Transcript It`s Not all Negative in Michigan

It’s Not all Negative in
Michigan
Allen C. Goodman
Sales and Marketing Council
October 24, 2007
Introduction
• I was asked to talk about succeeding in
the Michigan Economy
• I was urged not to be negative.
• This could be a short talk …
Let’s Be Candid
Non-Farm Employment
Loss of
over 350,000
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMS2600000000000001&data_tool=%2522EaG%2522
Let’s Be Candid
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LASST26000003&data_tool=%2522EaG%2522
Table B. States with unemployment rates significantly
different from that of the U.S., 2006 annual averages
-----------------------------------------------------State
|
2006
-----------------------------|
-----------------------United States................|
4.6
Alabama .....................|
3.6
Alaska ......................|
6.7
Arizona .....................|
4.1
Arkansas ....................|
5.3
California ..................|
4.9
Delaware ....................|
3.6
District of Columbia ........|
6.0
Florida .....................|
3.3
Hawaii ......................|
2.4
Idaho .......................|
3.4
Iowa ........................|
3.7
Kentucky ....................|
5.7
Maryland ....................|
3.9
Michigan.....................|
6.9
Minnesota ...................|
4.0
Mississippi .................|
6.8
Montana .....................|
3.2
Nevada ......................|
4.2
New Hampshire ...............|
3.4
North Dakota ................|
3.2
Ohio ........................|
5.5
Oklahoma ....................|
4.0
Oregon ......................|
5.4
Rhode Island ................|
5.1
South Carolina ..............|
6.5
South Dakota ................|
3.2
Tennessee ...................|
5.2
Texas .......................|
4.9
Utah ........................|
2.9
Vermont .....................|
3.6
Virginia ....................|
3.0
Wyoming .....................|
3.2
http://www.bls.gov/news.release/srgune.nr0.htm
But, it’s been far worse …
Labor Force Size is Stable
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LASST26000006&data_tool=%2522EaG%2522
House Prices are OK
Freddie Mac Housing Index
350.00
300.00
Index - 1987 = 100
250.00
IL
200.00
IN
MI
MN
OH
150.00
WI
100.00
50.00
0.00
0
20
40
60
80
Quarter (1975.01 = 1)
100
120
Price Changes are not Volatile
Quarterly % Change in Freddie Index
15.00%
10.00%
% Change
5.00%
0.00%
0
20
40
60
80
-5.00%
-10.00%
-15.00%
Quarter (1975.01 = 1)
100
120
IL
IN
MI
MN
OH
WI
Foreclosures are high, but
others are worse
Foreclosures
California
Illinois
Indiana
Michigan
Ohio
US
Source:
Preforeclosures
Bankruptcies
FSBOs
Tax Liens
39,518
11,169
7,040
16,501
18,873
104,874
44,765
123
1
198
23,438
22,437
11,329
18,612
24,203
1,615
4,379
1,223
2,324
1,769
255,699
23,138
13
4
25,600
231,428
304,788
336,871
55,534
629,325
http://www.foreclosure.com/
How to Succeed?
• Wealth is created by Capital and
Technology.
– Industrial Revolution (England was not
awash in natural resources) … but they had
Capital & Technology
– Silicon Valley is not awash in natural
resources …
• Contrast this to West Virginia depended
on coal  a half century depression.
How to Succeed?
• Michigan has had capital and technology!
• There are some recent studies that point
to the first 20 years of twentieth century
Detroit as a unique era.
• The auto industry could have centered
elsewhere … it centered here!
In our lifetime …
• Cities like Detroit, Flint, Pontiac, and
Saginaw were wealthy places.
– High capital/labor  high wages.
• The environment has changed – it’s not
fair, but it’s changed.
Manufacturing?
• Not necessarily. Manufacturing is declining
EVERYWHERE as a share of the economy.
– We are increasingly a service economy. We must
provide services more efficiently.
• We must avoid gimmicks.
– What kinds of value-added do casinos bring?
• Protectionism won’t work.
– Others WILL retaliate.
– These days the Canadians are propping up the
retail sector in SE Michigan.
Infrastructure
• Goods provided by the public sector,
including education, roads, fire
protection, police protection, and
amenities, are intrinsically no less
desirable than private goods.
• The price of public goods is taxes.
Although we all seek efficiencies in
production, reduced taxes  reduced
public goods.
State Government
• Economic movers and shakers can’t do
business in a place where the state
government behaves like characters
from a Marx Brothers movie.
• Taxes are not “bad” in and of
themselves. Most of the “business
climate” studies aren’t worth reading.
• If higher taxes buy productive things,
there is no reason to oppose them.
Our New Taxes
• The Single Business Tax (SBT) wasn’t
awful but it was different from what
businesses saw elsewhere. Replacing
it with something else is OK. Not
replacing it would be a bad idea.
• The increased income tax is OK, but a
second (higher) level would be better.
• Service taxes will be difficult to phase
in, although, in fact, many states have
them.
Housing and Real Estate
• In perspective, Michigan isn’t much
worse off than elsewhere, and may in
fact be a little better off, because prices
did not run up as fast as they did
elsewhere.
• There were “little bubbles” in places
like Huntington Woods, Birmingham.
• You are NOT seeing the seismic
readjustments here like they are seeing
in Florida or California
Housing and Real Estate
• Foreclosures are a problem here … as
they are, elsewhere.
• It was unconscionable to put some
people into the mortgages that they
sold.
• About 3 years ago, I told my wife, “in a
couple of years, we’ll see some real
problems” … regrettably, I was right.
When will real estate turn
upward around here?
• Well, it depends!
• In places that are built up, I think you’ll
see a turn in spring 2008 – it will be
about 8 quarters since we “hit the wall”
in Spring 2006.
• In places with lots of unsold inventory,
like northern Oakland and Macomb
counties, it could be a couple of
quarters longer, and … possibly into
spring 2009.
Remedies!
1 – Mortgages
• Mortgages
– There is nothing intrinsically wrong with
adjustment payment mortgages … but the
wrong people were getting them.
– There will have to be some negotiated
resolution.
• People need homes.
• Financial investors don’t want to have to hold
vacant properties.
2 – Property Taxes
• Michigan’s property tax is a tax on mobility
(and, as a colleague keeps telling me, a tax on
divorce).
• It stands in the way of people’s abilities to move
to better homes, and builders’ abilities to build
them.
• It stands in the away of appropriately permitted
home improvements.
• It is fundamentally unjust, unwise, and
unprofitable, to have identical houses on a
block with property tax burdens varying by
100% or more, depending on how long the
resident has lived there.
Ironically
• Those who fought government control
ceded control to Lansing.
• This is not unique – it has happened
just about everywhere that property tax
controls have tried to undo the laws of
supply and demand.
3 – Development
• Local regional authorities (at whatever
level) must get “out of the way.
• Simplify parcel assembly and
permitting.
• Successful urban economic
development is a “bottom up” rather
than a “top down” undertaking.
• Local regulations have their purposes
(no one wants a slaughterhouse next
door), but they cannot be punitive.
SO …
• In perspective … much of the Michigan
problem is related to regional issues.
• These issues have affected our
neighboring states as well.
• We can grow out of our current
problems … but we must concentrate
on fundamentals … not tricks!
I’d be glad to
take Questions