USA: The Next Detroit?
By 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. 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.
7.6 Mil May Lack Coverage If No Medicaid Expansion
Because of the Supreme Court's ruling on ObamaCare, up to 7.6 million adults may not have access to Medicaid coverage according to an IBD analysis of data from the Urban Institute. That could potentially leave far fewer people with coverage than proponents of the health care law have claimed.
ObamaCare required states to expand their Medicaid programs to include all adults up to 138% of the federal poverty level starting in 2014. Prior to ObamaCare, few states covered childless adults and many covered parents at rates below 100% FPL.
Yet the Court ruled that the federal government may not force states to expand their Medicaid programs, leaving many state governments in limbo.
"It's going to be a fiasco," said Drew Gonshorowski, a policy analyst at the conservative Heritage Foundation. "It's a lose-lose for states. ObamaCare was poorly constructed, and so states now have a choice of opting in to an expensive, insolvent system or opting out and being accused of leaving their citizens uninsured."
Eleven states including Florida, Iowa, Louisiana, Mississippi, Missouri, Nebraska, Nevada, New Jersey, South Carolina, Texas, and Wisconsin are opposed to expansion or are leaning in that direction. They, along with 22 states that are undecided, were included in the IBD analysis.
The analysis only included adults below 100% of the FPL because due to a glitch in ObamaCare, adults at 100%-138% FPL in a state that does not expand Medicaid are eligible for tax credits to buy private insurance via an exchange.
The 7.6 million adults below the poverty line will have difficulty getting private coverage, states January Angeles, a senior policy analyst at the liberal Center on Budget and Policy Priorities. These Americans would not be eligible for ObamaCare tax subsidies.
"These are people with income below the poverty line, with limited financial means," she said. "Purchasing insurance in the private market will be very difficult. It might be the choice between getting health insurance or paying their rent. So we would hope most states, if not all, choose to expand Medicaid."
Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Vermont and Washington have announced they plan to go ahead with the expansion or are seriously considering it.
Yet states face costs for expanding Medicaid that the federal government won't pay for. Heritage estimated those costs would run about $12 billion from 2014 to 2020.
While acknowledging that states face such costs, Angeles says that expansion is still a good deal for the state.
"The federal government pays 100% of the cost for the newly eligible people for the first three years, and 90% of the cost in 2020 and beyond," she said. "Additionally, states might see savings in other areas of their budgets, such as the money they spend on uncompensated care."
But Gonshorowski warns, "This could result in a lot of headaches for states. We already have access problems with Medicaid. Plus, with the federal budget in a mess, don't be surprised if there is eventual pressure on states to pick up more of the cost of the expansion."
Regardless, states that do not expand their Medicare coverage will likely result in an expansion of the number of people left uninsured under ObamaCare. The Congressional Budget Office initially estimated that about 26 million people would be left uninsured by ObamaCare. The CBO will release new ObamaCare budget estimates soon.
Even if 7.6 million adults do not have access to Medicaid coverage, the uninsured may not increase by a similar amount. The CBO previously assumed that 6-7 million uninsured would be people who were eligible for Medicaid but did not enroll. There may be some overlap between the two groups.
ObamaCare is now Unenforceable
Last week, the Republican-controlled House of Representatives voted to repeal the Patient Protection and Affordable Care Act, aka ObamaCare. It was the 33rd such vote taken by the House and, since Democrats control the Senate, no more likely to be successful than the first 32.
The day before the vote, however, the House Ways and Means Committee heard testimony that highlighted another, more promising way to override the health care law: Americans can refuse to comply with its command that they obtain government-approved medical coverage, which the Supreme Court has deemed a mere suggestion even though it is essential to the legislation's goals. Furthermore, if ObamaCare objectors take a simple precaution, they can opt out without paying the prescribed penalty.
ObamaCare requires insurers to take all comers and charge them the same rates, regardless of health. Those rules create two problems that reinforce each other: They raise premiums, and they encourage people to delay buying medical coverage until they're sick.
But in upholding this mandate last month, the Supreme Court said it could not be justified under the Commerce Clause, instead redefining it as an exercise of the tax power. It is perfectly legal to go without the health insurance that Congress thinks you should have, the Court said, as long as you pay the "tax" imposed on people who reject the government's recommendation. That interpretation creates new challenges for ObamaCare.
Even paying the penalty is effectively optional, because Congress, for political reasons, barred the Internal Revenue Service from using its most effective tools -- liens, forfeiture and prosecution -- to collect it. As The Associated Press recently explained, the IRS, confronted by uninsured taxpayers who refuse to pay the penalty, must instead resort to "scary letters and threats to withhold tax refunds."
How effective will those letters be once taxpayers realize the threats are empty? They can even avoid having the money taken out of their refunds by adjusting their withholding or estimated tax payments so that they come out even (or owe a little) at the end of the year. In practice, no refund means no penalty.
After ObamaCare was enacted in 2010, the Congressional Budget Office projected that some 4 million Americans would choose to pay a penalty in 2016 rather than comply with the health insurance mandate. Testifying before the House Ways and Means Committee last week, Steven G. Bradbury, who headed the White House Office of Legal Counsel under George W. Bush, argued that number "will be considerably greater" once people understand they have no legal obligation to buy coverage. In fact, since the penalty is essentially unenforceable, it is possible that it won't produce any revenue to speak of, which would make it an odd tax indeed.
A medical analogy for the American economy
It could be close to collapse without anybody knowing it -- not unlike the old Soviet system
As far as the economy (is concerned), all these attempts at regulation are in response to people making selfish, manipulative, immoral decisions. I’ve worked in healthcare which is highly regulated, and I have seen the regulations pile on and on over the years. I’ve also seen how easily people circumvent them, in the spirit if not the letter. I don’t think there’s any external substitute for people who have learned integrity from childhood.
I’ve been thinking of the economy as much like a human body: very complex with many interactions and systems to maintain homeostasis when one thing changes. Like the economy, there can be a lot of compensation over a long time before the ability to compensate runs out and there is some form of collapse. I’ve seen a person gradually put on hundreds of pounds of fluid before going in to acute heart failure and then wonder how that could happen so suddenly. I’ve also seen people get unusually thirsty and drink sugared pop for months til they were “suddenly” in a coma from a blood sugar of 1200.
OK. You have the collapse, and you do all the things that have worked in the past: drugs, IV’s, education. You get the patient stabilized (Low interest rates, stimulus, recapitalizing banks, etc.) Now, unless you can fix the underlying problem (reform labor markets, wean the system off being so dependent on credit, allow bankruptcies and foreclosures to proceed expeditiously), you’re left with giving drugs (more stimulus, low interest rates for an extended time), some of which cause side effects that create more problems and require more intervention. If the patient doesn’t take the medicine the right way, or refuses to follow advice about diet, exercise, etc, things gradually get worse and it’s more and more difficult to stabilize the patient. Death ensues.
I see the economy being at the stage of compensation using a lot of interventions that will cause more and more problems if they are maintained long-term, and no willingness to do the things that will improve things in the long run. In other words, I’m as pessimistic as you and have been ever since I first did research to try to understand what was happening in ’07.
There is a new lot of postings by Chris Brand just up -- on his usual vastly "incorrect" themes of race, genes, IQ etc.
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)