Circumspice

The Detroit News comments on the Michigan Democrats’ plan to give an iPod™ to every school child in Michigan. I guess this is the scaled down version of their 2005 plan to give every child a laptop. We are, after all, facing a budget crisis.

Maybe if we can persuade our legislators to wait another 2 years before they execute, we can get the proposal scaled down to an iTunes™ gift card and assistance from Michigan Works finding employment in another state upon graduation.

An iPod for every kid? Are they !#$!ing idiots?

We have come to the conclusion that the crisis Michigan faces is not a shortage of revenue, but an excess of idiocy. Facing a budget deficit that has passed the $1 billion mark, House Democrats Thursday offered a spending plan that would buy a MP3 player or iPod for every school child in Michigan.

…Their plan goes beyond cluelessness. Democrats are either entirely indifferent to the idea that extreme hard times demand extreme belt tightening, or they are bone stupid. We lean toward the latter.

We say that because the House plan also keeps alive, again without specifics, the promise of tax hikes.

A government issued iPod for every school child is a profoundly stupid idea, but the damage from such folly is mainly that it serves to reinforce the MEA’s hegemony. There are much worse things being done in a bi-partisan spirit.

The Wall Street Journal, in the person of David L. Littman, formerly chief economist of Comerica Bank, comments more generally on Michigan’s economic woes and the constant maneuvering of the education lobby.

Restarting Michigan’s Economy (subscription)

… for much of the 20th century, Michigan was a model of prosperity, a magnet for human capital — attracting and retaining a critical mass of world-renowned engineers and entrepreneurs — and seemed destined to be an economic engine for the nation. But then came the 1970s and the state has been sputtering ever since. Today, a deep fog has settled over a once bright business climate.

… Underpinning this downturn are a few economic myths that must be dispelled. Perhaps the most pernicious myth is that Michigan is caught in a cyclical recession.

… Michigan is not in a cyclical decline. Quite the contrary. Vehicle sales in the U.S. have averaged 17 million units over the past five years. Our decline has been a trend, a steady downward slide.

… Another myth: that Michigan’s business climate ranks in the middle of the pack among the 50 states. This ignores the fact that Michigan’s private sector is contracting compared to the expanding tax bases of every other state.

The economic fog will lift when policies are enacted that make Michigan a good place to do business for newcomers as well as for existing firms. This won’t happen if the legislators in Lansing, the state capital — who advocate heavier tax burdens on the remaining taxpayers to subsidize or attract firms handpicked by government officials — get their way. These targeted subsidies simply redistribute scarce income. Nor is the governor, Jennifer Granholm, moving in the right direction. Her recent call to impose a 2% tax on most services is a nonstarter. But she’s also calling for a new tax on the estates of wealthy residents, giving those with the means an even more urgent reason to leave. Michigan’s slide will continue.

Two fundamental reforms are essential if the state is to make a comeback. Michigan was a formidable competitor prior to 1967, when the state had no personal income tax. Why not return to these days by abolishing the state’s 3.9% personal income tax and replace it with nothing? … If Florida and Texas — two of the fastest growing states in the union — can survive without income taxes, Michigan can too.

Second, it’s time for Lansing to pass right-to-work legislation, which would allow workers to take a job without also being forced to join a union. There are 22 other states with such laws on the books and those states are often the most competitive for new Toyota, Honda and other auto-manufacturing plants that are creating thousands of new jobs.

… When will this change? State economic prospects are difficult to predict because organized labor — the public education lobby in particular — now controls most tax-and-spend policy levers. Michigan’s education lobby pressures the governor to pass higher sales taxes to be funneled into public schools: Pre-schooling, K-12 and 15 public universities. But the notion that tax hikes will give us a more educated work force, and therefore offer a competitive salvation, is probably the easiest myth to dispel. Michigan education budgets have experienced meteoric increases over the past two decades, but quality has not risen; nor has the plethora of funding stopped the outflow of Michigan’s most capable graduates.

Littman mentions the corporate welfare industry – typified by tax giveaways, subsidies, free land and other concessions to business – which are actually just an admission that it’s too expensive to do business in your state. Sadly, these incentives aren’t even effective in creating jobs.

The Mackinac Center notes a Michigan auditor general’s report on Michigan Economic Development Commission claims in regard to seven companies that received a total of $120 million in grants from the MEDC in exchange for the promise to create 775 jobs.

The AG found that between 1998 and 2002, when the job creation project was complete, that the enterprises had actually lost 222 local jobs.

Federal Mogul is a more recent illustration of the economic folly of special tax breaks and incentives. The link makes it clear that it isn’t just Democrats participating.

…April 18 marks the 11th anniversary of the MEGA program, the state’s premier targeted tax incentive tool. One year ago this week, the Mackinac Center released the results of its rigorous econometric analysis of the MEGA program. The study found that since MEGA’s creation, the program had no impact on employment, the employment rate or per-capita personal income. Michigan counties with MEGA firms fared no better than those without. For every $123,000 in MEGA tax incentives offered, only one construction job was created — and those jobs lasted less than two years.

While legislators and the governor chase particular firms with targeted tax breaks, thousands of potential new business start-ups are stillborn as a result of a punishing tax, regulatory and labor climate. These losses are the “unseen” cost of government trying to pick winners and losers, rather than doing the harder but more fruitful work of making Michigan a state that is attractive to all employers — not just those with clout in Lansing.

Here’s the real lesson from Federal Mogul, Delphi, Tower Automotive, Kmart, Dana Corp., Hayes Lemmerz and all the other “winners” selected by Michigan’s economic development apparatus: Since 2003, the U.S. economy has added more than 4.7 million non-farm payroll jobs, mostly in small businesses providing products and services that no government official infected by the “fatal conceit” of central planning could possibly have predicted. These firms don’t benefit from targeted tax breaks — they pay for them.

Imagine how different things might look today if, instead of handing out narrow “incentives” to high-profile firms or politically “sexy” industries, the state’s bipartisan political establishment had eliminated the deadly tax, regulatory and labor law obstacles that inhibit job growth here, especially in small business start-ups.

Maybe we should have given iPods to Federal Mogul executives. It would have been cheaper and at least as effective.

Regarding Littman’s call for right to work legislation, I direct you to Paladin’s post – If Jobs Really Matter …… – of February 17th.

Also, check out the top reasons MEGA grant applicants cite for why they might move out of Michigan or expand elsewhere.

“Shortage of iPods” must be buried in the 2% “Other” category.

Update: 5:18PM – Through the Looking Glass; Darkly

Quoted in the Detroit Free Press, here’s Michigan’s Speaker of the House Andy Dillon on his plans for increasing revenue.

…One bill introduced Thursday exempts commercial and industrial property from the personal property tax, a $1.3-billion hole in the state budget for the 2007-08 fiscal year. That’s on top of the $1.9-billion loss of revenue when the Single Business Tax expires Dec. 31.

Dillon, a Redford Township Democrat, said his plan would transfer the burden of business taxes from companies that have a presence in Michigan to companies that do business in Michigan but don’t have facilities in the state.

“We would eliminate the personal property tax and focus on a net worth type of tax that shifts the burden to companies that export jobs to other states,” he said.

Apparently, Speaker Dillon is unaware that businesses don’t pay taxes, that the benefits of free trade are settled science, and that command and control economics have always failed. In his defense, he is a Democrat, being ignorant of economic reality is part of his job description. OTOH, the Republicans who will probably support this statist proposal cannot claim ignorance without admitting they actually are ignorant.

The Speaker seems to think Michigan can afford to punish the nasty out-of-state traders with impunity. So, who does he think trades with them now? And why do they trade? What will happen when the trade diminishes drastically? Practically speaking, Mr. Speaker, where do coffee and bananas come from? How about cherries and maple syrup? And cars?

Targeted tax decreases can be made to stick so long as the recipients can’t get a better deal. Targeted tax increases require a totalitarian control that is thankfully beyond Mr. Dillon’s grasp.

As a practical matter, I’m interested in what constitutes a “facility” for Dillon’s purposes. Can I rent out my house and acreage to a company that “exports jobs to other states” to provide them with a “facility” here? If Dillon’s plans go through it’s going to be a lot harder to keep out-of-state customers, and I’ll probably need the income. The alternative would be to apply for a job with the state in the Department of Defining Facilities Department. A growth industry for sure.