As Michigan, almost certainly, faces its most serious economic challenge since the Great Depression, it is worth recalling how Michigan has dealt with previous economic downturns.

What follows is a rerun of a post I did in 2012 entitled Jim Blanchard, Jobs and Taxes. It has been lightly edited and the data brought up to date.

As many of you know I worked for Governor Blanchard, I thought then – and even more so now – he was real good for the people of Michigan. His administration was about one thing: jobs. His record is exemplary.

What follows are the facts on the economic results during his eight years in office and the fiscal policies he put in place to grow the Michigan economy.

First, Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true.

Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%.

Rick Snyder took office in January 2011. The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months. For all of 2010 the unemployment rate was 12.7%.

Lets turn our attention to what Governor Blanchard did to grow the Michigan economy and what the results were. First and foremost Jim Blanchard raised taxes. He cut spending as well to deal with a huge budget deficit he inherited along with a horrible economy. Governor Blanchard defied the conventional wisdom of his day – and far more so today – that believed low tax states had the best economies and, even more so, you never raise taxes in an economic downturn.

The income tax went from 4.6% to 6.35%. You read that right: 6.35%. Only one Republican in the state House and Senate – Senator Harry DeMaso – voted for the tax increase. The rest predicted economic ruin. The income tax rate was 6.35% for calendar year 1983 and through August, 1984. When it was reduced to 5.35% through March 1986. When it went back to 4.6% for the remainder of the Blanchard Administration. (The income tax history comes from the Citizens Research Council.)

This was a period not only of higher income tax rates, but the dreaded Single Business Tax – the so-called job killer – was in full force with a rate of 2.35% for the entire Blanchard Administration.

Economic ruin? Hardly!

During the eight years of the Blanchard Administration employment in Michigan went from 3,193,000 in 1982 (the year before he took office) to 3,946,000 in 1990 (the year he left office). An increase of 753,000 jobs. The biggest annual job gains occurred in the three years when the higher income tax rates were in full effect: 1983-5. Job growth in those three years was from 3,193,000 to 3,561,000. An increase of 368,000, an average of almost 123,00 per year. Over the eight years the state’s annual average unemployment rate went from 15.6% in 1982 to 7.7% in 1990.

As the table below makes clear the Blanchard years saw greater growth in payroll jobs than either the Engler years or the Snyder years. Michigan governors who cut taxes as the center piece of their economic growth strategies.

The first Blanchard Administration––when the highest income tax in Michigan history was in effect––had the largest gain in payroll jobs. The annual average payroll job growth in the Blanchard years was 94,000; in the Engler years 45,000, and in the Snyder years 69,000.

So much for you can’t raise taxes and get job and economic growth!

Having said that I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts had much of anything to do with the growth we experienced in the 2010s.

The evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry. State policy is at best a weak lever in driving the economy.

But what the Blanchard years demonstrate is that you can raise taxes and have strong growth. When you both raise taxes and control spending during a severe downturn you can both grow the economy and improve the standard of living and quality of life of all Michiganders by having adequate funds for a decent safety net and public investments in education, quality of place and infrastructure.

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For those interested in more of the details that the op ed is based on you can find them in four posts I have written for this blog on the economic record of the Blanchard Administration. They can be read here, here, here and here.

There are three big picture ideas that emerge from the evidence that I believe should underpin our approach to using state policy to grow the Michigan economy:

1. The tax and spending policies pursued by Governors –– more broadly state and local governments –– don’t have much to do with how well their state’s economy performs during their time in office. The state of the national economy and the performance of the state’s dominant industry(s) are by far the prime drivers of state economies.

2. As the Blanchard Administration record demonstrates, you don’t have to cut taxes to grow the state economy. And because you don’t have to cut taxes you don’t have to slash spending –– the inevitable consequence of tax cuts. You can have a decent safety net; public investments in education and infrastructure; and state support for the provision of quality basic services and amenities at the local level and have a prosperous and growing economy. What we have been told repeatedly for two decades or so that Michigan needs to have a smaller government to have economic growth is simply not accurate.

3. Understanding the limited impact of state tax and spending policies on long term state economic performance, it is our belief –– and it is belief, not fact –– that the state policy levers that matter most to growing the economy long term are public investments in education –– particularly higher education –– and creating quality of place –– particularly vibrant central cities –– to retain and attract mobile talent. Higher education and support for local government being the two areas that have suffered the biggest spending cuts the last decade. Almost certainly, not smart.

The post My Detroit Free Press op ed appeared first on Michigan Future Inc..

The answer is clearly not the one we are hearing increasingly: that kids are getting too much education. That if only college aged students got technical rather than liberal arts degrees far more folks would be working. What nonsense!

As the article makes clear, the high unemployment rate understates the job creation challenge. Most worrisome is that the employment-to-population ratio is down to 58.6% even lower than during the 2007-09 Great Recession. In December 2007 –– the month the Great Recession started –– it was 62.7%. It’s unprecedented that the labor market has kept falling in an expansion.

Peter Coy, the article’s author, explores both supply and demand explanations for the absence of jobs. Supply being that people have the wrong skills for today’s jobs. This is that we have too little education attainment, not too much. On the demand side that employers don’t need to add workers due to a combination of globalization, technology and too little consumer demand for goods and services made worse by fiscal policy at the state and federal level to cut government spending to balance budgets rather than stimulate job creation.

Coy concludes: Five years since the start of the unemployment crisis, the problem with the U.S. labor market isn’t weak supply or weak demand. It’s both. At the same time, plenty of good and innovative ideas for how to put more Americans back to work are out there. Fixing aging infrastructure is a job generator that’s a no-brainer at today’s low interest rates. Youth jobs programs need more funding, not less. Jeff Madrick, a senior fellow at the Roosevelt Institute, calls for a revival of “Fordism”—Henry Ford’s sensible idea of paying workers enough to afford what’s for sale. All that’s needed is the will to act.

Exactly. Why we are not debating job creation strategies is unfathomable. Governor Blanchard responded to an unemployment rate of more than 15% the year before he was elected with a big transportation bond program and the Michigan Youth Corps that put thousands of young people to work. They worked! Why is it that no one –– in either party –– has even proposed an aggressive job creation agenda like Jim Blanchard? Its time we put putting people to work at the top of the nation’s and state’s agenda.

The post Not enough jobs appeared first on Michigan Future Inc..

What I want to explore in this post is how does this compare to past recoveries. Particularly the first two years of the Blanchard Administration (which I was part of) when Michigan was also recovering from a strong national downturn and a near collapse of the Detroit 3. As I wrote in a previous post:

… Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true. Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%. Rick Snyder took office in January 2011. The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months. For all of 2010 the unemployment rate was 12.7%.

Michigan job growth for 1983 and 1984 was 187,700, an increase of 5.9%. The year before (1982) Michigan lost 171,000 jobs. The year before Governor Snyder came to office (2010) Michigan lost 7,000 jobs. Michigan added 180,000 more jobs in 1985 and 96,000 in 1986. No one expects that size job growth in Michigan the next two years.

So what drives these economic turnarounds? The Snyder Administration and its supporters argue that it is their policies working. Basically big business tax cuts, smaller government and now right to work. The Blanchard Administration (as do state elected officials of both parties across the county when their state economies are strong) argued that the Eighties turnaround was driven by their policies working. But in many ways the policies it pursued are the exact opposite of the Snyder Administration. A big income tax increase (to 6.35%), no reduction in the so-called job killing Single Business Tax and once the economy began to expand increased state investments in education, infrastructure and activist business development programming.

So what is the prime driver of the recovery? Quite simply the national economy and particularly the fortunes of the domestic auto industry. Both Governor Blanchard and Governor Snyder took over immediately after the domestic auto industry was in such bad shape that it required federal government bailouts. Those bailouts –– as we explored here and here –– allowed the Detroit Three to reposition itself to regrow once the national economy and auto sales rebounded.

As I wrote previously: …  “I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I  believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts have much of anything to do with the growth we are now experiencing that started at the end of the Granholm Administration. … The evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry.”

The post Michigan’s recovery appeared first on Michigan Future Inc..

In an earlier post we quoted Thomas Friedman and Michael Mandelbaum from their book That Used to Be Us on tax and spending policy. They wrote:

… the purpose of the exercise: It is not simply to reduce the deficit but to insure prosperity. Solvency is vital, but it is not enough. To uphold American greatness the country will have to do more than get its debt-to-GDP ratio to a reasonable and sustainable level, although it will certainly have to do that. It will also have to equip its people with the skills and tools that have always been part of our formula for economic growth. Providing them will cost money and require long-term investment. To assure the nation’s economic future we will have to spend more, not less, on some things: infrastructure and research and development, and probably education as well.

Years before Freidman and Mandelbaum laid out this path to prosperity, Governor Blanchard implemented their recommended formula. Governor Blanchard understood that his job was “not simply to reduce the deficit but to insure prosperity”.  That he was elected to grow the economy, not just balance the budget. The result, as we documented in previous posts (you can find them here and here) was that during his term Michigan had its strongest job growth in four decades (covering the terms of Governors Milliken, Engler and Granholm as well as his eight years in office).

The Blanchard/Friedman/Mandelbaum formula––that worked for Michigan in the Blanchard years and, more importantly, for America in the Clinton years––has three pillars:

Governor Blanchard knew to assure the state”s “… economic future we will have to spend more, not less, on some things: infrastructure and research and development, and probably education as well.”  And to produce the revenue to make those strategic investments required both spending restraints and tax increases.

The strategy we have put in place since the Blanchard Administration, on a bi-partisan basis, cutting taxes and reducing public investments hasn’t worked. As those policies have been implemented, Michigan has experienced substantially slower job and personal income growth than the nation. Seems like, at the very least, it is time for some policy makers and/or candidates to make the case that the Blanchard formula is the path we should return to if we want to restore Michigan to long term prosperity.

The post Lessons from the Blanchard Administration appeared first on Michigan Future Inc..

During the complete terms of Governors Romney and Blanchard Michigan’s employment growth exceeded the national average. Greater than the nation by an annual average of 0.45 percentage points in the Romney years and 0.07 percentage points in the Blanchard years. And lagged the nation during the complete terms of Governors Milliken, Engler and Granholm. Lower than the nation by an annual average of 1.19 percentage points in the Milliken years, 0.40 percentage points in the Engler years, and 1.87 percentage points in the Granholm years. (During Governor Snyder’s first year the state exceeded the nation in employment growth by 0.46 percentage points).

Over the entire five decades Michigan lagged the nation in annual employment growth by 0.67 percentage points. In only 16 years of the combined complete terms of the five governors did Michigan’s employment growth rate exceed the nation’s. Five of the 16 were in the Blanchard years.

So what do we make of this data? The data provides more evidence on the main point of these posts: that today’s conventional wisdom that raising taxes – particularly in an economic downturn – is a recipe for economic decline, and that cutting taxes is a recipe for economic growth, is not accurate  Governor Blanchard was able to grow the state’s economy and raise taxes (to the highest income tax rate in Michigan’s history during his first three year).  Not only did Michigan get strong job growth during his Administration, it also had employment growth faster than the nation’s.

The tax increases preserved the state’s ability to provide basic services, a decent safety net and make public investments in education and infrastructure.

Once again, my contention is not that the Blanchard tax increase was a major cause of the economic expansion during his years as Governor. Almost  certainly it wasn’t. But that the Blanchard record is evidence that you don’t have to choose between a growing economy and state funded goods and services. That the huge state budget cuts since 2000 – a lot due to tax cuts – in areas like higher education, revenue sharing, infrastructure and the non health care safety net were not necessary to grow the state’s economy.

Michigan’s track record from 2000 through 2011 (when the state income tax rate has ranged from 3.9% to 4.35%) provides more evidence that cutting taxes does not necessarily lead to job growth. The state enjoyed job growth in only two of those years: 2000 and 2011. But even in 2000 – when the first of income tax cuts went into effect (from 4.4% to 4.2%) – the state’s job growth rate was lower than the nation’s. The only two years it was greater than the country’s was 2008 (the year the rate went up to 4.35%) and 2011.

Once again, I do not believe that the tax and budget cuts of 2000-2011 were a major cause of the state’s serve economic decline. But it is clear that the policy of lower state taxes (and the reduced state government spending that goes with it) did not work as an economic growth strategy.

The post More Jim Blanchard, taxes and jobs appeared first on Michigan Future Inc..

What follows are the facts on the economic results during his eight years in office and the fiscal policies he put in place to grow the Michigan economy. (The jobs related data in this post come from the Labor Market Information division of the Michigan Department of Technology, Management and Budget. The data can found at their data explorer page. Its a terrific resource!)

First, Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true.

Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%.

Rick Snyder took office in January 2011.  The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months.  For all of 2010 the unemployment rate was 12.7%.

Lets turn our attention to what Governor Blanchard did to grow the Michigan economy and what the results were. First and foremost Jim Blanchard raised taxes. He cut spending as well to deal with a huge budget deficit he inherited along with a horrible economy. Governor Blanchard defied the conventional wisdom of his day  – and far more so today – that believed low tax states have the best economies and, even more so, you never raise taxes in an economic downturn.

The income tax went from 4.6% to 6.35%. You read that right: 6.35%. Only one Republican in the state House and Senate – State Senator Harry DeMaso – voted for the tax increase. The rest predicted economic ruin. The income tax rate was 6.35% for calendar year 1983 and through August, 1984. When it was reduced to 5.35% through March 1986. When it went back to 4.6% for the remainder of the Blanchard Administration. (The income tax history comes from the Citizens Research Council.)

This was a period not only of higher income tax rates, but the dreaded Single Business Tax – the so-called job killer – was in full force with a rate of 2.35% for the entire Blanchard Administration.

Economic ruin? Hardly! During the eight years of the Blanchard Administration employment in Michigan went from 3,193,000 in 1982 (the year before he took office) to 3,946,000 in 1990 (the year he left office). An increase of 753,000 jobs. The biggest annual job gains occurred in the three years when the higher income tax rates were in full effect: 1983-5. Job growth in those three years was from 3,193,000 to 3,561,000. An increase of 368,000, an average of almost 123,00 per year. Over the eight years the state’s annual average unemployment rate went from 15.6% in 1982 to 7.7% in 1990.

To put the Blanchard record in context, lets compare what happened during his eight years in office to the twelve years Governor Engler was in office. Engler has a well earned reputation as a job creator and a tax cutter. In the eight Blanchard years Michigan employment grew by 753,000, in the Engler twelve years (from 1990 the year before he took office through 2002 the year he left office) Michigan employment up 541,000. An annual increase in the Blanchard years of a little more than 94,000 compared to a little more than 45,000 in the Engler years. Once again, you read that right: annual job growth in the Blanchard years 94,000 more than double the annual increase of 45,000 in the Engler years.

The unemployment rate fell from 15.6% to 7.7% in the Blanchard years. In the Engler years it went from 7.7% to 6.2% in 2002.

So much for you can’t raise taxes and get job and economic growth! Having said that I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts have much of anything to do with the growth we are now experiencing that started at the end of the Granholm Administration.  As we have explored previously the evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry. State policy is at best a weak lever in driving the economy.

But what the Blanchard years demonstrates is that you can raise taxes and have strong growth.  And as we will explore in future posts when you both raise taxes and control spending you can improve the standard of living and quality of life of Michiganders by having adequate funds for a decent safety net and public investments in education, quality of place and infrastructure.

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