It's the Attitude, Stupid!

A new study by Michigan Future Inc. finds that, no surprise, Michigan is a lagging in the creation of high-wage jobs requiring as least a bachelor's degree. The study says that states with an abundance of information, finance, insurance, professional and technical services and other similar occupations have the highest per capita income. Not surprising, Michigan is lacking in these areas.

When discussing what can be done about this situation, one of the study's authors claims that rather than providing tax breaks and incentives to attract businesses to come to Michigan, the state needs a base of highly educated workers. That's fine, but does he expect that highly educated workers are just going to hang around Michigan waiting for some company to move here? I don't think so. People who live in the state and get a good education are likely to look to places where they can put their expensive skills to work, not hang around waiting for some high end company to come along.

The problem with Michigan is that it is mired in the past. The attitudes of many of its citizens, and certain of the government, are tied to Michigan's manufacturing past. This past is marked by animosity between labor and management. People have the attitude that companies are evil creations. As a result we have more expensive labor laws and regulations.

What Michigan needs are companies that are willing to take a chance to move here. In order to do that, the state needs to be a place that people will want to move. Companies aren't going to move to Michigan as long as they think that the state is hostile to business. If some desirable companies move to the state, desirable workers will come with them. Once a few companies locate here, more of our educated citizens will decide to stay and work here. We need to change our entire attitude toward business if we are going to attract the kind of companies which will help Michigan move forward once again.

How to make the Michigan economy worse

There is a petition drive going on in Michigan to place a ballot proposal on the November ballot which would force the state government to come up with a plan for universal health care in Michigan. If passed, the bill would amend the state constitution to require that the government "make sure that every Michigan resident has affordable and comprehensive health care coverage through a fair and cost-effective financing system". Not content with policies which have put Michigan's economy in the dumpster, our governor, Jennifer Granholm, threw her support behind the bill because she says that it would help Michigan businesses become more competitive. Of course this won't really happen, but what it will do is saddle Michigan with the prospect of higher taxes and more misery long after Granholm has left office. Thanks, but no thanks.

While it is certainly true that some of Michigan's largest employers (read Big 3 auto makers) might benefit from reduced health care costs, she completely ignores the fact that the costs have to go somewhere. If the Big 3 isn't paying it, then it will either fall to other employees or more likely individual citizens. A constitutional amendment which contains nebulous terms like 'affordable' and 'fair' and 'cost-effective' is like opening a Pandora's box of unfunded entitlements. Every lawyer in the state will be suing on behalf of some client to claim that the state isn't doing enough to provide 'comprehensive' coverage. Every medical practitioner of all stripes will be lobbying to have their service included in the package. This amendment will be an economic disaster for the state. If costs can't be controlled, you can bet that subtle rationing and new nanny state laws will be passed to ensure that people don't live a lifestyle which is too 'costly'. Unfortunately, economic realities never seem to get in the way of politicians who want to act like benevolent dictators, handing out 'goodies' to the populace. Both this ballot proposal, and our governor, just need to go away before they do any more damage.

Best quote from the Michigan Republican Presidential debate

In response to Mitt Romney's comment that he would have to consult attorneys before going to war, presidential candidate Ron Paul quipped:

Why don't we just open up the Constitution and read it?

Helpful Lawmakers

In today's Detroit Free Press there is an article with the headline Tax Deal Blasted as mere quick fix - Closer look shows trouble on the way. No kidding. One of the things the article points out is the fact that most of the new revenue from this tax will come from taxing business services. Guess who is a heavy user of business services? Automakers. Now, one reason Michigan is in such trouble is because of the ailing U.S. auto industry. I'm sure increased costs are just what the doctor ordered. Another way to make automakers less competitive, another reason for companies to avoid locating in Michigan. Kudos all around.

More on the new Michigan Services Tax

It's a well established fact that when you tax something, you get less of it. It's one of the main reasons why people say we should raise gas taxes, or raise the cigarette tax. Raising the tax will supposedly reduce demand and help people stop smoking or driving too much. For some reason, however, people (politicians in particular) seem to forget or ignore this little fact of life. Granted, the amount of reduction is based on the price elasticity of demand, but in general you will see a reduction in the amount of something purchased if you raise its price. Adding a services tax will raise the price of most services and therefore less of it will be purchased

Pro tax editorials and commentary seem to be focusing on services purchased by individuals and they remark that the cost to an average household may only go up a couple hundred dollars. What they ignore is the cost the new services tax imposes on businesses which purchase services. For example, many companies have started outsourcing janitorial services. This allows the business to focus on its core competency, which probably isn't in providing janitorial services, and it allows janitorial service companies to form and benefit from economics of scale. The net effect is that businesses save money on services, and the services company is able to provide employment. Now, when the services tax kicks in, some companies may find ways to cut back on the janitorial services they use. When they do, janitorial service companies will have to cut back on their employment. Who suffers the most, the worker for the janitorial company.

You may argue that the company purchasing the service can just pass their extra costs on to their customers. Quite possible. However, it puts this business at a competitive disadvantage over companies in other states which aren't subject to these additional costs. One of the arguments put forth by our politicians to support this tax is that it will strengthen Michigan and make it more attractive. However, by increasing business costs, they are making Michigan companies less competitive. In addition, companies which may be thinking about relocating to Michigan will have to take these increased costs into account in deciding whether to come here or not. Companies already here have reasons to consider moving elsewhere. Anyway you look at it, the new tax will be harmful to the Michigan economy.

More details here

Economic Stupidity

Recently the State of Michigan Legislature passed a new budget which called not only for an increase in the state income tax, but also an expansion of the state's 6% sales tax to include services. All of this to fix a $1.75 billion dollar shortfall in the current budget. This $1.75 billion amounts to about 5% of the annual budget. There were some cuts and other changes which will supposedly save some money, but the bulk of the $1.75 billion will supposedly come from the new taxes.

Now, if you don't know this, Michigan is currently undergoing it's own private recession. It's unemployment rate, at 7.4%, makes it the worst of any state in the Union. The next worse is Alaska at 6.3%. Michigan is also losing residents to other states as our economy continues to falter. So what do our leaders think will solve our economic woes? More taxes. They seem to think that we can tax our way to prosperity. What is more likely to happen is that it will further retard the economy and lengthen the period of any recovery.

The biggest mistake made by the legislature is the new tax on services. Of course, the tax is only going to be applied to 'discretionary' services, where 'discretionary' is simply defined as businesses which didn't have lobbying clout. For example, landscaping is taxed whereas golf isn't. Golf, of course, is a necessity of life so we couldn't tax that. Landscaping, however is obviously something that only wealthy people can afford. Possibly true, but the people who work for landscapers typically aren't

What our elected officials don't seem to grasp is that when you tax something, you get less of it. If landscaping costs more because of the tax, people won't do as much. The people who will feel this the most will be the people who work for landscape companies. This is all very similar to what happened a few years ago when Congress passed a luxury tax on yachts. It was supposed to hit the wealthy. Unfortunately the wealthy decided they didn't need to spend the extra money on a new yacht if they were going to have to pay a big tax. So, fewer yachts were purchased. Of course, this had bad effects on companies that made yachts, ultimately resulting in layoffs of workers. A similar thing is likely to happen in Michigan.

One of the services which is to be taxed is skiing. Michigan may not be a skiers nirvana, but we do get some people to travel here to go skiing. Also, people who live in the state will often times visit resorts here. Now, with an additional services tax, people may think twice. I know that I will go fewer times. In addition, ski instruction will be taxed and again people will likely not purchase as many lessons as before. This will result in less revenue for ski areas, thereby reducing other tax collections. Fewer tourists also results in less money coming to the state. Ski instructors may decide to leave for greener pastures. All things which hurt, not help, the state economy.

Our state already has a reputation as being a poor place to do business, we don't need to make things worse. Supporters of the tax increase say that we will be better off because we can use the money to provide needed state services. Roads and education, for example. Of course, roads have a funding source called the gas tax. It's close to a use tax and is paid by the people who use the roads. If roads need additional funding, it should come from places like that. With education, much of the state budget is spent on teacher retirements, not on improving the classrooms. If we really wanted to improve education, we should simply privatize the entire thing.

5 years ago when Jennifer Granholm was running for Governor, she promised people that in 5 years we would be "blown away" by the Michigan economy. I guess we now know what she meant.

I feel so much safer!

In today's Ann Arbor News there is a front page story about how the people of Ann Arbor were saved from unwrapped bread being sold at the Ann Arbor Farmers Market. A vendor from Chelsea (a city near Ann Arbor) had brought some bread to sell at the market. A State of Michigan food inspector from the Department of Agriculture cited the vendor for keeping his bread in the open air. She ordered him to pour dish soap on the bread so it could not be sold.

This whole incident just seems like a complete waste of time and money. The vendor is selling unwrapped bread. Customers can clearly see that the bread is unwrapped. If a customer chooses to purchase the bread they do so with full knowledge of the circumstances. A similar situation arose a few months ago at a local food speciality store. The store sold unprocessed milk from a local organic dairy. The customers who purchased the product knew exactly what they were getting, yet inspectors told the store that it couldn't sell the product to willing customers.

The State of Michigan is currently undergoing a budget crises. Perhaps they could start saving money by cutting back on these sorts of inspections.