Jay Reding.com

The Sick Man Of The Midwest

Rich Lowry has an interesting piece in National Review Online on why Michigan’s economy is one of the worst in the country as a direct consequence of decades of liberal social policies:

Michael LaFaive of the Mackinac Center calls Michigan “the France of North America.” Economically competitive states might have a personal income tax, or corporate income tax, or sales tax — Michigan has all three. It has long been the only state with a European-style, value-added tax — the Single Business Tax. A company can be in bankruptcy and still have a tax liability, making Michigan a bad state even to lose money in. In a 2002 filing for relief from the tax, General Motors explained that it would operate at a loss, but one of its projects would still create a $7 million-a-year tax liability.

Michigan recently repealed the Single Business Tax effective at the end of 2007, but has punted the decision about how to replace it. A relative moderate, Gov. Granholm has resisted general tax increases, but levied new fees, sin taxes and other “revenue enhancers.” The state still insists on trying to target tax incentives and other special breaks to favored businesses, in a doomed replay of 1970s-era industrial policy.

Michigan is one of the states that has no one to blame but itself for its incredible economic failure. Michigan assumed that a single industry would be enough to support its entire economic base — and that’s never true. The combination of technological change and foreign competition has altered the economics of the auto manufacturing industry in fundamental ways. The economic and political control exercised by the unions ensured that Michigan’s government remained largely wedded to that one industry.

Just as only a fool would invest their entire savings into one thing, an economy based on one single industry is constantly under threat. As Lowry points out, Michigan’s high-tax, low-growth policies are now coming home to roost in a state that’s seen massive job losses due to poor public policy. He’s also right in pointing out that Michigan is a state that has done nearly everything that liberals think would make the US economy stronger — and it simply hasn’t worked.

Michigan’s lack of economic diversity, punitive levels of taxation, and incredible inflexibility have caused innumerable suffering as workers lose their jobs and are forced to move to states with more opportunities who don’t embrace the same set of failed policies. The lesson here is obvious: those states that attempt to enact the same set of principles risk coming to the same negative outcomes.

5 responses to “The Sick Man Of The Midwest”

  1. Mark says:

    Is Michigan’s economy any more or less wedded to one industry than other part of the country? Should Texans be branded as idiots for centrallizing their economy around oil rather than “diversifying”? The Republicans are idiotic at best, and slimy opportunists at worst, for attempting to seize on Michigan’s economic ills as a product of liberal ideology rather than the free trade juggernaut Republicans have jubilantly foisted upon them in a deliberate attempt to ruin them and then point fingers at “liberal failure”. Michigan’s problems have nothing to do with “liberal failure” and everything to do with incredibly incompetent management by a couple of manufacturing barons that became arrogant. Voters appear to be realizing that as Jennifer Granholm has now reversed her popularity slide and is now leading Dick DeVos in every poll released in the last few weeks.

  2. Jay Reding says:

    Is Michigan’s economy any more or less wedded to one industry than other part of the country?

    In short, yes.

    Should Texans be branded as idiots for centrallizing their economy around oil rather than “diversifying”?

    Texas has a very diverse economy. For instance, despite the failure of Enron, Texas’ economy still outperformed that of Michigan. There’s a difference between having a significant investment in one industry and basing so much of one’s economy on it that you’re tied to the fates of that industry.

    The Republicans are idiotic at best, and slimy opportunists at worst, for attempting to seize on Michigan’s economic ills as a product of liberal ideology rather than the free trade juggernaut Republicans have jubilantly foisted upon them in a deliberate attempt to ruin them and then point fingers at “liberal failure”.

    Except for the fact that free trade didn’t just hit Michigan, it hit everyone, and only Michigan seriously suffered for it. It was precisely because of those policies that Michigan underperformed nearly every other state in the Union. Hiding behind cheap insults doesn’t make it any less true.

    Michigan’s problems have nothing to do with “liberal failure” and everything to do with incredibly incompetent management by a couple of manufacturing barons that became arrogant.

    Barons who happened to be Democrats and part of the union establishment that has had a stranglehold on Michigan politics for decades now.

    The facts don’t change. If liberal policies actually worked, Michigan shouldn’t have experienced what it did.

  3. Mark says:

    “Texas has a very diverse economy”

    So does Michigan. We’re not talking about Minnesota’s Iron Range here where one industry is the economy. I’d be curious to see what percentage of the Michigan economy is wedded to the auto industry….and how that compares to other states. Your premise here is the usual GOP opportunism to kick people once they’re down after assisting their downfall in the first place.

    “free trade didn’t just hit Michigan, it hit everyone, and only Michigan seriously suffered for it”

    I don’t know about that. From 2001-04, non-union North Carolina lost more jobs than any other state and continues to lose them today (mention NAFTA or CAFTA down in Kannapolis or Rockingham at your own peril). Michigan just happens to have taken the baton from the Carolinas in 2006 because of the auto industry’s woes. And what about Ohio? It’s economy is a kissing cousin to Michigan’s, yet its state government has been entirely in the hands of Republicans for a generation. So much for the “liberal failure” strawman.

    “Barons who happened to be Democrats and part of the union establishment that has had a stranglehold on Michigan politics for decades now.”

    The management of Ford and GM, who spit in the face of common sense and auto industry trendlines for decades, were not Democrats and are only part of the “union establishment” because they have to be, not because they choose to be.

  4. Ford-GM Have Talked about Merging…

    GM and Ford merging would rock more than Detroit: Senior executives at General Motors and Ford Motor Co. have discussed……

  5. Seth says:

    If Ford and GM hate unions, red tape and higher taxes, why are car companies moving plants to Canada?