Michael Auslin of the American Enterprise Institute compares two major cities on Interstate 94 — now-bankrupt Detroit and Chicago:

Having just been downgraded three notches by Moody’s, Chicago is suddenly hearing the uncomfortable shifting of deck chairs, as people wonder if the nation’s third-largest city is about to slam into the same debt-and-pensions iceberg that sank the SS Detroit last month.

It was once inconceivable that the Motor City would become the setting for post-apocalyptic visions of burned out, abandoned neighborhoods, a corrupt and incarcerated city government, and all-but-nonexistent public services. Yet Detroit’s collapse took but a few decades. Now, the same disbelief and denial about Chicago is being heard, yet the evidence for the inescapable bill of mismanagement and bad policy is still making headlines just a few hundred miles north of the Windy City.

For all its manifest faults (such as being the world’s most dangerous global city), Chicago is not yet close to matching Detroit’s mismanagement, hollowed-out tax base, or loss of productive sectors. Neither is it the one-industry town that Detroit was, nor has it been hemorrhaging residents for decades. In fact, it is a far more vibrant place than when I was growing up here in the 1970s and 1980s, with lots more young people, gentrified neighborhoods (which, admittedly, reduces its gritty charm for an erstwhile resident), and money sloshing around. Even those decades, though, were an improvement over the city’s near-death experience in the 1960s when faced with the decline of traditional industries like steel. Then, Mayor Richard J. Daley, the “Boss,” saved the city, or at least argued that he did, by building vital transportation lifelines into the downtown, making real development of the suburbs and exurbs a viable proposition. Of course, to do so, he had to drive the Dan Ryan Expressway through vibrant ethnic neighborhoods like Little Italy. It was messy and highly controversial, but it was focused solely on making the city economically competitive again.

Today, Chicago faces another threat, shared by many Democratic municipal governments. The city may seem healthy on the surface, but its finances are shaky, to say the least. Chicago is staring at a massive, $340 million budget deficit, which, if pension plans aren’t radically changed, may open up to a $1 billion shortfall as soon as 2015. The Moody’s downgrade was tied directly to the looming budget hole and lack of progress on restructuring its pension and health-care obligations. All too predictably, Mayor Rahm Emanuel has addressed this by focusing on increasing revenue and getting a bigger slice of state taxes.

The next decade will likely determine the city’s future, and mordant urban death watchers should track every step Emanuel and City Hall makes from now on. Whatever you think about Emanuel, he’s no deer-in-the-headlights politician, and his battle with the Chicago Teachers Union last year showed his willingness to take on heavyweight opponents, regardless of the outcome. He knows that Chicago will face the same fiscal pressures Detroit did, the same political battles to preserve pension plans, and the same pressure on businesses to relocate to friendlier confines in Indiana and Wisconsin. And there’s no hope for help from the state capital: Illinois’s situation is far more dire, with unfunded pension liabilities topping $100 billion. Time will tell whether Emanuel adapts and forces Chicago to make the tough choices, or follows the Detroit model of slow, inexorable collapse.

One thing both Mayor Emanuel and Illinois governor Pat Quinn can be sure of: Their neighbors aren’t standing still. A friend who runs a Chicago food-industry business told me that one of his subcontractors looking for new land in Indiana personally was contacted by then-governor Mitch Daniels. Daniels apparently had standing orders that he be informed about any company considering relocating to Indiana, so he could reach out himself to sell them on the virtues of the state. Daniels and Wisconsin’s Scott Walker are just as sharp-eyed as Rahm Emanuel but happen to understand that the key to prosperity is creating business-friendly conditions that will lead to more and higher-paying jobs. Meanwhile, as the excellent Illinois Policy Institute reports, Illinois has the nation’s second-highest property taxes in the U.S., which comes on top of 2011’s 67 percent increase in income-tax rates. Quinn and Emanuel may win their fight to limit pension benefits, but none of that will matter if they don’t create a viable economic environment for entrepreneurs and manufacturers.

Meanwhile, society is suffering. A large part of the city’s budget deficit comes from higher-than-expected costs for public safety. Of course, with an elevated murder rate, one can see why Chicago’s Finest are putting in lots of overtime. Already, however, warnings are coming that Emanuel may have to start cutting city services to bring down the budget deficit. That could send Chicago into a Detroit-style death spiral whereby the affluent flee the ever more dangerous city, taking their tax dollars and investments with them.,

Anyone who has driven through Chicago’s northern suburbs knows that’s already happening.

Regardless of the state of Chicago’s finances, the aforementioned “world’s most dangerous city” appears to lack the ability to keep its citizens safe, as WBBM-TV reports:

 Lit fireworks thrown into crowds. Purses and phones stolen. Gangs beating up people and fighting with each other on Oak Street Beach.

Those are some of the occurrences callers reported to 9-1-1 operators on the night of the July 4. …

At 9:34 p.m., a caller at the beach says a fight is breaking out: “Yeah, we need the cops down here on Oak Street Beach. There’s a whole gang of hoodlums fighting and kicking each other in the head and jumping on each other.”

A caller also mentions people trying to escape the chaos by crossing a busy roadway.

“We need cops out here ASAP,” he says.

Later, a caller reports purses being stolen at Division and Oak.

“People are running, things are getting stolen,” the caller says. “People are hitting the ground.”

Another caller says: “We’re at Oak Street Beach and there are gangs of kids beating up people here. I don’t know if there’s any cops in the area.”

The Chicago Police Department says its staffing was appropriate on July 4.