Michigan’s Russian Roulette

I am old enough that when I listened to Gov. Jennifer Granholm’s Jan. 25 State of the State message, I was reminded of the "Politburo" speeches of the old Soviet Union. The governor, rather than attacking Michigan’s severe economic problems by capitalizing on our market economy, emphasized her administration’s plan to create a "transformed" Michigan economy "in five years" — in other words, a five-year plan.

This five-year plan does not include reducing the cost of producing goods and services in Michigan — something that would attract industries trying to compete globally. Instead, the plan is built around the 21st Century Jobs Fund and other state programs that substitute central planning for the market process.

The 21st Century Jobs Fund sets up a group of government-appointed planners to invest our tax dollars in what the planners decide are attractive businesses. One might ask why giving billions of dollars in citizens’ taxes to a government bureaucracy to disburse to the politically connected will turn out better than what citizens’ would have accomplished risking their own money. Similarly, one might wonder why individuals are unwilling to invest their money in Michigan businesses in the first place.

Another part of the governor’s plan is an acceleration of planned road building. Some people involved in road construction will collect paychecks from the state in 2006 rather than 2007, but how does this improve the state’s economy in the long run? The rest of the plan involves massive government intervention in the economy, including government-paid health care for 550,000 people; "affordable" education at government colleges; higher government standards for the government primary and secondary schools; governmental setting of minimum wages; a government-run retirement savings plan for workers; and a governmental fixing of prices for the insurance industry.

Michigan’s lethargic economy is not due to a lack of government plans. Nor is it due to the national economy. Michigan’s nonfarm payroll employment has fallen from 4.445 million in January 2003 to 4.362 million in December 2005. This decline occurred at the same time that the national economy was adding nearly 4 million jobs. Michigan lost 2.8 percent of its manufacturing jobs from December 2004 to December 2005, while the national economy lost only 0.8 percent of its manufacturing jobs. National monthly unemployment rates for 2005 ranged from 5.4 percent to 4.9 percent. Michigan’s monthly unemployment rates, in contrast, ranged from 7.5 percent to 6.1 percent (the current rate is 6.7 percent). Michigan ranked 47th in personal income growth in the third quarter of 2005, the most recent year for which data are available. Nearly every other measure tells the same story.

Reminiscent of the old Soviet leadership, Michigan’s policymakers even denounce bad news that reveals policy failures. In July 2005, the governor called a Wall Street Journal commentary by State Rep. Rick Baxter and me "treasonous" because it detailed the dire state of Michigan’s economy and identified high taxes as a root cause. The governor’s plan — presumably "nontreasonous" — is to not allow significant tax cuts. Although she signed a small $125 million per year tax cut for manufacturers (in a state budget of $40 billion), she has also vetoed a number of other bills that would have reduced taxes, most recently a proposed $30 million tax decrease for small businesses.

Michigan’s economy will continue to decline if its leaders do not move away from the idea that central planning can make us better off. Only individuals operating freely in a system of voluntary exchange, with their property protected in a legal framework that encourages individual responsibility and true charity, are capable of creating wealth for the poorest among us.

If we truly care about the poor in our urban centers and our rural communities, we will provide them with opportunity. This means reducing Single Business and income taxes on Michiganians’ efforts to work, innovate, hire and produce. This means freeing the labor market so that business owners and less-skilled workers can set wages independent of job-killing "prevailing wages" and mandatory union bargaining laws. It means deregulating insurers and health care providers so that they can grow, rather than cutting their services or losing money.

Simply put, it means reducing the cost of working or owning a business in Michigan. This does not call for a five-year plan; it only calls for common sense and a willingness to face facts.

Gary L. Wolfram, Ph.D., is the George Munson Professor of Political Economy at Hillsdale College and an adjunct scholar for the Mackinac Center for Public Policy, a nonprofit 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.