Folsom: The path to poverty in Detroit
In 1964, President Lyndon Johnson declared “all-out war on human poverty and unemployment in these United States.” He fought his war by pouring vast sums of tax dollars into Detroit and other major cities.
More than 50 years and trillions of dollars later, Detroit has lost most of its citizens and its wealth. Poverty defeated prosperity in LBJ’s war in Detroit.
Why would pumping federal dollars into Detroit create more poor people and chase away the rich ones? Because federal cash has strings attached that choke incentives, support political elites and scare away entrepreneurs.
During the 1960s, Mayor Jerome Cavanagh implemented a special income tax on Detroit residents, which encouraged people to leave. Then he formed close political ties with Washington elites to get Detroit as much federal cash as he could.
“We had a very receptive administration in Washington,” Cavanagh noted, “one that was looking for programs to make them look good.” According to Sidney Fine, professor of history at the University of Michigan, “Detroit received $230,422,000 from the federal government for one program or another” between 1962 and 1967.
But the federal money mostly went for bureaucrats and administrative costs. “The poor people in Detroit’s inner city,” one federal investigator discovered, “believe they are untouched by federal programs.” According to Fine, in the heart of Detroit’s poorest neighborhoods, “44 percent of the families in the area had annual incomes below $3,000 in 1959, [(but)] the number of such families had increased to 47 percent by 1967.”
But Johnson and Vice President Hubert Humphrey, the Democratic candidate for president in 1968, were too heavily invested politically to admit error. Instead, Humphrey in 1966 declared Detroit’s anti-poverty programs were “second to none” in the nation. The late Sargent Shriver, the national director of the War on Poverty, said Detroit had “one of the best local programs” for fighting poverty in the nation.
The next generation of Detroit politicians continued to chase federal dollars and raise taxes on the entrepreneurs who might have created jobs for Detroit’s poor neighborhoods. Berry Gordy started Motown in the 1960s in his basement, but growing local taxes and regulations today make such start-up industries almost impossible.
The city income tax started by Mayor Cavanagh has increased from 1 to 2.5 percent and Detroit also has a special 2 percent tax on business income. Detroit is the only city in Michigan with a utilities tax, and start-up businesses are often hit with license fees. Fumigating contractors, for example, must pay $312 for a business license; movie theaters also must pay special taxes. No wonder most movie theaters have left town; and no fumigators are left to clean out the greedy politicians.
The political fix is in, but the entrepreneurs are out — and the war on poverty has left Detroit with more poverty than ever. More freedom, not more government, has been the way out of poverty for much of the world in the last two hundred years.
Burton Folsom, Jr., a Young America’s Foundation speaker at the University of Detroit-Mercy on Thursday at 12:30 p.m. at 4001 W. McNichols, is professor of history at Hillsdale College.