Gov. Rick Snyder took business classes at Kellogg Community College in his teens and left the University of Michigan with both an MBA and a J.D. soon after. The state of Michigan is run by one tough nerd, which is why I expected nerdier economic policies than the usual Republican cure-all of cutting taxes for businesses.
The Tax Foundation, a nonpartisan think-tank, recently released its 2012 State Business Tax Climate Index. Michigan ranked 18th out of the 50 states, an improvement from last year, when the state ranked 19th, attributable to Gov. Snyder’s decision to switch the state’s business tax to an income tax from a value-added tax.
Data from the U.S. Bureau of Labor Statistics shows that as of December of 2011 the state’s unemployment rate has fallen from its peak of 14.2 percent in August of 2009 to 9.3 percent. But if the governor really wants to upgrade to “Michigan 3.0,” he’ll have to do some more tweaking to the programming.
First, he needs to index the state’s minimum wage to the rate of inflation. Currently the U.S. minimum wage is $7.25, in Michigan the minimum wage is $7.40. The idea is supported in a report titled “Building Michigan’s Future Middle Class” by Demos, a nonpartisan think-tank. “Indexing the state and federal minimum wage to inflation would help protect earnings over time.” The policy would add to the predictability of labor cost for businesses and would work “to ensure that workers who get paid the minimum wage are able to retain the same purchasing power over time.”
Secondly, the $25 million allotted for Michigan’s moviemaking tax credit should be diverted to the development of “green jobs” which were identified by the formerly titled Michigan Department of Energy, Labor and Economic Growth as a source of new employment and economic growth for the future. “While green jobs and related industries make up a small portion of overall employment in Michigan,” continues the report by Demos “those jobs tend to pay above average wages for their particular occupations.”
Thirdly, he should look to the international community for inspiration on economic policy. Germany is the perfect economic model in so many ways. It has a surplus in its trade balance, its unemployment rate is lower than that of the U.S., and its manufacturing sector is almost twice as large.
The first lesson Germany has to offer involves its housing market. It isn’t its low rate of homeownership compared to its compatriots in the Eurozone, but its stability. In Germany, only very qualified buyers can get a mortgage, and down payments are at least 20 percent, if not the usual of 40 percent.
Combined with other rules, the result is a housing market less susceptible to booms and busts, important to a state which derives an estimated 40 percent of its revenues from property taxes according to a report by the Tax Foundation.
Lastly, Germany’s second lesson is the dominance of its manufacturing sector despite a highly unionized workforce and rising wages. A part of the country’s success is that its manufacturing sector churns out specialized parts needed by much of the world. Michigan should copy the German economic model in this respect and increase funding for apprenticeships and research and development in advanced manufacturing, another idea advised in the report by Demos.
This policy would not only make us more like Germany, but it would accommodate the resurgence of U.S. automakers and a domestic industry.
Friday, the U.S. Department of Labor released data that showed the U.S. economy added 227,000 jobs in February, which is good news, but as it’s been noted, Michigan and the rest of the country often see separate recoveries. We need that nerd we elected to actually take control away from the politician with whom we seem to have been left.
