing “to invalidate several Wall Street deals that allowed the city to borrow more than $1.4 billion in 2005 for its underfunded pension plans, arguing that the agreements were illegal and shouldn’t be repaid,”according to the Wall Street Journal. This would truly be a huge debt settling deal if the city could pull this off and I believe they have a very valid point in their argument. The lawsuit said that deals were done “at the prompting of investment banks that would profit handsomely from the transaction,” and that former mayor, Kwame Kilpatrick, led the city to borrow more than the state’s debt limit, resulting “in the creation of city debt that was not authorized by state law.” Bond insurers and investors from the deal in 2005 would lose a great deal of money from the lawsuit and have not yet responded to it.

Aside from past problems that some are dealing with, all other big names in the state of Michigan having been excited about what Detroit can be in the near future. “Detroit is a comeback city already,” Governor Rick Snyder said while, according to the New York Times,“he announced a plan to attract 50,000 highly skilled immigrants to the city.” Mike Duggan has also contributed by working on increasing the city’s tax base. In his first speech in office, he asked frustrated residents to give his new administration six months to improve neighborhood conditions. Dan Gilbert, the founder and chairman of Quicken Loans, is one of the top names in trying to bring back Detroit. “In a way, there is something about hitting bottom. Until you hit bottom, people are reluctant to invest,” Gilbert said. Gilbert has tried to market the city’s suffering reputation as a major selling point by televising a commercial called “Opportunity Detroit” during a World Series game in 2012 and continues to do so.

Detroit is truly a city on the rise that is planning to make a comeback. Not only are they working on plans to relieve a little of their debt, but they are also looking to make a profit. With help from Senator Rand Paul, a possible candidate for the 2016 Republican presidential nomination, Detroit could very well do so. Paul has a well-established plan that will spur job creation in high unemployment areas.

“My economic stimulus plan for Detroit would leave over a billion dollars in Detroit’s economy and would stimulate Detroit. There is no other plan on the table and there’s not going to be the some grand bailout that’s going to go through Congress, other than my plan, if my plan would pass. I think it’s the only one that politically could pass.”

While Paul talked about his plan at the Detroit Economic Club, he went on to say that he would “set ultra-low tax rates and lift some government regulations in any Zip code in which the unemployment rate is more than one-and-a-half times the national average.” Not only are people working on relieving the debt of Detroit or trying to bring opportunity to Detroit, others like Senator Rand Paul from Kentucky are trying to look at the economic value Detroit has and potentially make it into a profit bound city.

To many outsiders, the city of Detroit does not look very promising. But I can assure you that today we have the right leaders who will bring the city back. There are many great opportunities that have continued to pour into the city from entrepreneurial start-ups to companies like Quicken Loans moving from the suburbs to Downtown. As we move out of the cold harsh winter, the year to come has a very promising outlook for Detroit.