Don't Be Detroit

As a native - and now current - Clevelander, an old joke is that however bad things might be in Cleveland, "Hey, at least we're not Detroit*." And certainly, that joke is even more apropos this week, after Detroit applied for bankruptcy. While it would be easy (and entertaining) to write about this from a political point of view (particularly to fisk Krugman's pathetic dismissal of it, done already here), it is more useful and instructive to learn something from it, instead, whether as individuals, families, or communities.

The key lesson: Don't be Detroit.

• Don't overspend on education, especially if it's not that great. Detroit spent more than the national average on education, yet had a 47% illiteracy rate.
• Don't spend money on stuff that doesn't work, no matter how 'necessary' it seems. Detroit's police force solves 10% of crimes committed.
• Don't buy more house than you need. About 1/3 of Detroit's 140 square miles are empty.
• If people like you can make do with less, so can you - and so should you. Detroit has twice as many municipal employees as same-size cities. 
• Don't pay for stuff you don't use. Detroit's city water and sewer department employs a “horseshoer” although it keeps no horses.
• Don't use credit cards. Detroit has $20 billion in unfunded liabilities. 
• Don't assume you'll always have the same income, or two incomes, and especially two growing incomes. Detroit's population fell from 1.85M in 1950 and the highest per capita income in 1960 to 710K and rampant unemployment.
• Always have a backup plan. Detroit had 296,000 manufacturing jobs in 1950. Today it has 27,000.

It is impossible to stress enough the difference between those who pay for the future now and those who pay for now with the future. While the first group may not have all the luxuries of the second group for the first few years, they will also not have the stress, poverty, and decay of the rest of the years. It's the difference between buying a mansion off the bat, but not being able to keep it up, vs. buying a modest house and continually upgrading. In the beginning, the person with the mansion may seem better off; but within a few years, they have a big, run-down house, while their friend keeps expanding and enhancing.

Be smart, be frugal, and plan. Don't be Detroit.

* For all those who don't get the reference, these are a hilarious must watch: 1, 2.