Braddock on the Baltic

By Fester:

Braddock, Pennsylvania is an old steel town near Pittsburgh and down the street from my house.  It's population peaked several decades ago as the integrated steel works employed thousands and then the city has fundamentally imploded with the devestation of the regional steel industry.  Braddock is a ghost town with living ghosts.  Median home values are under $10,000 (no, I am not missing a zero), there are no retail eating establishments within city limits, entire blocks have been abandoned as the cost of maintaining basic infrastructure such as gas and water lines can not be supported by the remaining residents.  Basically anyone with any options has taken the option to leave the community in the past generation. 

This has led to a harsh debt cycle as the city's population is shrinking despite a constant debt burden.  That means an increasing per-capita debt burden.  However the population loss is not evenly distributed.  The people who are leaving are the ones with some resources, so the legacy debt is being borne by people without the ability to pay.

This scenario has played itself out hundreds of times in the Rust Belt, Braddock is just one of the more extreme cases.  It is a scenario that could be playing out on the Baltic as well.

A Fistful of Euros looks at Lativia's situation and I notice some of the same incentives are in place for anyone with options to take the option of walking away:

an attempt to see whether it is possible to revive an economy which is
contracting under the weight of massive debt deflation at an annual
rate of 18 percent (Q1 2009) by relying almost exclusively on a process
of drastic fiscal cuts (a process which today is glorified with the
name of �internal devaluation� but which in the 1930s was simply called
what it is: wage and price deflation) - a new problem now starts to
looms its head before us. What, we might like to ask ourselves will be
the long run consequence for Latvia�s already fragile demographic
dynamic if we don�t get a most-optimistic-scenario-best-case outcome
here? That is, if instead of a devaluation-driven �V� shaped recovery,
we get not a �U� shaped one (the optimistic scenario), but rather �L�
shaped stagnation (a distinct possibility on my view, if wages and
prices simply take too long correcting to competitive rates) what will
be the implications for the longer term future of the country?

Significant income deflation means the debt burden in real terms is even higher.  Assuming functional democratic prefernce revealation machinery and assuming Lativian politicians are like almost all politicians in that they will listen to their selectorate much more intensely than they will listen to non-selectors, the debt burden will fall most heavily on the younger, more marginally attached members of Lativian society.

And those are the individuals with the highest propensity and probability of leaving.  Their skill sets are more current, they do not have as much embedded social capital in Lativia to tie them down and they may or may not have families.  Opting out is a viable strategy as we have seen in Braddock and hundreds of other Western Pennslyvania steel and coal towns.