A quick analysis of City of Detroit murder rates  and the number of police officers shows exactly what is expected—that murder rates go down when more police are on the streets, and that fewer police on the streets means more murders.  Data were from the Uniform Crime Reports (UCR), with a linear correction for  inaccurate population data (UCR reported a 2010 Detroit population of over  900,000; the 2010 Census estimate is 713,777).  Removal of police officers to balance the budget will most likely lead to further increases in the Detroit murder rate.

Detroit Mayor Dave Bing made a rookie mistake in his attempt to balance the Detroit City budget, by confusing structural budget issues with financial symptoms.  Bing, along with a number of financial 'gurus' who should know better, argue that pension costs for the City's union workers, mostly police officers and fire fighters, are a structural problem for Detroit.  Bing is wrong.  Pension costs--and specifically the chronic underfunding of pensions--is a financial symptom of an underlying structural issue.  There is a simple to test to determine if an issue is structural: will the 'fix' be permanent? In the case of Bing's proposed cuts to pensions, the fix is at best static and temporary as it does not address the underlying strutcural dynamic problem: declines in population and businesses.  Think of it this way: if you reduce pensions so that the 2011 budget is balanced, and people and businesses continue leave in 2011, then in 2012 the City will have lower revenues in 2012 than in 2011 and there won't be enough money for the budget and the whole problem will start over again.  To get a long-term solution the City needs to fix the dynamic structural problem of people leaving the city.  The downward structural cycle is clear: people leave the city, which causes lower tax revenues, which causes budget cuts in all areas including public safety, which leads to increased crime, which causes people to leave the city, and the cycle repeats.  Where do pensions come into this structural cycle? They don't--they are a symptom of the structure and not a part of the structure.

What is the solution? Mayor Bing and Detroit have some hard choices to make, including balancing the current budget.  But to do so by cutting public safety--reportedly by as many as 500 police officers and 400 firefighters--simply exacerbates the downward structural cycle by further endangering public safety.  The solution is to find a way to balance the budget (the short-term symptom) and simultaneously improve public safety, thereby breaking the downward structural cycle, and provide the catalyzt for a revitalization of Detroit. To be sure, Bing and Detroit have made substantial progress on public safety and attracting population to a few isolated neighborhoods mostly in the revitalized downtown area.  The current budget proposal needs to build on these successes, but it offers less success, not more.

After last year’s Fed policy that resulted in a decline of over 10% in the broad money supply (M3), money supply might finally be
rebounding.  Is there hope for coordinated monetary and fiscal policy? Not with the supercommittee setting the economy up for failure.  If the supercommittee agrees on budget cuts, there goes the fiscal stimulus. If the supercommittee doesn’t agree,  then automatic triggers activate cuts and there goes the fiscal stimulus. In either case, the middle class can’t win for losing.

Since 'earnings season' began in early October we have had a month of reasonably OK news.  Corporate earnings were generally better than expected, giving the stock markets some lift. US consumer continue to spend more than expected.  Money supply (M3) rose last week after several weeks of small declines, and today's unemployment claims were the lowest since April. Building permits for apartments reached their highest level in three years.  October employment rose slightly, not real good news but better than some thought it would be.  Industrial production rose .7% in October, more than expected and better than August and September.  As usual, not all the news is good.  M3 money supply remains stubbornly below 15 trillion, with little direction.  News from Europe remains gloomy, and with little actual informational content about the state of European economies.  The single-family housing market continues to struggle.  The financial sector faces continued challenges.

What is interesting is that the economy continues to show a little bit of resilience, even after fiscal stimulus has ended, after monetary policy failed to expand broad money supply significantly, and in the face of headwinds such as Europe, contractions in financial jobs and increasing pressures on state and local governments to cut jobs.   

One of my two favorite weekly pieces of economic data is the initial unemployment claim data published Thursday mornings by the Department of Labor.  Today's preliminary figure came in at 397,000.  This is only the second time since April (think Japaneses tsunami) that the figure came in below 400,000.  Unemployment claims are running about 45,000 to 50,000 lower than last year, but we need another year or 18 months of continued improvement at this rate before we have robust growth.

Money supply is not only one of the best indicators of economic health, it is also predictive and new figures are published weekly.  I prefer the M3 measure of money as it incorporates some forms of credit in addition to cash, CDs, and other monetary constructs.  The Fed no longer publishes M3 statistics; I use the data published at http://www.nowandfutures.com . 

The most distinctive characteristic of recent M3 history is the 10% annual decrease in M3 from 2008 to 2009.  This decrease is bigger than any other recorded decrease outside of the Great Depression.  It shows not only the severity of the recession, but also the Fed’s de-emphasis of expansionary monetary policy during the depths of the Great Recession.  That’s right, once the Fed lowered interest rates it turned attention away from money and allowed the second largest monetary contraction in the monetary history of the United States.