Demography is Destiny

The state of Michigan is in dire economic straits, a fact repeatedly mentioned in public accounts by analysts. New data from the United Van Lines annual survey of its client moves drives home the point: Michigan’s outbound traffic in 2005 was at the third-highest level in the 29-year history of the survey.

The company categorizes states into three primary groupings: high inbound, high outbound and balanced. In order to qualify as a high in or outbound state, 55 percent or more moves must be flowing in or out of a state. Midwest and Northeast states make up 80 percent of the high outbound category.

Michigan has the second highest percentage of outbound moves among the 48 contiguous states at 63.9 percent. In 1981, when the state unemployment rate averaged 12.5 percent, UVL recorded its highest-ever outbound traffic from Michigan, when almost 67 percent of its Michigan client traffic was outbound.

This trend has dangerous implications because Michigan is hemorrhaging its people — the lifeblood of economic phenomena. People start cutting-edge businesses, invent new products, build infrastructure and consume goods and services. Every car full of people the state drives from its borders is one that potentially carries with it the next Henry Ford, Will Kellogg, Herbert Dow or Berry Gordy. To paraphrase an old saw, our demography is our destiny.

The Mackinac Center has performed an econometric analysis of the UVL information with year-by-year migration data obtained from the federal government’s Bureau of Economic Analysis. Our conclusion is that UVL move data is very highly correlated with the migration patterns of the American people.

If people are fleeing the Midwest, where are they moving? According to UVL data it is to the south and west: Oregon, Idaho and North Carolina top the list. Many variables go into a person’s decision to move, but superior economic opportunities probably tops the list of reasons. That would mean that states with better economies should draw more people.

Ohio University economist Richard Vedder has probed this question with respect to taxation. In December 2005 Vedder published an essay in which he described an "historic American migration" from high tax states to low tax ones. He noted that in the 1990s 2.8 million people moved to the "10 states with the lowest overall state and local tax burden" while 2.1 million fled the 10 states with the highest burdens.

But there is more evidence, says Vedder. Scholarly studies that control for other variables, such as weather or immigration, still show that "the negative tax migration relationship exists." According to the Washington, D.C.-based Tax Foundation, eight of the top 10 inbound states in this year’s UVL survey have lower state and local tax burdens than Michigan.

Unfortunately, Lansing politicians have responded to Michigan’s crisis with more of the same bad policies, including tax hikes and new "economic development programs." The Cool Cities and the 21st Century Jobs Fund initiatives are both good examples of economic gimmickry born in Lansing. The state may also expand its $3 billion Michigan Economic Growth Authority program just months after the Mackinac Center showed empirically that it had virtually no impact on employment, the unemployment rate or per-capita personal income in Michigan.

Only bold changes to Michigan’s public policy landscape will turn around Michigan’s economic fortunes. We have long recommended ending the Single Business Tax with corresponding dollar-for-dollar cuts in state spending and passing right-to-work legislation, which bans the practice of requiring union membership or financial support as a condition of employment. Another idea worth perusing is placing before voters a state constitutional amendment that, if approved, would stop overspending by Lansing politicians.

Some observers have commented hopefully that Michigan’s economy may have bottomed out and recovery is near; but that is neither automatic nor inevitable. Economies can and do fall (or at least move sideways) for decades. Policymakers must move quickly and boldly to stanch the flow of its people or Michigan will long remain the sick man of American states.

Michael D. LaFaive and Michael Hicks are, respectively, director of fiscal policy and adjunct scholar for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.