Financial Advisor: Does Government Intervention Result in Unintended Consequences

Grand Rapids, MI -- (SBWire) -- 04/21/2011 -- Dennis Tubbergen is a financial advisor, advisor to financial advisors, author and radio talk show host. When he’s not busy with his own clients or putting out his monthly newsletter Moving Markets?, you might catch him writing his latest book.

“I’ve been working on a book about where we are economically and what possible courses of action folks should consider taking with their finances,” explains Tubbergen. “As I’ve been researching the book and the actions of the government and the Federal Reserve – as well as the first two central banks of the U.S., both dissolved after 20 years -
I’ve come to the conclusion that much of what the government tries to do through spending and policy that micromanages the lives of citizens backfires.”

Tubbergen believes the City of Detroit is a great example and gives us an excerpt from his book, with sources listed as Stansberry Research, US Code Online, The Wall Street Journal from March 23, 2011 and The Daily Crux from October 29, 2009.

“The City of Detroit is a perfect example of failed regulation and failed bureaucracy,” Tubbergen writes. “The Model City program, initiated by President Lyndon Johnson in 1966 as part of his Great Society programs, poured a total of about $1 billion into the City of Detroit to attempt to revitalize the inner city slums. The result?”

Tubbergen claims by the mid 1990s the Model City area lost 63% of its population and 43% of its housing units. In 2009, an auction was held to sell over 9,000 seized homes and lots, many located in the Model City area. Only 20% of the properties sold despite the fact that bidding began at just $500 on many properties.

“Recently, the Census Bureau reported that the population of the City of Detroit fell by an unbelievable 25 percent over a 10-year time frame,” cites Tubbergen. “The last time that Detroit’s population was that low was 100 years prior to the recent Census – in 1910, when automobile production was transforming Detroit into the Motor City. Shocked Mayor Dave Bing asked the Census Bureau for a recount as city officials were expecting a number closer to 800,000.”

If you’re not familiar with the Model City program, here is some background as it relates to the City of Detroit. In Detroit, the Model City program attempted to turn a nine square mile area into the government’s idea of a model city. Government bureaucrats were telling people where to live, what to build and which businesses should be opened and closed. In return, people received cash, training, education and healthcare.

“Immediately after the Model City program was initiated, 22,000 middle- and upper-class citizens moved out of the city,” notes Tubbergen. “These folks simply didn’t like paying higher taxes and being told what to do.”

In July of 1967, police attempted to break up a party in the middle of the new Model City; their efforts resulted in a race riot that was one of the worst of the 1960s. According to Tubbergen, the mayor of Detroit feared that additional police presence might only make matters worse, so he did nothing to stop the riots. Five days later, President Lyndon Johnson sent in two divisions of paratroopers in order to settle things down. Over the next 18 months, another 140,000 people exited the city, almost all of them middle- and upper-class individuals.

“Instead of coming to the realization that this type of central planning didn’t work, in 1974 the program was expanded under the Community Development Block Grant Program,” continues Tubbergen. “Under this program politicians and bureaucrats would decide which groups and individuals would receive funds for various renewal programs and efforts. Despite these efforts, the exodus from the city continued.”

Today, with the population of Detroit down to just over 700,000 from about 2 million in the 1950s, the unintended effects of the Model City program are clear.

“There are many examples of government policies that had outcomes different from those that were intended,” concludes Tubbergen.

Tubbergen posted the above excerpt on his blog on April 1, 2011, claiming, “This seemed like a good topic for April Fool’s Day.”

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at http://www.dennistubbergen.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at http://www.everythingfinancialradio.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee.

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