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Fiscal policy expert questions new report on Michigan strategy for prosperity

By   /   May 8, 2017  /   News  /   No Comments

Michigan should focus more on building regional hubs of workforce talent, investing in higher education and raising household incomes, according to a public policy report released last month.

“It should now be clear that having a growing economy, or a low unemployment, or being business-friendly – all of which have been the goals of state policymakers now and in the past – does not lead to an economy that benefits all,” says the report by Michigan Future Inc., a nonpartisan, nonprofit group that focuses on advancing Michigan’s economy.

Watchdog.org asked Michigan Future President Lou Glazer if the state could afford a better government safety net for workers or the enactment of a living wage to help raise household incomes.

“The question isn’t, ‘Can we afford it,’ Glazer said in an email. “Of course we can. It is, ‘Do we have the political will to do either?’”

But other observers of the Michigan economy are not so sure about the Michigan Future conclusions.

“His report is a mess from beginning to end,” James Hohman, assistant director of fiscal policy for the Mackinac Center for Public Policy, told Watchdog.org.

Hohman said a number of policies that Michigan has enacted have increased growth. These include eliminating a complex and burdensome business tax, passing a right-to-work law and simply giving people the ability to work together without burdens placed on them by state government.

“Michigan is a national leader in growth in this recovery,” Hohman said.

The Michigan Future report points to Harvard Business School research showing that all Michigan counties recorded significant declines in household earning power between 1999 and 2014, raising questions about the ability of the middle class to survive. Per-capita income in the state fell to 11 percent below the national average in 2015, down from just 2 percent below the national average in the year 2000, the report said.

To reverse that trend, the Michigan Future study recommends pushing more residents to attain job skills and university degrees, encouraging regions to develop burgeoning pools of workforce talent and sharing the emerging prosperity with those not participating in the high-paying knowledge-based economy.

“Ultimately, it is talent concentrations, not low taxes, that matter most to economic prosperity,” the report says. “And it is increasingly clear to us that public investments are part of what is needed to broadly share prosperity.”

Asked if Michigan policymakers had done anything positive to improve the economy in recent years, Glazer said, “By and large, no. Progress on early childhood [education] but little else on our agenda.”

Hohman criticized parts of the Michigan Future report as simply inaccurate. At one point the study says, “Michigan won’t be a high-prosperity state unless metro Detroit and metro Grand Rapids are able to compete with national talent magnets like Chicago and Minneapolis for mobile talent.”

Grand Rapids is already outpacing Chicago and Minneapolis in attracting people from other parts of the United States, Hohman said. Between 2010 and 2016, Grand Rapids reported a 2 percent population gain due to this in-migration, while the Chicago region lost 2.8 percent of its residents to other parts of the nation, he said.

Focusing too much on talent pools can be misguided, according to Hohman, who in a 2013 essay said that “talent mercantilists” tend to ignore other factors that contribute to economic growth, such as access to capital, property rights and entrepreneurial attitudes.

“Exactly what drives growth is a complex phenomenon,” he said.

The idea of increasing the number of people with university degrees or boosting support for higher education can also be wrong-headed, according to Hohman. He pointed to research that showed Georgia increased its proportion of residents with college degrees by 13 percent between 2000 and 2008, but the state’s ranking in per-capita personal income fell by 11 places over the same time period.

“Taking money from all people in Michigan and dropping it all on these 15 state universities – that’s a transfer of wealth,” Hohman said, adding that such a transfer could have regressive effects since people who are more affluent tend to go to universities.

Jason Horwitz, director of public policy and economic analysis for the Anderson Economic Group in East Lansing, offered some support for the Michigan Future report’s basic conclusions.

“The concept of trying to focus on talent to attract more business and increase business and earnings locally does ring true to me,” Horwitz said.

When companies consider relocating to an area, workplace talent is the No. 1 issue on their list, he said.

“Taxes are often on the list as well, but it’s usually a few spaces down from talent,” Horwitz said.

He also stressed that although the level of manufacturing in Michigan’s past likely won’t return, the state has the benefit of the most engineers per capita, strong higher education institutions and foundations that were built up around the manufacturing industries.

And Hohman said the decline of household income in Michigan after the turn of the century doesn’t tell the full story. He predicted that the state, with its current policies, is on a trajectory toward full recovery.

“Since 2009, Michigan median household income increased 13 percent,” he said.