Thursday, October 26, 2006

Michigan: Single State Recession?

From today's WSJ, an editorial about Michigan's economy and upcoming election for governor, written by Michigan resident Shikha Dalmia of the Reason Foundation.

That Michigan has become the Mississippi of the Midwest is no secret (actually, Mississippi is doing better than Michigan right now). While the rest of the country is experiencing real overall growth of 3.2%, Michigan is in a single-state recession. Its unemployment rate, at 7.1%, is twice the national average; it was the only state last year not hit by a hurricane to lose jobs. Personal per capita income is 7% below the national average. Home foreclosure rates have doubled this year. And over the last four years, 200,000 economic refugees have left the state, a trend that will only accelerate as the ongoing downsizing of the Big Three forces other auto-related industries to lay off workers.

The fundamental reason why not a single non-U.S. auto maker like Honda and Toyota has ever opened a major plant in Michigan -- notes David L. Littmann, a senior economist at the Mackinac Center for Public Policy -- is not a lack of these offices (MP: Devos' plan to make Michigan globally competitive involves opening offices in 10 countries to promote trade and tourism), but that it costs too much to generate wealth in this state.

Thanks to the strong union presence, Michigan's labor costs relative to productivity are the second-highest in the nation. Normally, an economy might adapt to such realities by "diversifying" -- to use a buzz word that both candidates bandy -- into non-unionized service industries. But Michigan's onerous combination of redistributive regulations and high taxes has prevented even this from happening, making it more vulnerable to the imploding auto industry.


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