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Tuesday, October 15, 2013

WHY DID DETROIT COLLAPSE?


It's best to think of cities as island-nations with two kinds of residents, those whose work supports all residents and those who produce products sold to residents of other cities in exchange for their buying power. You can think of the first producers as domestics, the second producers as exporters and the third as foreigners.
All producers get constrained by the great Axiom of Profit. The Axiom of Profit holds the sum of sales must at least equal the cost of production, otherwise the producer goes to ruin.
When exporters produce efficiently, having the sum of their sales exceeding their costs of production, exporters earn profits. It is from profits that exporters can offer credit to support residents, which leads to specialization of work and differentiation of products on offer by support residents.
If domestics fail to develop unique skills and thus offer unique products (skills expressed through time) to exporting residents, exporters shall seek to acquire products from foreigners, importing what they want.

One true, infrangible law governs the whole of economics — the Law of Prices. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price.
When exporters offer highly coveted products to foreigners, foreigners bid up prices of those products put on offer by exporters. With much buying power, exporters can bid up prices of highly specialized goods put on offer by domestics, that is if domestics have skills to produce what exporters want. Living standards rise for island residents.
Domestic residents in problem cities like Detroit fail to produce what exporter residents want. Also, there are too few exporters producing what foreigners are willing to make high bids upon because such commonplace products get produced by many foreigners in other cities.