THE CESSPOOL OF THE WEST. Yes, Michigan has a Lake Erie coastline, but this Rich Lowry column in National Review suggests that "perfect petri dish of failed policies" (an Ann Coulter line) might best describe Michigan.

Liberals dissatisfied with the Bush economy have, through the wonders of federalism, an alternative. They can move to Michigan. The state represents a rough approximation of ideal liberal economic policy. It is heavily unionized, taxed, and regulated in a failed attempt to close its eyes to the dynamic forces of the market and globalization all around it.

Pile on:

Michael LaFaive of the Mackinac Center calls Michigan “the France of North America.” Economically competitive states might have a personal income tax, or corporate income tax, or sales tax — Michigan has all three. It has long been the only state with a European-style, value-added tax — the Single Business Tax. A company can be in bankruptcy and still have a tax liability, making Michigan a bad state even to lose money in. In a 2002 filing for relief from the tax, General Motors explained that it would operate at a loss, but one of its projects would still create a $7 million-a-year tax liability.

Michigan recently repealed the Single Business Tax effective at the end of 2007, but has punted the decision about how to replace it. A relative moderate, Gov. Granholm has resisted general tax increases, but levied new fees, sin taxes and other “revenue enhancers.” The state still insists on trying to target tax incentives and other special breaks to favored businesses, in a doomed replay of 1970s-era industrial policy.

Ouch. But again, Michigan's problems are a legacy of the Old Industrial State.

It used to be that unions could force unnaturally high wages and benefits on U.S. manufacturers, and the costs would be passed along to consumers. Those were the days prior to globalization when the U.S. auto industry had a lock on the domestic market and experienced little international competition. It was inevitable that Michigan would find the new competition disruptive, but not that it would react to it so poorly.

Consider an economy with a monopoly productive sector and a competitive productive sector, and one input supplied by a monopoly and another supplied competitively. Identify the allocative inefficiencies. Now turn the monopolies competitive. Evaluate. (This question is probably a bit much even for the advanced theory class, but stay tuned.)

Jay Reding (flag hoist: Sean Hackbarth) draws some policy implications.

Michigan is one of the states that has no one to blame but itself for its incredible economic failure. Michigan assumed that a single industry would be enough to support its entire economic base — and that’s never true. The combination of technological change and foreign competition has altered the economics of the auto manufacturing industry in fundamental ways. The economic and political control exercised by the unions ensured that Michigan’s government remained largely wedded to that one industry.

Just as only a fool would invest their entire savings into one thing, an economy based on one single industry is constantly under threat. As Lowry points out, Michigan’s high-tax, low-growth policies are now coming home to roost in a state that’s seen massive job losses due to poor public policy. He’s also right in pointing out that Michigan is a state that has done nearly everything that liberals think would make the US economy stronger — and it simply hasn’t worked.

Michigan’s lack of economic diversity, punitive levels of taxation, and incredible inflexibility have caused innumerable suffering as workers lose their jobs and are forced to move to states with more opportunities who don’t embrace the same set of failed policies. The lesson here is obvious: those states that attempt to enact the same set of principles risk coming to the same negative outcomes.

Michigan continues to lead the U.S. in outmigration. That's been going on since the late 1970s. (I count as a wash: Madison to Wayne State in 1979, Wayne to Northern Illinois in 1986.) The Mackinac Center, however, is pinning its policy prescriptions on weak analysis.

There are many reasons people move, but it is probably easiest to sum all of them up with one word: opportunity.

Unfortunately, the official response to the Michigan Malaise is more government interference in the private economy and increased spending in areas like higher education. This spending, we are told, will create more knowledgeable workers who will stay in Michigan and solve our problems.

But proponents offer very little in the way of hard evidence to substantiate this claim. Research by economist Richard K. Vedder, on the other hand, shows that even when a state "invests" more in post-secondary education, the result is the same — a relative decline in economic opportunity.

In his book "Going Broke by Degree: Why College Costs Too Much," Vedder details his research findings on higher education spending. Vedder employed statistical modeling techniques to look for a relationship between spending on higher education and the economic growth of a state. He found such a relationship, and it was negative — that is, the more a state spent on universities, the lower the state’s rate of economic growth.

Vedder backed his empirical findings with case studies specific to Michigan. Writing for the Mackinac Center in late 2004, he said: "The statistical results are confirmed by case studies. For example, compare Michigan with the two other largest Midwestern industrial states, Illinois and Ohio. Of the three states in fiscal 1980, Michigan spent the largest proportion of its personal income on state universities (one-third more than Illinois, for example). Over the next two decades, Michigan dramatically increased its already above-average commitment to universities, so that it had the sixth-highest proportion in the nation by 2000."

Of these states, Illinois had the smallest subsidies and the highest growth in per-capita income from the late 1970s until 2002. Michigan was the exact opposite, with high spending and lower growth. Moreover, low subsidies did not deter Illinois residents from pursuing post-secondary education. In 2000, the ratio of college students was higher in the Land of Lincoln than in either Ohio or Michigan, according to Vedder.

Shiver me timbers, there are drawbacks in attempting to capture 25 years of creative destruction in two data-points. One state has a manufacturing economy dominated by motor vehicle assembly. The other has a diversified economy including much of the financial and logistical infrastructure for Michigan. Does it surprise that the incentives to finish high school and attend university are different?

The balance of trade in higher education obsesses policymakers in the upper Midwest, as my beggar-thy-neighbor series of posts points out. University administrators throughout Wisconsin fret about graduates accepting jobs out-of-state, particularly in Illinois (but did any of their campuses see fit to offer me a post as space-cadet-theorist-in-residence?) and Amtrak's Michigan corridor service exists to transport flatlanders to Kalamazoo and Ann Arbor.

The comparison of Michigan with Illinois misleads in another way. Consider Michigan, Michigan State, Wayne State, and Michigan Tech. At one time Michigan attempted to maintain four research universities in-state. There are also three Mid-American members and a number of regional state universities and colleges. (It was clear that Wayne was going to lose out to the other three in the retrenchments that were in progress 20 years ago.) Public policy in Illinois has tended to favor Illinois at Urbana as the research university, with perhaps a few specialty programs in Chicago. But there's enough discontent among students good enough for Illinois who don't get in, and their parents, that Northern, Southern, and Illinois State can make the case to be additional research comprehensive universities. But that public policy has not maintained academic departments in Urbana at the same level that Ann Arbor has managed to maintain, let alone competitors that could be viewed in the same way as Michigan and Michigan State. Question: if not for Michigan, State, Tech, and Wayne, would the exodus from Michigan have been worse? Different question: How much Illinois human capital is being developed in Madison and Ann Arbor and East Lansing and Kalamazoo?

RUNNING EXTRA: More context at Voluntary Xchange.