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Detroit Economic Bailout - Essay Example

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Detroit Economic Bailout The management of debt at city level can be evaluated, as of its effectiveness, using different criteria. The use of microeconomic variables is a common practice in order to understand whether the strategic choices of city governors are fully justified or not…
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Detroit Economic Bailout
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Detroit Economic Bailout

Download file to see previous pages... Microeconomics has been described as the scientific field focusing on the ‘behavior of individual households and markets’ (Saunders and Gilliard 18); emphasis is given on ‘the criteria used for defining the level of prices and for allocating resources’ (Saunders and Gilliard 18). Microeconomic variables have a critical characteristic: they refer to economy as related to the level of households and not to the level of a region (Dow and Hillard 6). At the level of households the performance of economy can be evaluated through variables such as consumer spending, prices and wages (Dow and Hillard 7). These variables will be used below in order to justify the potential positive effects of bailout on the daily life of people in Detroit. Certain microeconomic concepts will be also used, as appropriate, for making clear the relationship between economic decisions and economic performance at household’s level. The decision of Detroit’s governors to ask for a Federal bailout has faced strong criticism. The success of a similar plan used for the city’s two major auto companies, Chrysler and General Motors (Maynard 2013) is often used for justifying the necessity of Detroit’s bailout. ...
At a first level, an aid of $300m has been decided to be granted to Detroit (Isidore 2013). This sum of money will not be used for paying part of the city’s debt, which is estimated to $18-$20 billion (Isidore 2013, Proctor 2012); about $150m of the total aid to Detroit will be given as a program for ‘refurbishing/ cleaning abandoned properties’ (Isidore 2013) and about $140m for the improvement of the city’s transportation system (Isidore 2013). Other programs referring to indirect benefits for the city, such as the hiring of public servants, have been also approved aiming to help the city to recover (Isidore 2013). So far, the Congress has been opposed to the provision of financial aid to Detroit on the basis that such claims could be set by other cities (National Report 2013). President Obama has decided to bypass Congress and proceed to the financial support of Detroit so that the expansion of the crisis is controlled (National Report 2013). The value of the bailout of Detroit can be understood by presenting the statistics related to the city’s economic performance at household level. In 2009 the average household income in Detroit has been declined by a percentage of about 92% compared to 2000 (Figure 1). Detroit, Michigan: -92.2% Michigan: -98.8% Figure 1 - Median Household income in Detroit and in Michigan in general, from 2000 to 2009 (Source: City Data) The scheme for the bailout of Detroit could enhance the city’s average household income in the following way: by increasing the public servants working across the city households across Detroit could be given an important financial relief, a fact that would lead to the ...Download file to see next pagesRead More
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