USA: The Next Detroit


detroitReprinted from 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. 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 their power and money, centralized planners couldn’t succeed with any of their plans. Nearly all of the upper and middle classes 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.

Editor’s note: Yesterday, a federal bankruptcy judge granted Detroit the ability to make billions of dollars of debt disappear. A new, dangerous precedent has been set. This precedent sets the stage for other municipalities to follow suit.

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  • UCSPanther

    And the notoriously corrupt and teflon-coated Coleman Young helped ensure Detroit’s decline was utterly complete after the 1967 riots and Cavanagh’s subsequent ignominious departure with his five terms.

  • Texas Patriot

    PS: “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.”

    Because the infiltration and influence of Soviet Agents in the government of the United States was so pervasive and complete, it is highly likely that at this point in time the United States much more closely resembles a failed Stalinist-Marxist state than Russia does.

    • A Z

      We resemble a failed Stalinist-Marxist state and Russian now resembles a mafia fiefdom.

      There is no comfort the thought.

      • Texas Patriot

        It’s true though.

      • Drakken

        Sorry to burst your bubble but, Russia and the Ukraine for that matter are heading head first into capitalism at a unprecedented rate, is there mafia corruption? Sure there is, but when this country is heading the opposite way head first into communism, who woulda ever thunk it to support and defend ole Putin, who has his country and it’s interest first and foremost and is playing Obummer like the chump he is. When this house of cards comes tumbling down, I do hope the American public holds all of these leftist traitors to account for the misery that befall us.

        • A Z

          There is a lot of corruption over ownership of large companies in Russia. It looks like an oligarchy.

          Russia economy is starting to really slow. Outside of oil there is no growth.

          Yes, Putin is playing Obama for a chump. I have said it myself before.

          • Drakken

            The major growth is in the small business sector and that is really starting to thrive, yes corruption in the gas and oil sector is bad but ole Putin is keeping it semi under control.

          • A Z

            The small business would be news to me although the WSJ did run the some positive stories on it.

            I might have let the corruption of the oil & gas industry cloud my view.

            But Putin is part of the corruption I think. He wants to control the oil industry. Some of the governments prosecutions were to seize control from oil owners, who were not tight with the government. That process was completed last decade.

            Also Russia moved BP out.

    • EarlyBird

      Detroit exemplifies the collapse of the American middle class. It’s a combination of expensive labor at home, cheap labor abroad, and decades of associating any taxation and spending on infrastructure required for average people to thrive with “Stalinism-Marxism,” or “class warfare!”

      Boy the Reagan Revolution sure did it’s work. (I was a Reaganite too, and still revere the man.)

      I recall during the 2008 election some guy in Missouri being interviewed. He was in his 30s with two kids and a wife, a hard working guy who ran a forklift at the local Home Depot and worked another job boxing groceries and struggling to make ends meet. He was literally crying to a news reporter, “I just want government off my back!” Poor guy. You’d think he was one of those over-regulated, over-taxed “job creators” that the GOP convention was talking about at the time.

      In fact, he had a high school diploma from a public school, his wife worked at the local public library, his kids were in public school, and given his income he barely paid any taxes. A good solid citizen, a church goer and a hunter. He could not afford medical insurance, but he drove on federally maintained highways, had reliable government-subsidized electricity, could call 911 at any time to receive world class emergency police and medical care and could know that his wife was employed by the local publically-funded library and his kids were being educated at government-run schools. Sounds like he was getting a pretty good bang for his tiny tax buck.

      But you ask this guy and he wants “small government.”

      He was utterly convinced that Obama was his enemy, a communist who wanted to make him a slave to the federal government, and that his salvation was to “cut taxes, reduce regulations to set the market free.” As if these aren’t the policies we’ve been following since ’80 which put middle class guys into his predicament in the first place!

      • Patriot077

        A Reaganite? My hind foot!

      • Drakken

        Your waving your libtarded red credentials again. What a dumbazz! Maybe your lesbian life partner will let you wear the strapon for once, tonight.

  • mtnhikerdude

    This administration is “Detroiting America” .It is sad.

    • Texas Patriot

      That’s only half right. It’s the corrupt and polluted ideologies of both political parties.

      • EarlyBird

        What’s an “authentic American culture”? How do you define that?

        Around ’80, white middle class Americans had been flattered and inflamed by the idea that only the Democrats’ constituency – lazy, out of wedlock, whiny, irresponsible, minority, drop-outs and Welfare queens – needed government, and that they expected the hard working white middle class guy to pay for it all. Usher in the Reagan Revolution.

        “Death to taxes! Government is the problem! Minimum wages stifles employment! Deregulate and set the markets free to lift all boats!” The average guy was spouting Trickle Down economics jargon as if they were Andrew Carnegie. How flattering to believe that we hard working white middle class folks were just as ruggedly independent as our frontier forefathers, and they built this nation, right?

        Well, we ingested Reaganism like a religion, and flash forward to 2013, we have been starving government so well in so many places that the middle class has been devastated by those policies. If you want to move up the rung, go to “socialist!” places like Denmark, Finland, France, Germany, Holland. We now come in about 12th or 13th in terms of upward mobility.

        Yet, corporations have never been more profitable (Death to taxes! Reward the job creators!). The problem is not that we don’t have pure enough capitalism in the US, but too pure.

        • timpottorff

          It’s obvious from your slant that empirical evidence won’t penetrate your supposed argument in favor of more government.

          • EarlyBird

            Tim, it’s obvious that you wouldn’t even be able to marshall an argument based on empirical evidence, even if you had such evidence at your disposal.

        • Texas Patriot

          EB: “What’s an “authentic American culture”? How do you define that?”

          Authentic American culture is one inspired by the ideas of Thomas Jefferson in the Declaration of Independence and Adam Smith in the Wealth of Nations, both put to paper in the same year, 1776. In the Declaration of Independence, Thomas Jefferson defines Americans for all time as a people who believe in the universality of human rights, i.e. “that all men are created equal and endowed by their Creator with certain inalienable rights, including life, liberty, and the pursuit of happiness.” In the Wealth of Nations, Adam Smith articulated the idea that nations grow wealthy by the process of free market competition and laissez-faire economics. The two ideas create a synergistic dynamic that is full of tension and energy, but one which is not inherently unworkable, and the purpose of good government is to keep them in perfect harmonic trim. When either one is allowed to dominate the other one, there will be problems.

          • EarlyBird

            We are much closer right now to the Gilded Age than probably any other time in our history. Wall Street didn’t bring us to the edge of the economic abyss a few years ago because we had overbearing government.
            One of the purposes of good government is to keep the markets free. Another is to ensure the citizenry is “actually” free to engage in those markets. It’s why we have laws against monopolies, for instance. It is pretty heavy handed for government to disallow a single corporation to corner and own an entire market, but by being impure in this way, more people are free to actually engage in that market.
            I would say a better way to understand the American experiment is to recognize the on-going tension between negative liberty vs. positive liberty. Since we live in an inherently unequal and imperfect world, a society where we simply remove government as an obstacle will quickly devolve into a chaotic Hobbsian nightmare. Adding too much “positive liberty,” to enable too much, on the other hand, creates tyranny.
            The balance we need to strike is between these two poles in order to create the circumstances for the most individuals to enjoy their own liberty and thrive as they see fit.
            As for “authentic America culture,” we have been so good at guarding against over enabling that we seem to have even given up the notion of owing one another anything at all. The growing gap between the haves and have nots, and the shrinking of the middle class is a terrible threat to popular self government.

          • Texas Patriot

            EB: “One of the purposes of good government is to keep the markets free. Another is to ensure the citizenry is “actually” free to engage in those markets. It’s why we have laws against monopolies.”

            From my perspective, that’s a slightly outmoded view of anti-trust law. If all competition and consumption was domestic, perhaps it would be necessary to regulate the size of competitors to make sure than none got too big or too strong so as to be able to unfairly dominate the others and thereby stifle effective competition.

            But we now have an increasingly interconnected world market where entire nations compete with each other, and economies of scale and skill are essential for winning in the international marketplace. Samsung is a great example of a company that has arisen from nowhere to dominate the world handset market, and our so-called giants of Apple and Microsoft are getting hammered. It’s a new day out there, and in order to be effective in the global competition of the 21st Century, national governments will need to cooperate with domestic industries in order to have any chance of winning.

            The following is a link to a summary of that idea presented last year by Dr. Rob Atkinson, in connection with his new book, “Innovation Economics: The Race for Global Advantage.” If you haven’t already read the book, the video will be well worth your time.

            http://www.youtube.com/watch?v=vWM08DzTuhY

          • EarlyBird

            I’ll check that out. Thank you.

        • Drakken

          Pssst dumbazz, no matter how many times you effing commi’s try communism, it always ends up a very bloody affair with a stack of dead bodies. No thanks, I’ll stay with the capitalistic system, but your effing hero Obummer is driving it off the cliff, with your shouts of encouragement.

  • John Kibilko

    Mayor Louis Miriani served 10 MONTHS, not 10 years, for tax evasion. This column is rife with mistakes and is poorly written. It’s embarrassing.

    • A Z

      Porter has some well turned phrases and speaks some truth, but I think I can find the truth elsewhere without the hype or having to overpay for it.

      Porter was sued by the SEC and the SEC won.

      However, both the NYT and WSJ agreed it was a nuisance suit without basis. Think about it both the NYT and WSJ agreed!

      • mac

        Interesting. I’m an Irish-American, blue-collar political independant.
        I was one of those paratroopers Johnson sent into Detroit (it was two battalions of paratroopers by the way– one each from the 101st and the 82nd Airborne Divisions; that’s the difference between 2,000 vs 30,00 troops).. After grad school, I worked in Michigan and was frequently in Detroit. — even back in the mid 70′s that city was well into its decline. Nothing involving something as complex as the decline of the American industrial cities is so simple as to be defined as a sole cause. I’m willing to buy that the social welfare schemes of the times were monumental failures and that great gobs of money was squandered to no appreciable avail. The collapse of the American auto industry had something to do with white and capital flight, as well as global competition and the unions helping to kill the goose that laid the golden egg by raising the cost of American labor. Every aspect of our society unwittingly conspired to wreck the 20th Century American model economy.
        I don’t think that Communists, leftists or African-Americans in general are to blame for the sea change that affected Industrial America. At this point, I’m just not buying that it was just black people and the Commies that wrecked Detroit — and by extension all of America. We are in decline — and I think there are no convenient scapegoats. I’m still interested, still listening — and still proudly independent.

        • A Z

          You mentioned several causes. Anyone cause might not be sufficient. But if you 3 or more out of seven would be sufficient for a decline.

          It is just too many insults to the system, which is why you need leaders and not feel good stuff.

          We have a margin for error we have a cushion but not such a large one that we can take 1/2 a century for failed democrat policies.

  • EarlyBird

    The fall of Detroit (and Allentown, PA and a host of other industrial cities in America’s Rust Belt) had more to do with US labor unions and the rise of industrialization in the Third World, than city policies.

    By the early ’70s American auto workers had managed to coerce amazing benefits and salaries from the Big Three for line workers, all while reducing their quality and productivity. Enter the Japanese auto industry: lean, efficient, paying workers far less but putting out superior products. The rest is history.

    Same with the US steel industry. China and other places started to become major steel production centers and could pay their workers peanuts. Though American steel was better quality, the price of the competitors’ was so much cheaper it didn’t make sense to buy American steel any more.
    There were major costs added to US industrial production by the EPA and other regulations around the time, as well, making it just very hard to do these businesses in the US.

    The middle class has bee eroding since at least the early ’70s as the global market has become more competitive. Unions, city managers, politicians, business executives, voters, presidents and mayors have failed to manage this well, resulting in dead zones like Detroit.

  • Ellman48

    The American Left is either completely insane or willfully attempting to destroy this nation. In either case, they are succeeding. Lenin used the poor peasants to achieve his revolution, Mao did the same in China, and the Democrat Progressives have been using the ‘poor’, ‘minorities’ and ‘illegal aliens’ to do the same in this country. Those who had wealth and property in Russian and China lost everything and never knew what hit them when Vlad and Mao won their revolutions. I wonder how many wealthy people in this country will end up losing everything without ever knowing what happened or how it happened. Being rich is not the same as being aware!

    • lyndaaquarius

      well said and so concise. thanks.

      • Ellman48

        Thank you Lynda!

    • Drakken

      Pssst, time for you to offshore my friend.