This is the Cato Daily Podcast for Tuesday, July 23rd, 2013.

I'm Caleb Brown. Detroit's woes started decades ago, so why didn't the auto industry and state and local governments respond appropriately?

Megan McCardall is a columnist at Bloomberg and author of the forthcoming The Upside of Down.

She says it's part of a problem many of us face, the expectation that good times will never end.

We spoke today.

I look back at Detroit's past and it's actually hard to overstate how successful Detroit was between 1910 and 1950.

I mean, Detroit cars were not just the powerhouse in America.

All over the world people wanted American cars because they were the top

quality cars.

They had more diverse cars, more cars bigger and better than anything else that was being

made, especially after World War II,

within German auto industry lying in ruins.

And people looked at that and they said, well, therefore we can afford to make very large

and lavish promises about the future.

The auto workers and the auto companies did this

and Detroit did this.

They had an enormous government presence,

extremely generous benefits.

They exempted a lot of their workers

from Social Security because they figured the auto industry

would just always be throwing off this cash that they could then afford to pay these benefits with.

And then when it started shrinking, they were unable to react.

...