Northwest Indiana Discussion

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USA: The Next Detroit

By Porter Stansberry

From the October 28, 2009, 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.

Regards,

Porter Stansberry