Porter Stansberry

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

November 2, 2009

Editor’s Note: A big thanks to Porter Stansberry for this article. We here at Whiskey were very eager to run it. If you would like to read more from Porter and find out about his investment research, just take a look here.

Porter Stansberry
  • Mirka Holbrook

    EXCELLENT ARTICLE

  • Ryan Lanham

    Just curious…why did that whole socialist thing work out so well in Iceland, Finland, Sweden, Norway, Netherlands, Germany, France, New Zealand?

    They seem to have better happiness ratings, better health, better social capital and lots of other measures that are much better than ours? Just luck?

  • Marc

    Ryan

    Have you taken a look at Iceland lately? They are in collapse. I wouldn’t call NZ a socialist country either. They are more free market than the good ole USA.

  • Dean Pratt

    Ryan, Have you been paying attention to Iceland? There economy had just gone done the tubes. New Zealand has a collapsing economy and the Nordic States have some of the worlds highest taxes and are experiencing record unemployment.

    What were you saying about socialism working so well?

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  • http://www.chickenhammer.com/ Chicken Hammer

    Why is it that every example we have of Socialism in the USA ends in failure? Why is it that the same progressives, liberals, etc… continue to tell us that it is going to work? Why is it that we as a people have become so spineless that we can no longer point to a broken system and call it a broken system?

    I should re-post this article on my blog.

  • http://www.governmentgrantsonline.us Chicken Hammer

    Why is it that every example we have of Socialism in the USA ends in failure? Why is it that the same progressives, liberals, etc… continue to tell us that it is going to work? Why is it that we as a people have become so spineless that we can no longer point to a broken system and call it a broken system?

    I should re-post this article on my blog.
    P.S. – Sorry, forgot to tell you great post!

  • jay moses

    “the model cities program was expanded and enlarged …in 1974″. Does my memory fail me or were the Republicans Nixon and Ford in the White House in 1974? Don’t blame the dems. Pandering to voters is the narural tendency of all politicians.

  • Kevin

    The author could have refined his arguments and presented a stronger case.

    “”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.”” Does it really matter that the President is black? If not, then why mention it?

    This article is a great example of when socialism fails in America – when there is no accountability for public money spent. This can be said for any public or private task involving large amounts of money – including recent banking crisis, and numerous ponzi schemes we hear in the news. Trust but verify, yes?

    Finally, I believe you are overstating your case. Almost everybody (IMO) – including Democrats – understands the consequences of keeping the auto industry and banking systems public and that in due time they will be re-privatized. The media is not government run. Cap and trade does not equal the government taking over production of electricity.

  • RJD

    Read this article then read the W&G article about urban farming in Detroit and the whole picture becomes clear. The goal is to replace the industrial/capitalist middle class republic that is currently the USA with a enviro-socialist peasant society. Like all peasant societies, it will have a ruling aristocracy composed of gvoerment bureaucrats and an all powerful religion called global warming. Just call it the “New Medievalism”

  • barfly

    “This article is a great example of when socialism fails in America – when there is no accountability for public money spent.”

    So, the military are also an example of socialism? Because on 9/10, the day before the attacks, the pentagon released a report that detailed 2 TRILLION dollars of military spending that couldn’t be accounted for – so your point is absurd. There is little financial accountability for the crony-capitalism that conservatives practice, and the last 8 years of Bush proved that. While he was spending tax dollars like a drunken cheerleader, conservatives didn’t even peep, until it was apparent to them that independent voters were turned off by their hypocrisy.

  • Kevin

    ?? Please re-read. The statement you quote doesn’t bash socialism nor does it condone wasteful military spending. Wasteful and/or abusive allocation of resources is due to lack of accountability. It is not the exclusive domain of “Liberal Democrats”, “Socialists”, “Conservative Republicans”, nor “Wall Street”.

  • Morbius

    Lets get a few things straight.
    I can’t count 10 conservatives in all of Washington DC.
    The dems are late 19th century progressives now, and the republicans are socialists, just look at Bush’s ‘compasionate conservatism’.
    Sad truth is the word “Conservative” has come to mean the politician offering a little less socialism than their opponent.
    There is nothing conservative about either party.
    The term “Capitalism” is garbage, it’s meaning shifts more than Keynes in a debate.
    What we have in the US is “Corporatism” and both parties have been bought off and brought into it, what we need so desperately is a Free Market.
    The only economic system in the history of the world that has NEVER FAILED! It has only been brought down by the intervention of arrogant self serving politicians.
    Democracy isn’t just the god that failed, the true evil of democracy is the illusion that ‘we the people’ are in some way represented by these horrid parisites.

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  • http://www.futurepsychiatry.com Niall McLaren

    As a fully-paid up Labor-voting, upper middle class, highly educated and financially comfortable Australian, I have to take exception to the claim that socialism destroyed Detroit. I have just returned from my second visit to Motor City in 18mths and was appalled to see the decline in what must have been one of the world’s great cities. But please, it wasn’t socialism that did it because you don’t have socialism at all. Sorry, you don’t even know what the word means because Detroit did not die from socialism (it hasn’t killed Stockholm or Sydney yet), it died from some deeper blight, a vast, indifferent corrupt ruling class building mansions they didn’t need at Bloomfield Hills, 40miles from town, building cars that were long out of date while lazy unionized workers bled the companies dry.
    I walked through the halls of Detroit Receiving Hospital with one of the senior medical directors, astounded at the medieval practices I saw. “We spend 8.4% of our GDP on health and you spend 16.4% and the Presidents Economics Council expects that to hit 34% by 2040, yet your standards of health are below ours,” I told him. “Where does your money go?”
    Without pausing, he replied: “Corruption and ineffeciency.”
    I couldn’t argue. I watched dozens of staff members standing around talking and laughing while elderly people struggled with their walking frames. 60million Americans don’t even have health cover. Seriously, it would be cheaper for you to fly them all to Australia. We can treat them at the same standard for a tenth of the price it costs you.
    When I saw the police cars in Detroit, I marvelled that GM in Australia produces a car for half the price that will eat your Fords on any race you name. GMH Commodores are genuine racing cars: your cars simply look as if you have given up.
    Your buildings are falling apart,, your roads are decrepit, and your bureaucracy? OMG, you have no idea how appalling it is. Brought up on a steady diet that the US is the freest and most liberal place on God’s good earth, I have to tell you that sadly, you have missed the boat. You were once a great place, but now you have broken into dozens of squabbling fiefdoms. Oh yes, you all occupy the same lump of territory but you don’t cooperate. Nothing could be done to improve the hospital in Detroit because of endless conflicting pressure groups and vested interests. You have exported all your jobs from Detroit and the city is dying. Sure, when anything big dies, the parasites emerge and squabble over the carcasse, but they didn’t kill it. Detroit did not die because of socialism. It died because of lazy, self-interested business and bad government. And I, for one, think it is very sad to see it. But guess what? Detroit is just the first instalment in a much larger story of the whole US called “Once, we were great.” You were, in World War II, the whole nation put its shoulder to the wheel and pulled as one. Not any more. Bernie Madoff wasn’t a freak. He was just another parasite who strolled out in broad daylight and plundered the system because the entire system had become so rotten that it invited plundering. Get with it, America, or you’re history.

  • CanadaNorth

    Uhh, Geee Mr. Australia, but, I am a Canadian not an American. Canada’s system is more socialist than the American one, so both of our countries have something in common, don’t they? From that point I strongly disagree with you. Am I allowed to? The above article was written very well and gives the reader a decent picture of what happened with Detroit. Detroit does have these problems, does it not? What caused these problems? Did the Socialists cause them or did the Conservatives cause them. Well actually neither, People caused them, this is the same reason for failure or success every time. And when I say this, I would add that greed, pride, larceny and every other evil contributed to Detroit’s downhill decline. I am so happy that Australia is close to perfect and it is a foregone conclusion in your mind that the USA is finished. I would not be so sure that this will come to pass, the American people are very resilient and hardworking. The decline will be turned around through necessity and time. Hoping things get even better in Australia and also the rest of the world too. Best Regards, Canada North

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  • james m

    It seems we are well on our way there. The author of the article is obviously a racist Nazi left wing radicalized terrorist, send him to a FEMA camp. LOL. Thanks for speaking the real truth sir, not the hogwash politically correct story. Who will take responsibility for Detroit? No one probably, it has just been a tough half century there, keep moving, nothing to see here.

  • http://infinitemonkeyatthekeyboard.blogspot.com Richard L. Kent, Esq.

    Does my memory fail me or were the Republicans Nixon and Ford in the White House in 1974? Don’t blame the dems. Pandering to voters is the narural tendency of all politicians.>>

    Your memory fails you utterly. You may recall that in 1974 the Democrats overthrew the Nixon Presidency and President Ford had so little influence that the Democrats in Congress were able to override the vast majority of vetoes.

  • http://infinitemonkeyatthekeyboard.blogspot.com Richard L. Kent, Esq.

    Niall McLaren November 6th, 2009 6:54 am : As a fully-paid up Labor-voting, upper middle class, highly educated and financially comfortable Australian, with no further connection to this city, you, sir, have absolutely nothing worthwhile to say to those of us who live in the Detroit metro area. Have you even been here?

    Go run over a kanga.

    By the way, do you speak Japanese? No? Your welcome.

  • Nahanni

    Gotta love the liberals coming out of the woodwork to try and either defend their Marxist policies by citing “Europe is Utopia” BS or trying to blame everyone but themselves for their failed policies and idiocy.

    Take a look at every state and city that has been ruled for decades by the Democrats and you see failure. Detroit is a dead city, Chicago is well on it’s way to being one. New York City , Boston, Baltimore and Los Angeles are dying, San Francisco is a doped up zombie, Philly is a cess pool, Minneapolis has become Mogadishu on the Mississippi with all that entails and New Orleans was dead way before Katrina though there is hope for that city now that the Democrat plantation that was the wards has gone away and the party machine was damaged.

    California and Michigan are bankrupt with New York not far behind. All the rest of the “bleu states” are economic and social basket cases. The states in the west that have been Californicated by California refugees are well on their way to bankruptcy thanks to the idiots from California that moved there but didn’t leave their lunatic liberal beliefs and voting habits at the border. The only states that are doing well are ones that are “red”, the only state that still has actual job growth in the country is Texas. Unfortunately for the “red” states they are being inundated by “bleu” state refugees who have fouled their own nests and are looking for somewhere else to foul up. They are like vermin and they carry the disease of liberalism. These “bleu” state refugees might just wish to turn around and go back to their “bleu” cesspools though because when things start going bad, as they will with the Federal government in the hands of a bunch of Maoist totalitarians, the natives of those “red” states will do their own version of “ethnic cleansing” and run off all those liberal “bleu” state refugees.

  • rdreddick

    “Nahanni” has an excellent perspective on our state of affairs. My ancestors came here for freedom and opportunity, not for a promise of “security.” It seems we have lost the focus of our founders.

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  • http://www.rampartsilver.com/ Isle of Man Gold Angel

    ” In the bureaucratic machine of socialism the way toward promotion is not achievement but the favor of the superiors. ” – Ludwig von Mises

  • Tom

    Yep, socialism (government control of the economy) has the seeds of failure sewn into its fabric. Without a good rule of law ie:constitution) to stop government overreaching it becomes totally corrupt and slowly crumbles under its own weight,leaving everything in shambles.

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  • marytee

    Nahanni– show me where Michigan is “bankrupt”…. Provide a link to statistical data that proves it.

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  • else one

    Crack killed Detroit.

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