In Michigan, Governor Snyder Is Increasing Unemployment

For years and through the early part of the Great Recession of 2007-09, Michigan was ground zero for unemployment. Unemployment rates of around 15% – worst in the nation.  But once the GM and Chrysler completed their bankruptcies, it has begun to emerge. In the past 12 months Michigan has made relatively good progress on it’s unemployment problem.  In fact, it’s made the most progress of any state (a low bar, I know) while some states like Nevada and California and two other states are worse.  To the extent a governor is responsible for unemployment in the state, this must be accredited to Jennifer Granholm who left office in January 2011.

The new governor, Rick Snyder, came in full of Republican talk and promise of “creating good jobs”.  He’s been extremely vague about this happens other than to wave the magic business tax-cut genie.  Apparently, according to Snyder, if we simple cut business taxes by raising taxes on seniors and poor people, then the jobs will just happen.  Now there’s plenty of evidence indicating this idea simply doesn’t work.  Taxes are not the major reason why businesses are where they are.  More importantly, no business ever said “hey, my taxes were cut so I’ll be a good citizen and hire somebody”.  What real businesses do is they say “hey, there’s demand for my product, I better hire somebody”.

Unfortunately Snyder is not content to simply cut business taxes.  He has to tinker with a proven job-creation system based on tax credits for the film industry.  How this tax credits for a film industry are different from general business tax cuts is because they are focused on creating the initial infrastructure or economic “eco-system” that causes a significant industry to concentrated in one area.  Creating the basic infrastructure and network of start-up firms concentrated in a particular industry is critical.  It’s how giant industries grow.  It’s the dynamic that created Silicon Valley.  Heck, it’s the dyanamic that created Detroit and Michigan as the center of the auto industry 100 years ago.

We’re backtracking now.  From The Detroit News: http://detnews.com/article/20110511/BIZ/105110359/Michigan’s-film-studios-go-to-fade-out#ixzz1M6IMlJeh

Michigan’s fledgling film studio infrastructure is crumbling as the number of productions declines in the wake of a $25 million limit on state cash incentives for movies, television shows and digital media.

Livonia-based Maxsar Digital Studios, which opened a week before Gov. Rick Snyder announced in mid-February that he wanted to cut and cap the nation’s most generous film and television industry tax incentives, has laid off its 50 employees and idled all productions.

A west Michigan facility known as 10 West Studio has lost two potential film deals, and one of its principal founders has relocated to Los Angeles.

Another studio operated by S3 Entertainment Group in Ferndale was evicted from a Madison Heights location earlier this year for failure to pay rent.

“We don’t have a sufficient industry to support an infrastructure at the $25 million cap,” said Jeff Spilman, founder and managing director of S3 Entertainment Group, referring to Snyder’s plan, which the state Film Office has adopted but the Legislature has yet to approve.

“Everyone who has had the capacity to leave has pretty much left,” Spilman said.

Having government plant the seeds, build the infrastructure, or even fund a young industry is an old and proven tactic for industrial growth.  It worked for railroads, the telegraph, electricity, computers, software, airlines, aircraft, pharmaceuticals, and many others.  Snyder is abandoning what’s proven to work for a magical belief in a genie.

I still expect some gradual improvement in Michigan unemployment, but that’s largely because our good old standby, the auto industry, is recovering and gaining ground.  Unfortunately that leaves Michigan just as dependent on one industry as we were before.

3 thoughts on “In Michigan, Governor Snyder Is Increasing Unemployment

  1. Pingback: Gov. Rick Snyder Invokes the Magic Job Genie « EconProph

  2. The mere fact that this fledgling industry abandoned MI as soon as the credits were cut is more reason to agree that we were funding a loser. The film industry has a long history of chasing the largest credits and unlike other industries, they are very mobile and can cut an run quickly. Snyder is correct! Fund industries that plant deeper roots and you will get far more bang for the buck.

    Finally,your statement of tax reform taxing only retirees and the poor is ignorant. Those living on a small pension and Social Security will pay NO MI taxes. Those retiring with larger pensions, (ie. union members) who use the public parks, golf courses, EMS, libraries etc., etc. will only pay a very small amount of tax. It is high time that someone reported the truth.

  3. Pingback: Rick Snyder Advocates Government Planning to Fix the Labor Market « EconProph

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