In 1907 Eugene Richter wrote a book entitled “Pictures of the Socialistic Future”. The rise of communism and socialism did not occur until decades later, which makes the accuracy of Richter’s prophecies more chilling. Ritcher applied basic economics to how people would handle the transition to socialism. Ritcher’s point, although not necessarily explicit in his book, is that human nature does not change. People respond to incentives no matter how the fabians try to order society. Why was Ritcher’s predictions accurate? Was he lucky? Did socialism fail because of seven straight decades of bad weather, as the Communists claimed? After all: “correlation does not equal causation”. Or did a basic understanding of economics inform him of causation even before events occurred?
Econ 101 tells economists many things about how people will respond to an increasingly statist political state (or city). Increasing taxes and regulation will cause what is known as deadweight loss (the absence of which causes compounding potential loses to society). In addition, regulation and taxes create barriers for immerging businesses (as established businesses know how to handle the red tape). Increasing taxes moves capital and income into areas with the highest return (which might be offshore or in another city). Protectionism causes stagnation, as businesses are not incentivized to innovate. High unionism discourages businesses from innovating, controlling costs, and expanding (current US law creates a special status for “unions” where criminal acts are not prosecuted and businesses are coerced by the state into negotiations). Where there are high welfare benefits, there will be free rider problems. The list goes on. In all, basic economic theory states that the more government involvement in the market, the less productive a society would be.
Detroit, designed by President Lyndon Johnson to be the progressive “City on a Hill”, was one of several cities selective to receive HUD funds for development and become a “model city”. Designed to be a model leftist city, its failure is also symbolic of the intellectual bankruptcy of socialism.
Detroit is currently designated as the most liberal city in America. It also ranks close to top in government spending, taxes, deficit, and debt. If Keynesianism was correct, Detroit should be flourishing. But instead it is floundering, like its European counterpart Greece.
One key component of Ritcher’s book was flight of the most productive. He predicted that the most productive members of society would flee in the face of socialism. This occurred in Russia and Germany in the face of socialism (Nazism and Communism). In Detroit there were no machine guns stopping the productive from fleeing. Over the course of 50 years, Detroit has lost over half its population and has long ago forgot that it was once the richest city in America. It is a telling fact that 81% of Detroit is categorized as “black”. There are no whites left to blame racism for the problems plaguing this city. The most productive have fled and left Detroit to “the people” (Detroit also makes an interesting case study of a real life Atlas Shrugged).
Why has Detroit failed long before sister leftist cities such as New York and San Francisco? One key element might be in the fact that San Francisco is in California and Detroit is in Michigan. Sunny beaches tend to draw more crowds than urban ice patches. Just as in real life, people have varying breaking points based on contributing factors. A popular meme shows a scale between how hot a girl is verses how crazy she can be. When a girl is beautiful, boyfriends allow more tolerance in negative features.
Cities work the same way. New York has society, fashion, and glamor. California has those also also along with beaches. Detroit, on the other hand, has a strong diversity in ways to be murdered. Anyone willing to tolerate Detroit can tolerate San Francisco or New York with more social benefits. Those cities may even act as Veblen Goods, a premium in price for status. (On a side note: California now only has positive population growth due to immigration).
Detroit is a model city. It models the basic principles of economics and the effects of socialism.