The Lessons of Detroit

I got an email today from governor Dayton extolling the virtues of the Destination Medical Center, where the taxpayers of Minnesota taxpayers will provide between $600 million and $1 billion to spruce up Rochester so the Mayo Clinic can be more inviting to its patients.

You can read my commentary on this here.

In general, I think Mayo is a great institution, and Rochester is a fine city.  I think they should spruce up Rochester.  That's wonderful.  I also think they should spend their own money to do it.  There is absolutely no excuse to force taxpayers in Moorhead or Duluth to pay for skyways in Rochester.  This is not "economic development".  It is crony capitalism.  It is picking winners and losers.  The Mayo and Rochester win.  Everyone else in Minnesota pays the bill.

I want to point out where this leads, and it's Detroit.

Detroit in the 1950s had the highest per-capita income in the nation.  In 60 years, it has lost 60% of its population, and has gone bankrupt.  The suburbs surrounding Detroit are fairly prosperous.  In fact, the automobile industry around Detroit is far from dead.  Strikingly, the devastation is limited to the area inside Detroit's city limits. (Go to Detroit.  The difference between one side and the other of the city limits is amazing.)

Why?

It's very simple.  Business operates on margins.  Margins are typically tight.  Anything you do to make things a little friendlier or more hostile will attract or repel new or existing business.  Detroit has done what every third world tin-pot dictator does.  Officials chose existing and politically connected businesses as winners, while piling taxes, restrictions, and regulations on everyone else.  Detroit gave GM big tax breaks to keep its headquarters downtown.  City leaders spent millions on the people mover, and a hockey arena, while the rest of the city went to pot.  Amazingly, they are even talking about a NEW hockey arena. (and here)

Politicians talked about how they "saved" Detroit, while the real story was a mass migration elsewhere.  Over 1 million people fled.  Citizens and businesses voted with their feet.  There is no more powerful statement about failure of a city than the statement of a million people - 60% of the population - that they no longer want to live there.

Minnesota is going down this same road.  The Wilfs are getting their stadium.  Mayo is getting the DMC.  Taxes "on the rich" are up.  Regulations are up.  The net effect is that costs for everyone in the state are going up to pay for the largesse to these favored businesses and policies.  Just like Detroit, those who are favored by government win, everyone else loses.

Each of those million people left Detroit one at a time, and they didn't leave overnight, but they did leave.  Let's not make the same mistake in Minnesota.