Five Effective Strategies for Creating Jobs in Michigan
The new governor of Michigan has proposed a budget that promises to push Michigan deeper into recession.
How could the State of Michigan balance its budget?
Systems Dynamics
Reducing funding to schools, firefighters, police officers, and other public employees negatively impacts not just those workers and their families but also the workers and families of private sector employers.
All public employees, whether they are fired, furloughed, or otherwise have cuts in their take home pay, will, as a whole, have less disposable money to spend into Michigan's private sector.
This loss of income translates to less sales for retail businesses, many of whom are already teetering on the edge into bankruptcy.
Loss of sales revenue leads to a round of layoffs, cuts in hours, etc. amongst the private sector workers.
This in turn leads to less revenue for the state from not only the public employees, but also from the private sector employees, and suggests to politicians that yet another round of cuts are necessary.
This pernicious and vicious cycle has been going on for years, and the new governor's proposals serve to accelerate the pace of decline in Michigan's economy.
Five Job Creating Strategies
By increasing and redirecting the flow of funds within Michigan, jobs would be created and sustained, to help in weathering the global crisis. In addition, properly implemented economic policy would lead to long term prosperity for the people of Michigan.
1. Decrease Trade Deficit
Michigan has a trade deficit with the rest of the world. For the long term stability of Michigan, the state needs to increase its exports of products, and at the same time, minimize imports.
For one example, over one billion dollars per year leaves Michigan to import fuels including coal, oil and gasoline. By investing in harnessing free and local sources of energy within Michigan, especially wind and solar energy, Michigan would reduce its imports of fuels, which would increase the amount of money being directed instead back to Michigan generators, and thus back into Michigan's economy. Wind generation would be an outstanding industry for Michigan. Already, companies from outside Michigan are attempting to buy up leases on prime sites, and may import the turbines from other states or countries.
Michigan industry can and should manufacture all turbines and solar panels that are installed in Michigan, to put people back to work, to increase the "money multiplier" by keeping money in Michigan, and ultimately, to decreasing the imbalance of money flowing out of Michigan for imported goods.
http://www.ucsusa.org/clean_energy/technology_and_impacts/impacts/burning-coal-burning-cash.html
Other policies should be pursued which minimize the importation of goods and services, while simultaneously increasing sales of Michigan made products and services.
2. Create Publicly Owned Bank
Michigan does not have its own publicly owned bank, such as the Bank of North Dakota. By creating such a bank, all deposits for all public entities within Michigan would be held within the bank, which would offer zero interest borrowing for public works projects, improving upon the BND model. In addition, citizens and businesses of Michigan would be able to refinance loans through the bank at the most favorable rates. In North Dakota, the bank is used approve credit for college tuitions, start up businesses, small farmers, public works, etc.
http://motherjones.com/mojo/2009/03/how-nation%E2%80%99s-only-state-owned-bank-became-envy-wall-street
3. Update Income Tax Rates
Michigan has one of the most antiquated income tax systems in the USA, with a top rate of only 4.25%. Other states have top state income tax rates of around 10%. By adjusting the state income tax rate, additional revenue would be brought in. The rate for the lowest income individuals would be adjusted to increase the amount of private sector spending from that segment of the population.
http://www.taxfoundation.org/taxdata/show/228.html
4. Update Sales Tax Rates
Michigan has one of the lowest sales taxes in the nation, and excludes many items from taxation. Some parts of the US have sales taxes of around 10%.
A higher sales tax rate in Michigan would bring in additional revenue to the state, and make up for declines in sales tax revenue. For lower income individuals, annual sales tax rebates would be provided via income tax rebates. For Internet sales, all internet sales would be taxed at the same rate as the Michigan sales tax rate, and collected by the credit card providers.
In addition, those products that were produced 100% in Michigan would be exempt from sales tax, as a way to support Michigan businesses. For example, apples grown in Michigan would not be taxed, which apples imported from China or Washington state would be taxed. This sort of sales tax on food would directly benefit both the state but also the growers of Michigan, and those in-state processors, to the extent that their ingredients are from Michigan.
While this policy, if implemented directly, may conflict with the commerce clause of the US Constitution, workarounds exist that would, in effect, lower the unit price of Michigan made items, so that even if a sales tax were in place, the Michigan made items would be lower priced on the store shelves.
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States
5. Effectively Invest State Pension Funds
Michigan's public pension funds are currently invested around the world, with a very small fraction being invested in Michigan's businesses. The funds hold over $40 billion which could and should be invested directly in Michigan. By simply adjusting the holdings of the pension fund, and purchasing ownership in Michigan businesses, the public sector in Michigan would be supported, which would in turn support the Michigan public sector.
http://www.michigan.gov/ors/
Conclusion
The current governor of Michigan is reducing the income to a large portion of the workers of Michigan, which will result in less business sales, adding to the current deflationary spiral that has plagued Michigan for years. The governor has proposed no sound solutions for maintaining or increasing state revenue, following the same failed economic hypothesis that led to the global crisis.
Michigan has the ability to maintain and improve its prospects for the future. A sound understanding of systems dynamic economic modeling reveals effective policy solutions. The five strategies above, taken as a whole, have the potential of strengthening Michigan both now, and for future generations.
How could the State of Michigan balance its budget?
Systems Dynamics
Reducing funding to schools, firefighters, police officers, and other public employees negatively impacts not just those workers and their families but also the workers and families of private sector employers.
All public employees, whether they are fired, furloughed, or otherwise have cuts in their take home pay, will, as a whole, have less disposable money to spend into Michigan's private sector.
This loss of income translates to less sales for retail businesses, many of whom are already teetering on the edge into bankruptcy.
Loss of sales revenue leads to a round of layoffs, cuts in hours, etc. amongst the private sector workers.
This in turn leads to less revenue for the state from not only the public employees, but also from the private sector employees, and suggests to politicians that yet another round of cuts are necessary.
This pernicious and vicious cycle has been going on for years, and the new governor's proposals serve to accelerate the pace of decline in Michigan's economy.
Five Job Creating Strategies
By increasing and redirecting the flow of funds within Michigan, jobs would be created and sustained, to help in weathering the global crisis. In addition, properly implemented economic policy would lead to long term prosperity for the people of Michigan.
1. Decrease Trade Deficit
Michigan has a trade deficit with the rest of the world. For the long term stability of Michigan, the state needs to increase its exports of products, and at the same time, minimize imports.
For one example, over one billion dollars per year leaves Michigan to import fuels including coal, oil and gasoline. By investing in harnessing free and local sources of energy within Michigan, especially wind and solar energy, Michigan would reduce its imports of fuels, which would increase the amount of money being directed instead back to Michigan generators, and thus back into Michigan's economy. Wind generation would be an outstanding industry for Michigan. Already, companies from outside Michigan are attempting to buy up leases on prime sites, and may import the turbines from other states or countries.
Michigan industry can and should manufacture all turbines and solar panels that are installed in Michigan, to put people back to work, to increase the "money multiplier" by keeping money in Michigan, and ultimately, to decreasing the imbalance of money flowing out of Michigan for imported goods.
http://www.ucsusa.org/clean_energy/technology_and_impacts/impacts/burning-coal-burning-cash.html
Other policies should be pursued which minimize the importation of goods and services, while simultaneously increasing sales of Michigan made products and services.
2. Create Publicly Owned Bank
Michigan does not have its own publicly owned bank, such as the Bank of North Dakota. By creating such a bank, all deposits for all public entities within Michigan would be held within the bank, which would offer zero interest borrowing for public works projects, improving upon the BND model. In addition, citizens and businesses of Michigan would be able to refinance loans through the bank at the most favorable rates. In North Dakota, the bank is used approve credit for college tuitions, start up businesses, small farmers, public works, etc.
http://motherjones.com/mojo/2009/03/how-nation%E2%80%99s-only-state-owned-bank-became-envy-wall-street
3. Update Income Tax Rates
Michigan has one of the most antiquated income tax systems in the USA, with a top rate of only 4.25%. Other states have top state income tax rates of around 10%. By adjusting the state income tax rate, additional revenue would be brought in. The rate for the lowest income individuals would be adjusted to increase the amount of private sector spending from that segment of the population.
http://www.taxfoundation.org/taxdata/show/228.html
4. Update Sales Tax Rates
Michigan has one of the lowest sales taxes in the nation, and excludes many items from taxation. Some parts of the US have sales taxes of around 10%.
A higher sales tax rate in Michigan would bring in additional revenue to the state, and make up for declines in sales tax revenue. For lower income individuals, annual sales tax rebates would be provided via income tax rebates. For Internet sales, all internet sales would be taxed at the same rate as the Michigan sales tax rate, and collected by the credit card providers.
In addition, those products that were produced 100% in Michigan would be exempt from sales tax, as a way to support Michigan businesses. For example, apples grown in Michigan would not be taxed, which apples imported from China or Washington state would be taxed. This sort of sales tax on food would directly benefit both the state but also the growers of Michigan, and those in-state processors, to the extent that their ingredients are from Michigan.
While this policy, if implemented directly, may conflict with the commerce clause of the US Constitution, workarounds exist that would, in effect, lower the unit price of Michigan made items, so that even if a sales tax were in place, the Michigan made items would be lower priced on the store shelves.
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States
5. Effectively Invest State Pension Funds
Michigan's public pension funds are currently invested around the world, with a very small fraction being invested in Michigan's businesses. The funds hold over $40 billion which could and should be invested directly in Michigan. By simply adjusting the holdings of the pension fund, and purchasing ownership in Michigan businesses, the public sector in Michigan would be supported, which would in turn support the Michigan public sector.
http://www.michigan.gov/ors/
Conclusion
The current governor of Michigan is reducing the income to a large portion of the workers of Michigan, which will result in less business sales, adding to the current deflationary spiral that has plagued Michigan for years. The governor has proposed no sound solutions for maintaining or increasing state revenue, following the same failed economic hypothesis that led to the global crisis.
Michigan has the ability to maintain and improve its prospects for the future. A sound understanding of systems dynamic economic modeling reveals effective policy solutions. The five strategies above, taken as a whole, have the potential of strengthening Michigan both now, and for future generations.