You can hear lots of people talking over the last few weeks, how we are “bottoming out” in terms of the economy. Privately, I had wondered if this was merely a dead cat bounce.
With oil now rapidly rising, articles are appearing that start to call into question the impact upon the economy. Turning what they authors hope to be nascent recoveries into what they predict to be additional (significant) declines.
Of course, against this backdrop, the US auto industry tragicomedy is playing out. This is the tragedy of too high a cost basis for labor, too many dealerships, competing with each other, too much production capacity for demand, and too little quality (perceived or real) relative to the competition. It was a comedy in the sense of a comedy of errors. Its not funny as in “ha ha” funny. In a dark, twisted sort of way it is.
Michigan’s economy, despite the best of intentions of others, depends critically upon this tragicomedy of an industry, for its tax base. The top 3 industries in the state are auto, tourism (no, not kidding), and agriculture.
So what impact will a much smaller auto industry have upon the state?
I am a realist. I tell people unvarnished truths. And sometimes it pisses them off. Denial not a river in Egypt and all that.
I am having a hard time with this one.
One of the better economic forecasters out there, David Littmann, is projecting between 17-20% unemployment. By years end.
But he says more. In an unvarnished manner. Here is a money quote:
Littmann also expresses concern that state officials are underestimating the severity of the economic and fiscal crisis and the need for significant policy change, saying, “They have to explain rationally to the voter and to the taxpayer why they think somehow heaven will change Michigan???s fortunes if bad policies persist.” He also offers a clear recommendation: “The single most important element in reform ??? long-lasting, durable economic and financial reform ??? for this state, so that we can become a magnet for attraction of business and jobs, is to make it a right-to-work [state].“
I agree in all aspects. We want to make this an attractive investment location. This should be where startups form and grow … we have a far lower cost basis than the coasts. This should be where businesses locate to get educated productive knowledge workers, but we have a problem with the generation of productive knowledge workers due to our school system issues. This should be the place for data centers … few natural disasters can take our centers out here, but we have a paucity of network connectivity. This should be the place where small businesses come to form and grow …. yet our business taxes are ridiculous, in part to fund tax breaks for the large companies who are laying off left and right.
There are lots of things we need to do, some very … very … hard decisions we as a state have to make.