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I grew up in Michigan, in a suburb of Detroit where most folks seemed to be connected to the auto industry in one way or another–although my mom and dad were not.  Now 30 years since I graduated from high school (in Farmington Hills) and 25 years since I moved away from Michigan, I still have connections to the Detroit auto industry back home:  my sister is an engineer for Ford, and my high school sweetheart works at a Chrysler assembly plant.  I have long been critical of the Bush Administration’s economic policies in large part because I know they have been harmful, far from helpful, to the Detroit-area economy and these auto workers I personally care about.

That’s why I’m not surprised that with the recent “wake-up call” in the economy, Michigan voters started to realize what I’ve warned for years: a tax-cutting agenda that gives the bulk of the money to the rich, while leaving the bill to our children and grandchildren, does not create or even keep jobs.  And although Senator McCain announced just this Thursday that he was abandoning his campaign in Michigan, deeming it a lost cause, the fact is that Senator McCain effectively “abandoned Michigan” many months ago when he decided to make the Bush tax cuts (and even more tax cuts for the rich) the centerpiece of his economic platform.

Last month after the August jobs report came out, I asked “if McCain’s tax cuts will create jobs, why haven’t Bush’s?”  With the events in the economy over the past month (wow–consider how much has happened), I think middle-class Americans all over the country are thoughtfully asking the same question, no longer so easily swayed by the “cosmetics” of the campaigns’ messages (yes, we remember the lipstick), but now really listening to the substance of the messages.  Because substantively, Senator McCain and Senator Obama propose fundamentally different approaches to what will get this economy back on the right track.

Any regular reader of this blog knows that I am disappointed that both Senator McCain and Senator Obama are proposing so many tax cuts that I think we cannot afford.  Our choosing to avoid paying for these tax cuts now, through deficit financing, effectively dooms our kids to much higher taxes in their future.  Deficit-financed tax cuts under the Bush Administration have been job destroyers, not job creators, for two main reasons:  (i) they have reduced national saving (by creating public dissaving), and (ii) they have not been structured to necessarily give businesses the incentive to create or keep jobs (even when they allow businesses to keep more profits).

One big myth about tax cuts and job creation is the suggestion that we have lost jobs overseas because our tax rates are too high–suggesting that if we just cut taxes here, we’d keep the jobs here.  But most of the reason why manufacturing jobs have gone abroad is because labor is much cheaper in those other countries–not because the taxes that businesses must pay on that labor are lower, but because the workers earn a much lower wage and have much lower standards of living.  U.S. tax policy is not responsible for the outsourcing of manufacturing jobs, even if a case is often made that some of our tax laws encourage it at the margin.  Changes in U.S. tax policy thus cannot be expected to save or create those manufacturing jobs we’re losing. 

I suspect that the great bulk of the jobs we are currently losing in the Detroit auto industry are gone for good, because the U.S. auto industry, as we have traditionally known it, is going through what’s likely to be a permanent downsizing.  I think the best the government can do to help the Detroit economy is to encourage that economy to find its “new way.”  Detroit will either have to move from a manufacturing economy to a more service-oriented economy, or it will have to move from producing fossil-fuel-intensive vehicles to producing vehicles (and technologies more generally) that use new, cleaner, more plentiful sources of energy.  Of course, that’s not at all easy or cheap, and during the transformation many workers will simply fall between the cracks unless the government is there to help them–with some combination of unemployment compensation and job (re)training.  (That’s known as investing in “human capital,” which is something the Bush Administration has failed to recognize is even more important to the future strength of the U.S. economy than the physical capital investments they have tried to encourage through their capital gains and dividends tax cuts.)

The Bush tax cutting agenda has been unhelpful to the Detroit economy because most Detroit-area workers have seen little of the economic benefits of the tax cuts for the rich “trickle down” to them.  The simple reality is that there is no such thing as a “free” tax cut, so policymakers need to weigh the economic benefits of a given tax cut against its economic costs.  The problem with a tax policy agenda that devotes so much of its tax cuts to the rich is not that the rich are better off (it’s not a simple “class warfare” or “envy” issue), but that the “opportunity cost” of that lost revenue is so great when there are so many more pressing needs in the economy.  Senator Obama’s economic platform at least recognizes this opportunity cost in choosing to let the tax cuts for the richest Americans expire (saving about half the cost).  But because I’ve heard Senator Obama speak of some of his ideas for helping the Detroit auto industry find its new way–ideas that will cost the federal government some money if the policies are really to make a difference–I think an Obama Administration would have to start considering the opportunity cost of even the middle-class tax cuts they intend to extend, as well as the other new tax cuts they currently propose.

We are, as a nation, running out of money to pay for things.  We’re even bumping up against our capacity to borrow from the rest of the world to “pay for” our things.  So it’s time to more seriously set priorities so we can use every dollar of our resources more wisely.  I (personally) have some faith that an Obama Administration would be willing to scale back some of their spending and tax cut plans to address the most critical needs of middle-class Americans first while minimizing the debt burden to be passed to future generations.  But I have no faith that a McCain Administration would even realize the need to change their plans, given that they continue to fail to recognize that their economic platform, mostly a continuation of the Bush Administration’s tax-cuts-for-the-rich agenda, is far from the right strategy.

So I think McCain “abandoned Michigan” not on Thursday, but many months ago, and it just took the recent bad events in the economy for Michigan workers (and voters in many other parts of the country) to see that.