More local economic bits

My rep in congress (Scalable’s too) is pointing out some unhappy guestimates of how our local economy will fare:

Well, while agree with him that its getting worse here (we blew through 14.1% in May … likely at 15% or worse now in July), had the autos fallen, the unemployment would have been worse. This said, it is very important to let the economy do what economies do best, and stop trying to pretend to control it.

If one of the big three had simply gone down, it would have put tremendous stress on the remaining base. This stress isn’t necessarily a bad thing, as the autos were inefficiently organized, their cost structures were way out of whack with their needs. By preventing the most severe short term pain, we also short circuited the normal economic mechanisms that work. The autos had too many dealers, spent too much money per car to build it, and had a plethora of other problems, including lower quality perceptions than their competitors. The softer landing allowed them to escape having to deal with some of their problems, specifically the cost per built car … kick that one down the road, and let someone else deal with it. Lear Seating filed chapter 11. Their customers stopped buying for a while. A number of others filed as well. Delphi is being broken up rather than emerging intact from Chapter 11. Their financing fell through before, and it may do so again. Basically things aren’t economically good here. We are likely to become the West Virginia of the midwest. But without the beautiful vistas, at least in the southern lower peninsula. If you haven’t been in West Virginia, I heartily recommend a nice drive through it. The Appalachians make for very nice views. But they don’t have much left in the way of an economy. Then again, California’s economy has also been cratered, and it had recently been on a boom. The economy needs job growth. To get it, we need to enable and support entrepreneurism. We need to encourage many small companies to get started. Quoting from the movie “Robots”, see a need, fill a need. This requires many different things at various levels … federal government needs to look at how its procurement processes effectively exclude many small businesses, how its tax regime manages to penalize those that are successful and hire people, as well as the state governments policies about giving large tax breaks to specific industries, which then later close up shop, downsize etc. And this has the impact of having us, the little guys, pay for and support the big guys. Enough already. No industry, no company is too big to fail. You lose the economic benefits surrounding the failure (the hard choices that must be made, which strengthen the remaining companies) if you stop the failure from occuring, or soften its landing. This was done, quite obviously, to rescue a political constituency, in the case of the autos. What was needed to be done, was not done. Which means that the problem we are going to have to deal with in the future, is far worse. Lehman failing, Bear Stearns failing? Yeah, it destroyed shareholder value, destroyed wealth. But it had to happen. Preventing it from happening? Not so much a good idea. AIG, Fannie Mae, and Freddie Mac are cases in point. Again with strong political constituencies. The state of Michigan still hasn’t made the hardest choices yet. We will have to soon, it is coming to a head. I should also note that at places like Traverse City (where I was with the family over July-4th weekend), there is little evidence of a downturn. Michigan has many beautiful places and locales. If there was significant capital here, I could easily see locating startups in TC, and other places like that. This would make a great startup state (low costs, huge amount of beachfront property, all 4 seasons). Lots of small startups … micro-startups with one or two people in a garage, mean 1 or 2 people working. Paying taxes. Consuming resources and generating economic activity. Now start multiplying that by thousands. And make the cost to get started and ramped up, low. And the cost to grow and expand low. Its not that hard to say. Its just nearly impossible to do, courtesy of some entrenched political power, and a vision of the state from the early part of the previous century, that is front and center in the political echelons here.