With the recent primary in Michigan, the Obama administration and the media have inundated the public with accounts of how the car bailouts and other government interventions have promoted both Michigan and the United States. In responding to this account, various free-market sources have explained the shortcomings of the car bailouts, showing them to be unnecessary, harmful, and illegal.
Nevertheless, supporters of government interventions still gloat that, in addition to benefiting GM, their efforts in Michigan brought about a broader recovery, helping the poor and unemployed find jobs they otherwise would not have.
Rather than a real recovery, the reduction in the unemployment rate in Michigan represents an artificial recovery perpetuated by misleading data. As such, on their own terms, the bailouts and interventions in Michigan failed to have discernible broader benefits to employment in Michigan.
One would not know this by listening to accounts of Michigan. The President presents it as a success story for Michigan as a whole, and the major news outlet have been condescendingly glorifying its economic rebound. All of the news accounts explain that Michigan has improved remarkably over the last year or two.
In defending their position, the supporters of the interventions point to the unemployment rate in Michigan as indubitable evidence. In particular, they note that the unemployment rate has fallen from a high of 14.2% in August 2009 to only 9.3% by the end of 2011. Indeed, the unemployment rate has fallen from its high by almost one-third. If this were a true drop in unemployment, then it still would not necessarily follow that the government’s interventions caused the drop nor that the government could bring a similar reduction nationally, but it does look like a reasonably robust recovery in an area that received special benefits from the government.
In reality, though, this “success” does not represent a true drop in unemployment. Over the course of the recession, Michigan lost around half a million jobs. Since reaching its lowest point, Michigan has only recovered about 50,000 [sic] of them, representing only about 10% of the jobs lost. Since reaching its lowest point, the number of people employed in Michigan has effectively stagnated and the vast majority of the lost jobs have yet to be created again.
How could that be? If the unemployment rate has fallen by almost one-third during a period when very few jobs have been created, then what happened?
The labor force in Michigan has plummeted by almost a half million people, falling from a little over 5 million people prior to the recession to about 4.6 million now. To bring the unemployment rate down, Michigan has simply experienced an exodus from its labor force.
If the rest of the country mimics the success story in Michigan and has another ten million workers leave the labor force, the United States can experience low single digit unemployment in no time.
Needless to say, the car bailouts likely benefited GM and Chrysler, and other government interventions in Michigan benefited the special interest recipients. Yet again, though, it doesn’t seem to have brought about the broader job creation propounded by its supporters.
Even though one might expect the economy to recover naturally over several years, Michigan has experienced no notable recovery in employment, despite (or because) of government interventions. Any apparent reduction in joblessness ensued only from the deceptive system used to calculate unemployment. To a lesser degree, this same misleading data has masked and continues to cloak the true extent of unemployment nationally.
By Sean Rosenthal