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Stansberry: Detroit's socialist nightmare is America's future
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Thursday, October 29, 2009
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From Porter Stansberry in the S&A Digest:

One of the most important things to remember about socialism – or coercion of any kind – is it fails eventually because human beings have an innate desire for liberty and a strong need for personal property rights. In fact, the origins of government lie in the need of agricultural communities to protect themselves from violence and theft. So it is particularly ironic that in more recent times, it is government itself that has more frequently played the role of bandit. When you start taxing people at extreme rates to pay for socialist "benefits," when you start telling them which schools their children must attend, when you start giving jobs away to people based on race instead of ability... you quash human freedom, which bogs down productivity... and if continued for long enough, leads to social collapse.

I find it perplexing that only 20 years after the collapse of the Berlin Wall, the West continues to implement laws that mimic all of the failed policies of our former "communist" foes. In fact, our current president won the election by promising to "spread the wealth around." But... truth be told... we don't have to look to Eastern Europe or the Soviet Union to find a society destroyed by coercion, socialism, and the overreaching power of the State. We could just look at Detroit...

In 1961, the last Republican mayor of Detroit lost his re-election bid to a young, intelligent Democrat, with the overwhelming support of newly organized black voters. His name was Jerome Cavanagh. The incumbent was widely considered to be corrupt (and later served 10 years in prison for tax evasion). Cavanagh, a white man, pandered to poor underclass black voters. He marched with Martin Luther King down the streets of Detroit in 1963. (Of course, marching with King was the right thing to do... It's just Cavanagh's motives were political not moral.) He instated aggressive affirmative action policies at City Hall. And most critically, he greatly expanded the role of the government in Detroit, taking advantage of President Lyndon Johnson's "Model Cities Program" – the first great experiment in centralized urban planning.

Mayor Cavanagh was the only elected official to serve on Johnson's task force. And Detroit received widespread acclaim for its leadership in the program, which attempted to turn a nine-square-mile section of the city (with 134,000 inhabitants) into a "model city." More than $400 million was spent trying to turn inner cities into shining new monuments to government planning. In short, the feds and Democratic city mayors were soon telling people where to live, what to build, and what businesses to open or close. In return, the people received cash, training, education, and health care.

The Model Cities program was a disaster for Detroit. But it did accomplish its real goal: The creation of a state-supported, Democratic political power base. The program also resulted in much higher taxes – which were easy to pitch to poor voters who didn't have to pay them. Cavanagh pushed a new income tax through the state legislature and a "commuter tax" on city workers.

Unfortunately, as with all socialist programs, lots of folks simply don't like being told what to do. Lots of folks don't like being plundered by the government. They don't like losing their jobs because of their race.

In Detroit, they didn't like paying new, large taxes to fund a largely black and Democratic political hegemony. And so, in 1966, more than 22,000 middle- and upper-class residents moved out of the city.

But what about the poor? As my friend Doug Casey likes to say, in the War on Poverty, the poor lost the most. In July 1967, police attempted to break up a late-night party in the middle of the new "Model City." The scene turned into the worst race riot of the 1960s. The violence killed more than 40 people and left more than 5,000 people homeless. One of the first stores to be looted was the black-owned pharmacy. The largest black-owned clothing store in the city was also burned to the ground. Cavanagh did nothing to stop the riots, fearing a large police presence would make matters worse. Five days later, Johnson sent in two divisions of paratroopers to put down the insurrection. Over the next 18 months, an additional 140,000 upper- and middle-class residents – almost all of them white – left the city.

And so, you might rightfully ask... after five years of centralized planning, higher taxes, and a fleeing population, what did the government decide to do with its grand experiment, its "Model City"? You'll never guess....

Seeing it had accomplished nothing but failure, the government endeavored to do still more. The Model City program was expanded and enlarged by 1974's Community Development Block Grant Program. Here again, politicians would decide which groups (and even individuals) would receive state funds for various "renewal" schemes. Later, Big Business was brought into the fold. In exchange for various concessions, the Big Three automakers "gave" $488 million to the city for use in still more redevelopment schemes in the mid-1990s.

What happened? Even with all of their power and all of the money, centralized planners couldn't succeed with any of their plans. Nearly all of the upper and middle class left Detroit. The poor fled, too. The Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

Even today, the crisis continues. At a recent auction of nearly 9,000 seized homes and lots, less than one-fifth of the available properties sold, even with bidding starting at $500. You literally can't give away most of the "Model City" areas today. The properties put up for sale last week represented an area the size of New York's Central Park. Total vacant land in Detroit now occupies an area the size of Boston – Detroit properties in foreclosure have more than tripled since 2007.

Every single mayor of Detroit since 1961 has been a Democrat. Every single mayor of Detroit since 1974 has been black. Detroit has been a major recipient of every major social program since the early 1960s and has received hundreds of billions of dollars in government grants, loans, and programs. We now have a black, Democrat president, who is promising to do to America as a whole what his political mentors have done to Detroit.

Those of you with a Democratic political affiliation may think what I've written above is biased or false. You may think what you like. But there is no way to argue that what the government has done to Detroit is anything but a horrendous crime. You may think what I've written above is merely a political analysis. Perhaps so, but politicians drive macroeconomic policy. And macroeconomic policy determines key financial metrics, like the trade-weighted value of a currency and key interest rates.

The likelihood America will become a giant Detroit is growing – rapidly. Politicians now control the banking sector, most of the manufacturing sector (including autos), a large amount of media, and are threatening to take over health care and the production of electricity (via cap and trade rules). These are the biggest threats to wealth in the history of our country. And these threats are causing the world's most accomplished and wealthy investors to actively short sell the United States – something that is unprecedented in my experience.

[MarkJ]

$this->bbcode_second_pass_quote('', 'Y')ou know, it really shouldn't be rocket science for our society to build some affordable apartments for the poor.

[ian807]

It's not rocket science, it's just that there's no way to do it without discomforting the more well off taxpayers who vote directly through the ballot box and indirectly through campaign contributions. In RealPolitik (http://en.wikipedia.org/wiki/Realpolitik) terms, there is simply no way to get this to happen.

[Ludi]

$this->bbcode_second_pass_quote('Kristen', 'I')m amazed at the lack of intelligence in some of these responses. Must we condemn the poor to categories such as drug addicts, lazy parasites, and failures of life?

[pup55]

We've created a class of people who, by working the government systems, can, generation after generation, find a pretty rewarding career....despite never actually having to do any useful work that benefits society.

I'm referring to bank lobbyists, of course. Members of congress too.

The point here is: at both the top and the bottom of the system there exist a lot of people who have managed to figure out a way to vote themselves benefits from the treasury.

Is it correct that 40 million people are now on food stamps? Was it here that I saw that? That's 13% of the population!

http://www.foxnews.com/politics/2010/08/05/record-number-americans-receiving-food-stamp-benefits/

We already know that another 58 million people in this crazy land are on social security in one of its forms:

http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

so we're up to 100 million.....I will assume for the moment that some of the recipients of food stamps are actually working somewhere, and also that some of the unemployed people in the country right now are not collecting food stamps yet....

According to this, the "civilian non-institutional population" is 237 million.....
http://www.bls.gov/news.release/pdf/empsit.pdf

From this, I suppose we should subtract the non-military government employees because, even though they are working, and collecting a paycheck, the money we pay them comes from taxes: There are somewhere near 15 million, but it is alarming that the government itself does not have more current data than 2 years old about the fundamental issue of how many people are working for it at the various levels:

[url]http://www2.census.gov/govs/apes/08fedfun.pdf
[/url]

237 minus 100 minus 15, about 117 million that are now working and keeping the whole thing going....about 1/3 of the actual population.

Now, subtract from that the number of people in the country that are working, but at low wage jobs that do not pay any federal income taxes:
[url]
http://www.nytimes.com/2010/04/14/busin ... hardt.html[/url]

I suppose these guys must still pay the payroll taxes, and also sales taxes and possibly state and local taxes....so you can't really say the whole 47% can come off the top of that.....

But the point is, that it for every worker in the country now, he or she is having to support himself, plus pay taxes for the support of 2 other people.... do I have the math right on that? Yes, I believe I do.....a tax-paying workforce of about 100 million and a total population of 300 plus..

Of course like I keep saying.... this is not really what is happening... we're actually borrowing money from the nation's 3-year olds without them knowing about it to keep this whole game going.

We're stupid. That's the only conclusion I can come up with. This whole thing does not add up. Why the 1/3 does not rise up and put a stop to this is beyond me...

[Pretorian]

$this->bbcode_second_pass_quote('Outcast_Searcher', '')$this->bbcode_second_pass_quote('Pretorian', '')$this->bbcode_second_pass_quote('mlit', 's')eems similar to scenes of refugees lined up for food being tossed from the back of relief truck

[Pretorian]

$this->bbcode_second_pass_quote('Sixstrings', '')$this->bbcode_second_pass_quote('Pretorian', 'S')o when your bank will tell you that your savings went to fund such an admirable idea like giving out mansions to drug-addicts and lazy-bags ( with a dozen of poor, innocent children of course), you'll be ok with that?
You know, you cant take your money out right now , and rent/buy something for some racially challenged family right now.

[Expatriot]

Wow Ian, a nice Marxist rant you had there.
What I find is that most who post this kind of stuff don't have a lot of personal experience with the folks they're describing.

I'll point out for the record that comparisons to food off the back of trucks in 3rd world countries are horrible - there aren't throngs of obese people in those countries.

Oh yeah - and, with very few exceptions, the "poor" in America are fabulously wealthy - the truth of those words will only be apparent in a few years when gasoline is at 10 bucks a gallon.

$this->bbcode_second_pass_quote('ian807', '
')First, we build large apartment buildings so we can put all the poor people together so they only interact with other poor people and build up a nice solid culture of poverty.

[Ludi]

$this->bbcode_second_pass_quote('pup55', ' ')Why the 1/3 does not rise up and put a stop to this is beyond me...

[Tyler_JC]

Two things:

1. If I'm reading this correctly, these people were waiting in line to get a form. A piece of paper. How hard is it to print and distribute 30,000 pieces of paper?

This just shows how utterly incompetent the bureaucracy has become.

2. What about the rights of people to live in communities of their choosing?

In my hometown, real estate prices were high because people were desperate to move in to take advantage of the excellent public school system. The system was excellent BECAUSE the people who lived there were hardworking and had smart, ambitious children. The school actually spent LESS per student than the state average.

When the town tried to build a massive public housing project, the people erupted in anger. They were working 60+ hours a week so their kids could go to a decent school. Now the town wanted to let in people whose children could only diminish the quality of the public school. If the public school declined in quality, property prices would collapse and all the hard work of thousands of parents would have been for nothing. In effect, the town wanted to steal about a hundred thousand dollars from every family in the town. How fair is that?

[Ludi]

$this->bbcode_second_pass_quote('Expatriot', ' ')The rich are forced down to meet the less rich.

[Ludi]

$this->bbcode_second_pass_quote('Tyler_JC', '
')When the town tried to build a massive public housing project, the people erupted in anger.

[Expatriot]

$this->bbcode_second_pass_quote('Ludi', '')$this->bbcode_second_pass_quote('Expatriot', ' ')The rich are forced down to meet the less rich.

[Ludi]

$this->bbcode_second_pass_quote('Expatriot', '
')You sound like you don't have much income. Is that accurate?

[pup55]

$this->bbcode_second_pass_quote('', 'C')an you clarify specifically what you want folks to rise up and put a stop to and how it would benefit us? Personally, I don't see a benefit in cutting off support to millions of people.

[HeckuvaJob]

$this->bbcode_second_pass_quote('Expatriot', 'W')hat on earth could you say in response to that to contradict my lying eyes?

[Expatriot]

$this->bbcode_second_pass_quote('Ludi', '
')Looks like you benefited from being a hardworking guy! I bet you worked a lot harder than the lady who cleaned the toilets all day.

[Expatriot]

$this->bbcode_second_pass_quote('HeckuvaJob', '')$this->bbcode_second_pass_quote('Expatriot', 'W')hat on earth could you say in response to that to contradict my lying eyes?

[Ludi]

$this->bbcode_second_pass_quote('Expatriot', '
')Sorry to break your heart dude, but by any measure of net worth, I am part of the top 5%.

[HeckuvaJob]

$this->bbcode_second_pass_quote('Expatriot', 'S')orry to break your heart dude, but by any measure of net worth, I am part of the top 5%.
Regarding income, I was part of the top 1% until I begged out of the system.

And no, I don't take much personally, so no worries.