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Michigan’s Economic Contraction: A Case Study for the Other 49

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The Detroit News, an already thin newspaper now only printed three days a week, normally publishes optimistic stories, especially with regard to the economy. No, really, the News’ pages are not full of murder coverage or our goofy, downtown Detroit politicians who seem to be outdoing themselves in the bonehead department. The news media in Detroit is quick to latch on to any story that may show a sliver of hope and expand it exponentially, which is why I cannot watch local news and can only stomach the paper on weekends.

When the Super Bowl or Final Four comes to town, it’s our salvation. When the streets are closed because of film production, it’s the Second Coming.

Believe me, I wish I had a pair of rose-colored glasses. It gives me no great pleasure to witness an economic contraction leaving Michigan reduced to a third world state. The drop-out rate in Detroit is alarming, the MEAP scores are sliding, and driving down a major thoroughfare during spring is like driving on the moon. Michigan is not a bad place to have spent the last 22 years, but it’s no paradise. However, you’d have to be blind or on serious chemicals not to see what’s really going on here. This state’s rocky downward slide has been readily apparent for many years, at least to me. And now there’s proof from the News.

Last weekend, the Detroit News ran a two-day series on the mass exodus from this garden spot of the Midwest. Since 2001, almost 500,000 people have left for greener pastures, usually opting for Arizona, California, Florida, and other southern states. Over 109,000 more left than moved in during 2008.

Many of those fleeing are young people, about half the college graduates this state pumps out. There are more Michigan State graduates living and working in Chicago than there are in any other metro area, including any in Michigan. My own two children, both of whom were born and raised here, left right after high school, opting for college on the West Coast. Are they coming back? Only if California falls into the Pacific, and then, “home” will be at the bottom of the choice barrel.

It’s not just the warm weather these migrants are looking for. The jobs here are getting scarcer by the day. Unemployment figures for February topped out at 12%, and that’s just those who are on the rolls. There are many more including those who I call friends who have given up the search. Thus begins the toilet bowl spiral. If people can’t work, they lose their homes. They may find jobs in other states, but they can’t sell their homes because the real estate market is awash with foreclosures and short sales. Either they leave and let the house go, or they give up on moving.

Of course, I have a unique outlook on the state of the state. We own a small business where the only way to a decent reward is to work hard, be thrifty, and keep costs down. We don’t have the luxury of union contracts, guaranteed health care, paid vacations or a cushy retirement to look forward to. There are no freebies or hand-outs here.

In some locations, we have kept the price of our program to the same as it was in 2001. In others, we’ve actually reduced what we charge even though it cuts into what meager profits we might realize, after federal tax, state tax, and small business tax. We don’t see the cost of doing business (or anything else) taking a nosedive. It would be helpful if I could buy a gallon of milk at 2001 prices. We know that competition for customers is fierce and money is tight for everyone. It’s what we have to do in order to survive.

Michigan is a state that has relied heavily on the auto industry to keep it afloat. The ancillary support businesses are a huge part of the equation. Everyone else is here because of the manufacturing base. As a result of decades of good times, the state adopted the same boom-time mentality as the auto manufacturers. Our state government is top heavy with entitlements and clogged with too many legislators and bureaucrats for a dwindling population.

However, gone are the glory days, when jobs were everywhere and the economy was flush. Putting all of the state’s economic eggs in the auto industry basket was convenient to do back in the Big Three heyday, but it was also unfortunately short-sighted. The automakers are feeling the pinch, but it’s hard to get away from that feeling of those glory days. Being unable to adjust with the economic contraction will likely be the downfall of GM and Chrysler, and the rest of our state will follow close behind.

The rest of the country has yet to feel Michigan’s pain. Two years ago, the housing market began to look scary, and while home sales in Detroit are up 30% in 2008, the increase is not due to an economic recovery, but to the quick sales of foreclosures. When a house costs less than a big screen TV, there are always those who can scrape up a thousand dollars or so. Commercial property is another story. Two years ago, on a different website, I documented the one mile walk from my home to my office by taking photographs of buildings for sale or lease. At the time, there were 18 empty properties; now there are two dozen.

Instead of proposing fiscal responsibility as a reaction to the contraction, our Democratic governor, Jennifer Granholm, pushed through some programs that offered only short-term relief, and none to the long-suffering small businesses who are the backbone of the rest of the state and who already struggle to stay afloat here. Tax incentives for Hollywood producers, where a 40% rebate is paid back to those making films here, is only a year old. I shudder to think what the true costs will be once the accountants are through with it. While this plum deal brought many films to Michigan, these companies brought only fleeting business to the state. Like hosting the Super Bowl and Final Four games, these “events” are touted as bringing in millions of dollars into the area.

What Michigan needs is more than a temporary infusion of cash. It needs people who want to stay here because there are jobs here. It needs people who are willing to invest in long-term projects and permanence. It needs a responsible government that can cut wasteful spending and save.

To this end, Governor Granholm decided to make Michigan a “green” state, concentrating on luring battery manufacturers for the upcoming conversion to electric vehicles. I thought, good deal. I’m all for being environmentally conscious. I drive a Prius and mow my lawn with an electric lawn mower. I was initially excited about the Chevrolet Volt, the all-electric car due out in 2010, that is, if there is a General Motors still in business then.

However, even the hopes of this project are being dashed, and for those who had the insight, I’m sure they could have warned Governor Jen in advance. You see, for electric cars, one must have a necessary component and a lot of it, namely electricity. Electricity is made by one of a few ways, by hydro, coal burning plants or nuclear energy. In addition, the energy grids have to be updated to support the increased use of electricity. A fleet of electric vehicles within one state or one county would black out the grid as it is today.

Such an endeavor, while initially a good idea, was not well-conceived. The idea of cap and trade would be hugely detrimental to such a project. The current administration in Washington is staunchly against coal and nuclear, and while there’s plenty of water around here, not much of it is conducive for hydro. However, no one seems to be looking at these wrinkles in the battery producing picture. This state is still holding on to the dream that battery manufacturing is our goldmine, that this is our lottery ticket. We see a couple of bucks and our eyes glaze over in anticipation.

Things will likely get much worse before it gets better. With two of the Big Three facing bankruptcy, the turnaround isn’t in the picture yet. And while the rest of the 49 aren’t feeling the pain, the possibility of state contractions like the one in Michigan is very likely. As consumers tighten their collective pocketbooks, the outlook for the business sector is tempestuous at best. And without a business sector, who will be left to tax?

The dismantling and restructuring of the financial system and the increase in government control is only the tip of the iceberg. The rest of the country should take a look at the Mitten State and learn from our failure.

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About Joanne Huspek

I write. I read. I garden. I cook. I eat. And I love to talk about all of the above.
  • http://ruvysroost.blogspot.com Ruvy

    Excellent article, Joanne. So, my question is this? Will you be imprisoned on the Michigan Titanic because of falling equity values? Or can you see your way clear to leaving the Mitten State – and possibly, if necessary, the United States.

    If you haven’t thought about this seriously, your own article should give you pause.

    I will not leave Israel – I came here because I’m Jewish. But putting myself in the shoes of a non-Jew possibly facing disaster in the States, my eyes fastened on Australia. It looked great for a while – until I considered the 1.5 billion Chinese to the north….

  • http://www.joannehuspek.wordpress.com Joanne Huspek

    I only wish I could leave. As you know, I’m not from here, and I have relatives in other states. But where to run to? Australia looked good to me too, but it seems like civilization is eating itself alive. We’re actually in better shape than most, but we’ve had that conversation: when is it not worth it?

    Getting pretty close, if you ask me.

  • http://www.futonreport.net/ Matthew T. Sussman

    First of all, the DN only delivers three times a week. I think they still publish daily, but only for newsstands.

    But as for the state, I just bought a home in Ann Arbor because of my steady job. Maybe AA is a little different than the rest of Michigan (What? No Pfizer anymore? Meh) but I don’t feel the crunch as badly as those in Detroit do.

    Having said that, yes, having a major sporting event come to Detroit and listen to the national reporters feature the economic decline … my god, men, do you have nothing else to discuss?

  • http://ruvysroost.blogspot.com Ruvy

    my God, man, do you have nothing else to discuss?

    Well, there is sports always, Matt. What are the Twinkies doing these days? What about the Mud Hens?

    If that gets boring, we can always talk about the “Obama-villes” springing up throughout the USA. There is even Israeli politics, if you get desperate enough….

  • http://www.futonreport.net/ Matthew T. Sussman

    Here’s what I meant, Ruvy.

    When Michigan State reached the national championship game, they talked about a player from Saginaw, Michigan, noting that Saginaw “has about 20 percent unemployment.” They said that if MSU could win a national title, maybe it could energize the people in economic decline.

    Was there really nothing else related to Michigan that they could bring up in a sports telecast?

  • http://ruvysroost.blogspot.com Ruvy

    Matt,

    I understand you wanting to get away from this constant, depressing talk about economic implosion, and references to it everywhere. I’m sick of Israeli newspapers constantly talking about “poor Palestinians” every fucking time these damned terrorist try to do one of us in. But economic depression is the climate you live in, and the left-wing Arab-ass-kissing Hebrew press here is the climate I live in. Move here – nobody will talk about 20% unemployment – I promise you.

    Also, in a country like the US, with its jive unemployment numbers, 20% unemployment means something a lot higher – like 29% or so, guessing at all the folks who have become too discouraged to look for a job, but whom the government no longer counts as “unemployed”.

    That is rough stuff, Matt. Rougher than the great depression was – and believe me, that depression was rough. And it is just starting.

  • http://www.joannehuspek.wordpress.com/ Joanne Huspek

    Matt, the News only PRINTS three days a week, which is fine by me. It’s hard for me to read computer screens and I won’t read the online version except to snag links.

    Ann Arbor huh? Lucky dog. Truly the garden spot of the state.

    Like Ruvy says, the numbers are skewed when it comes to unemployment. If the state average is 12%, it’s probably close to double that. I know people who have tried for two years to find a job, who live near Saginaw. Nothing. When I run an ad for part time office help, I might get 500 applications in a couple of days.

    I feel at a loss as to what to do to turn it around, but I have a feeling the bottom hasn’t been hit yet.

  • bliffle

    Such are the consequences of the Monopoly Manipulated Manufacturing Monoculture that was imposed on Michigan by the malignant managers of maniacal motorcar makers.

    They ruined a beautiful state.