Politicians Don’t Guide the Economy, You Do

Economic growth starts with the individual, not the state

MLive columnist Rick Haglund is skeptical about the state’s choices of favored industries, noting that much of the Michigan Business Development Program subsidies go to manufacturers. “[D]eluded by the recent resurgence of manufacturing jobs, state policymakers are doubling down on promoting Michigan as a state that makes things,” he writes.

However, everyone should be skeptical of the idea that the state can lead economic growth at all.

Michigan’s industrial mix is not the result of decisions made in Lansing. It is the result of millions of people using their skills and knowledge in the most effective way they know how to better serve each other and themselves.

This is not a new idea. In “The Use of Knowledge In Society,” Nobel laureate Friedrich Hayek explains that economic planning does not happen at the top, but rather by each person in the economy. A person’s own knowledge of time and place forms the economy more than a government’s industrial policies.

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High school students in the marching band know that the movie theater openings offer flexible hours, and this changes the state’s industrial mix. (Try asking what instrument a youthful ticket taker plays. You may be surprised.)

A grocer’s knowledge of how many fresh cherries he or she can purchase that will sell before they spoil influences the state’s industrial mix.

Believing that there’s a market for a new makerspace, and investing in the equipment necessary to do it will change the state’s industrial mix.

Multiply these examples by several million and the net product is the state economy.

Public policy would have a hard time keeping up with the pace of change these decisions cause in the economy. Yet the state has programs that have spent billions attempting to lead the economy. Michigan’s private sector created 193,208 jobs in the first quarter of 2014 and lost 179,299 jobs. The state government’s flagship incentive program subsidized at-most 1,931 jobs over the same period and offered $24 million of taxpayer money for those jobs. Thus, the state’s attempts would influence less than one percent of the job creation and none of the losses, even if it all worked according to plan. (It rarely does.)

State government can do some things to change the makeup of the state but these are as likely to generate as many net losses as gains. Those wind farms in the Thumb were not built by investors and entrepreneurs believing that this was an efficient way to generate electricity, but rather by policymakers in Lansing to mandate renewable power. This is done at great expense, and every step of the process from engineering the wind turbines to building them to operating them is done with taxpayer support, whether locally, nationally or internationally.

Unfortunately, the number of jobs in wind electric power generation is not disclosable in the economic statistics yet, typically because there aren’t enough jobs or the jobs that exist are too concentrated in select companies. While wind’s job impact is unknown, its costs are as well. The state’s annual reports on the program lack a proper accounting of the costs.

The state’s film subsidies are an even more dramatic example of politicians’ impotence in guiding the economy. Despite $500 million in taxpayer expenditures, there are fewer film jobs now than when the program began in 2008.

The future looks different than what politicians can expect. The millions of participants in Michigan’s economy make their decisions in unpredictable ways.

For example, Michigan’s manufacturing growth is unexpected. Few people thought manufacturing jobs would disappear from the state after the recession, but the use of automation and a sluggish track record was believed to hinder the ability of manufacturing to increase employment. Yet the net number of manufacturing jobs in Michigan increased by 219,000 jobs since it bottomed out in 2009, roughly a 50 percent gain.

This is not to say that the trend will continue, just that the pace of the recovery is unexpected.

It is not clear that this recovery is caused by the state targeting manufacturers for favors. As the job churn numbers show, employment gains from the handful of firms granted special treatment are a drop in the Great Lakes.

The most constructive thing the state can do to encourage growth is to get out of the way and let residents create the future based on their own knowledge and skills. The policies that matter for growth and prosperity are things like lower tax burdens and fewer licensing barriers that allow people to use their knowledge to better their own lives and the lives of others.


Related Articles:

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Why Government Fails at Economic Development

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Calls to Expand Michigan’s Economic Development Programs Fall Short

Tax Cuts Beat Selective Favors in Economic Growth