Dr. Nash interview with MIRS: Is Dixon Or Whitmer Correct About the Economy? It's Likely Both Are

Gov. Gretchen WHITMER and Tudor DIXON offered diametrically opposed versions during last night's debate about Michigan’s economy. Today, four economic researchers shared with MIRS the reality: Both can say they're correct and be correct.

In fact, it really doesn’t matter which of the two are candidates are elected because most of the economic indicators are not controlled by the states. They are seen nationally, said Gabriel EHRLICH, director of the University of Michigan Research Seminar in Quantitative Economics (RSQE).

“Right now the situation is legitimately complicated, so of course people can pass it on to different things to make the arguments they want to make,” Ehrlich said.

It’s understandable that the economy has become a central issue of the gubernatorial race because, if you look at presidential races, even in more normal years, it’s really the economy that determines the election, said Mackinac Center for Public Policy Economist Christopher DOUGLAS.

He said when the economy is doing good the incumbent tends to win, but if the economy is not doing well, then the challenger tends to win, which is why Dixon wants the economy to be terrible and Whitmer wants everything rosy.

This dynamic is problematic in the eyes of Tim NASH, the director of The McNair Center at Northwood University. In general, politicians should walk a finer line when it comes to talking about the economy.

“When you’re a politician you don’t want to say we’re in or headed toward a recession or difficult times because you don’t want to jinx or fuel the movement toward the downturn,” he said.

He said it is also bad to give people “a false idea” that everything is good because then people tend to dip into debt to do what they want, especially coming out of the COVID-19 pandemic.

Today's inflation could be compared with the inflation during the 1970s in the administrations of former Presidents Gerald FORD and Jimmy CARTER.

Though the numbers are comparable, W.E. Upjohn Institute for Employment Research President Michael HORRIGAN said the big difference is that the country is coming out of the COVID-19 pandemic in 2022.

“I think what people really want to know is what is actually going on,” Horrigan said.

All four agreed the inflation rate, which currently sits at 8.2%, was an ongoing issue that would have to be dealt with by the federal reserve by raising interest rates. The raising of the interest rates would cool an overheated market to bring inflation under control.

Ehrlich and Horrigan felt the fed would be able to pull off what is known as a “soft landing,” which is where the economy is cooled to the perfect temperature or with only a mild recession and see minimal impact on jobs.

“I view that as unlikely, but miracles are possible,” Douglas said.

Nash was on the same page as Douglas and cited JP Morgan CEO Jamie DIMON who called for a recession in six to nine months.

Ehrlich said Michigan is about 91% recovered from the job losses that cratered the market in 2020. He said the state is lagging just behind the national average in terms of jobs. The current unemployment rate sits at 4.1%. (See “Unemployment At Lowest Point Since Pandemic Began,” 9/14/22.) 

“There are actually more job openings than unemployed people and historically that is an unusual situation to be in,” he said.

The high number of job openings may blunt any damage a mild recession or interest rate hike could cause. Instead of employers laying people off, they'll stop trying to fill open positions.

Horrigan said the gap between job openings and hires is beginning to close, but specific jobs are needed by some industries.

“Each industry will have its own unique story,” he said.

He said hospitals still need nurses, and there are openings in some industries that would continue, as they had prior to the COVID-19 pandemic. He said demand for services in some industries would determine that labor market. Leisure, hospitality and government jobs are still available.

He said single parents have still not returned to work, citing childcare, family responsibilities and transportation as barriers. He also said women without a bachelor’s degree have been disproportionally impacted in the pandemic recovery.

“So a lot of people are calling it a ‘she-cession’,” he said.

Nash said Michigan’s latest Gross Domestic Product changed dramatically during the second quarter. The Department of Commerce Bureau of Economic Analysis data showed Michigan GDP dropped during April, May and June.

“Ranking 34th and declining at 1.7% is obviously not something you write home to mom about,” he said.

He said the economic situation has been floated largely by activity of the pent-up frustration of people coming out of the pandemic. They have more money saved up because they weren’t doing anything for two years. That along with rescue funds from the federal government make things look different.

He said the impact of a recession wouldn’t only be on the labor market, but also on the retirement savings through 401(k)s and pensions that are driven largely by the stock markets.

Horrigan said GDP is only one of the indicators that is looked at to determine a recession and Michigan isn’t there, yet.