If there’s an iron rule in economics, it is Stein’s Law (named after Herb, former chairman of the Council of Economic Advisers): “If something cannot go on forever, it will stop.”
Detroit, for example, can no longer go on borrowing, spending, raising taxes and dangerously cutting such essential services as street lighting and police protection. So it stops. It goes bust.
Cause of death? Corruption, both legal and illegal, plus a classic case of reactionary liberalism in which the governing Democrats — there’s been no Republican mayor in half a century — simply refused to adapt to the straitened economic circumstances that followed the post-World War II auto boom.
But Detroit is an object lesson not just for other cities. Not even the almighty federal government is immune to Stein’s Law. Reactionary liberalism simply cannot countenance serious reform of the iconic social welfare programs of the 20th century. Nancy Pelosi and Harry Reid are pledged to their inviolability. President Obama will occasionally admit that, for example, Medicare cannot go on as is, but then reverts to crude demagoguery when Republicans propose a structural reform, such as premium support for Medicare or something as obvious as raising the retirement age to match increasing longevity