(Note: The following is an edited version of  a blog entry on the Students for a Free Economy Web site. SFE is a nonpartisan campus outreach project of the Mackinac Center that promotes the benefits of free markets, civil society and individual liberty.)

The same University of Michigan "Research Seminar in Quantitative Economics" personnel who participate in the official revenue estimating conferences that cue the governor and Legislature about how much they can spend each year are predicting a "moderately severe" recession, prevented from being worse by an expected federal "stimulus package" consisting of more government handouts, bailouts and deficit spending.

According to the U of M team, Michigan will lose 108,000 jobs in 2009, but 2010 will be "much better." However, before basing any plans on that you might want to review this group's track record. Just three months ago they were predicting with equal precision and certainty that, "Sometime in 2010, the state will see a slight gain of 33,000 jobs - but only after another 89,000 jobs disappear this year and the next."

Looking back further, U of M's cracked crystal ball made these predictions:

"Joan Crary, also of the University of Michigan, said she believes that Michigan can expect some positive job growth over the last quarter of the year with a sharper acceleration occurring in the first quarter of 2004. From mid 2004 through the end of 2005, Crary said she expects Michigan to see a two percent job growth rate." (MIRS News, Oct. 14, 2003)

"And there will be some job growth in Michigan for the year, his colleague Joan Crary said. But where the U.S. may make up all the jobs it lost over three years and more, Michigan will see just a fraction of the jobs it has lost recovered."  (Gongwer News, Jan. 14, 2004)

"Joan Crary said the outlook for 2005 for a net gain of 32,000 jobs will mark the first job growth since 2000 and that growth over the next two years will only make up for losses in 2003 and 2004.'" (Gongwer News, Jan. 13, 2005)

Oops! None of those even came close, nor did the state revenue projections based on them, resulting in the so-called "deficits" that have been a feature of Michigan budgets throughout this decade. (Lansing's definition of "deficit" is the gap between desired spending and expected revenue.)

Econometricians should remain humble when they try to predict future economic events, especially people's response to state and federal economic policy. Human beings are not automata proceeding irrevocably along certain paths regardless of changes in incentive structures. They are rational beings motivated by self-love and guided by ever-evolving expectations about the future.

Individuals can distinguish between artificial, ephemeral  "incentives" like debt-financed "stimulus" packages, and real underlying economic incentives to work, invest and take entrepreneurial risks. These real incentives include the effects of tax and regulatory burdens. The former won't grow the economy, and we can't be surprised when a prediction based on the idea that they will falls flat.

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Jack McHugh is senior legislative analyst at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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