Friday, February 17, 2006

Is Free Trade Killing Michigan?

Even though this article isn't Michigan-specific, it relates to the current economic situation in Michigan and the reaction that some are having to the decline of the domestic auto industry.

Is free trade killing Detroit? The answer is simply no. This article explains why. To quote a few important lines:

After 2000, as the economy fell into recession, US exports fell. We estimate that more than 3.4 million manufacturing workers were producing goods for export in 2000; by 2003, this number had fallen below 2.7 million. All told, the export slump destroyed 742,000 US manufacturing jobs.

On the import side, though, the picture was very different. It isn't true that manufactured goods flooded into the U.S. after 2000. In fact, growth in manufactured imports was quite sluggish from 2000 to 2003. And as we will explain, this weakness in imports actually boosted manufacturing employment in 2003 by some 428,000 jobs.

Overall, then, trade accounted for a net loss of no more than 314,000 jobs (a reduction of 742,000 because of weak exports and an increase of 428,000 owing to weak imports), representing only 11% of the total manufacturing job loss of 2.85 million. The other 2.54 million jobs disappeared because of the economy's cyclical downturn, which dampened domestic demand for manufactured goods.

The important idea here is that international competition forces domestic industry to improve the product and reduce the price. If domestic companies are shielded from that competition by trade barriers, their products will fall farther and farther behind on the international market, ultimately greatly reducing the number of exports. Blocking trade will hurt us more in the long run.

Detroit will need to compete or die. No amount of protection will prevent that. Free trade raises the standard of living for both trading partners because of the benefits of international division of labor.

Friday, February 10, 2006

Grand Rapids State of the City 2006

Mayor George Heartwell starts his State of the City 2006 Speech by summarizing past state of the city speeches and reviewing accomplishments pertaining thereto.

First, he starts with cooperation between the city schools and the city government. Nevermind that his 2004 state of the city touted cost savings as a primary goal of collaboration between the two entities, now he says that they’re working together just great in building new schools. You know, bureaucrats are holding hands around the table. Wonderful news.

Second, the mayor reviews his commitment to reduce illiteracy in Grand Rapids. It’s a good and important goal. He says he wants to reduce illiteracy by 50% over the next 10 years.

The mayor then skips everything else he proposed in the 2004 state of the city, preferring not to review the things he did not accomplish, such as the education renewal zones. He also skips over his desire to strengthen the unaccountable Grand Valley Metro Council’s central-planning powers when it comes to land use, as well as his intense desire to expand wasteful and expensive mass transit systems, such as light rail.

He then moves on to a review of his second state of the city, in 2005, which was essentially a blabber-fest about pollution and saving the world’s environment, all from City Hall. He touts all the wonderful things the city government is doing without mentioning much in the way of specific end points. He does mention, however, the new hybrid electric busses which the ITP will be purchasing at the bargain basement price of $500,000 each.

The next portion of the speech focuses on the Grand Rapids economy and its growth. This is certainly good news. Several anecdotal items are cited as examples of local companies which are expanding.

However, the following section is where the mayor goes completely wrong. He makes the following statement:

Before I talk about our course of action for economic development, I want to address our “ship’s” fuel reserves and our prospects for refueling on our way to our destination of economic health. I want to talk about the city’s budget.

Does anyone notice something wrong? We’ll tell you if you haven’t figured it out. As we’ve previously pointed out, the mayor doesn’t distinguish between the health of the city and the revenue of city government. He says in his speech that City Hall is what keeps the “ship” of Grand Rapids moving forward. He doesn’t understand that city government is usually the road block to further economic growth, not the reason for growth.

However, Mayor Heartwell does go on to explain the Lean Thinking initiative the city government is using to improve operating efficiency. It’s good to see that they are working on making the government operate better within its means.

Then comes the big stink bomb. More taxes. Heartwell goes on, complaining about lost “state revenue sharing,” which has been reduced over the last several years. It’s the usual complaint from city governments. As the Michigan economy limps along, the politicians and bureaucrats want more money. Well, it’s not coming down the pike. Perhaps they haven’t looked at the unemployment rates in Michigan lately.

The point of this speech:

[W]e are rapidly approaching the time at which we must bring a tax increase question before the voters.

Yes, that’s right. Hang on to your wallets, again.

But! Here comes the logical fallacy that the mayor is so wonderful at espousing. Out of one side of his mouth he says that taxes need to be raised. But lo and behold, he then goes on to propose tax abatements for industrial facilities. Nevermind that manufacturing is going the way of the telephone operator, the real point is that he implicitly recognizes that tax reductions help economic development. If tax abatements didn’t spur growth, why would they use them? But, at the same time, he proposes a general tax increase to prop up the bureaucracy. Which one is it, Mr. Mayor? Growth of government or growth of the economy?

Finally, Heartwell closes his speech with a promise to build a sustainable business park. He want to provide everything anyone ever wanted for development: high-speed internet, wireless internet, rail transportation, green space, on-site recycling, storm water capturing, and even a chicken in every pot. Wait, he didn’t say the chicken part, but the mayor promises everything else. Perhaps he’s never heard of what the free market is. Should city government be in the internet service business? How about rail transportation? Is your wallet getting lighter?

Essentially, the speech was, once again, about further government expansion and tax increases, although this year the tax increase part was explicit. The mayor only proposed one item which reduces government – the lean thinking initiative. Hopefully, one day, the mayor will realize that the size of city government is inversely related to the economic health of the city.

Thursday, February 9, 2006

UAW Kills More Jobs?

WOOD TV 8 is reporting that Toyota has decided not to build a new factory in West Michigan because of militant UAW members who participated in an unauthorized protest at the Detroit Auto show, where Toyota Executives were in attendance.

From the article:

The rally wasn't an authorized union gathering. UAW member Greg Shotwell of Coopersville, a worker at the Delphi plant there, organized it. Shotwell calls his group SOS, or Soldiers For Solidarity.

Cole told 24 Hour News 8 that upon learning Shotwell was from West Michigan the group from Toyota dropped West Michigan from the list.

"The message is that the UAW can't control its own people," Cole said.

The UAW is doing its best to ensure that Michigan economy continues to rank as the nation's worst.