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Published: Saturday, 5/12/2001

Economics guru in a class by himself

DETROIT - When the nation's economy catches cold, Detroit usually gets pneumonia. And for months now, with layoffs, hiring freezes, and declining stock prices dominating the headlines, Motown has been anxiously watching its temperature.

Yet there is a glimmer of good news this week from the state's economic forecasting guru: Things may not be all that bad. “The recession watch index, which forecasts the likelihood of national recession occurring within 12 months, registered a 28 percent probability in April,” said Comerica Bank's David Littmann.

That means, he explained, showing his graphs and charts, the odds are nearly three-to-one that there will be no national recession. In fact, the numbers suggest “economic acceleration in the final quarter of 2001. This is the most encouraging reading in a year.”

That sounds nice. But how much stock should we put on his predictions? Would-be economic forecasters are about as numerous as those who predict the weather - and usually less accurate. But the soft-spoken, 59-year-old chief economist for Michigan's leading bank is in a class by himself. No one is more respected than the sober, serious-minded Mr. Littmann, an Illinois native who has spent 31 years studying the region's economy and developing various economic models to help make sense of it, including his recession watch index and a “Detroit comeback index,” much cited in the last few years.

And he is anything but a wild-eyed radical.

“The secret to economic growth and sustained prosperity is healthy incentives,” he wrote in a little essay he makes available to political candidates. “If you tax something, you get less of it. If you subsidize something, you get more of it.”

What that implies, he is happy to explain, is that Detroit would do better to slash or eliminate its city income tax and remove as many barriers to doing business as possible.

During the past year, he explained, Michigan's has been the hardest hit of any state economy, as the boom ran out of steam and people deferred purchases.

“Locally, it's marginal. If any area of the country is in recession, I'd say it's the Detroit area. Employment is flat, unemployment rising, retail sales barely positive. But it is a very mild recession, by comparison with any of the others I've tracked” since the 1950s.

And there are now some positive signs. Auto inventories were dangerously high a few months ago. But now, thanks in part to heavy discounts and incentives, they have declined to respectable levels; auto sales are, in fact, running at near-record figures, though profit margins have dipped sharply.

Surprisingly, he believes the casinos are a net plus to the city, which add about $81 million in much-needed revenue (5 percent of the entire city budget), most of which he believes comes from suburbanites heading downtown to gamble. Statewide, however, legal gambling is more of a wash, since revenues from both horseracing and the state lottery have fallen.

Locally, what Detroit needs to do, he believes, is to get the dead hand of the city's particularly stifling regulations and bureaucracy away from the collars of those who would start business enterprises there. “Capital goes where it's invited and stays where it is welcome,” he notes. City services such as trash collection need to be competitively bid and privatized.

Most of all, the city needs to stop mandating artificially high wages. “The primary role of any government is to protect lives and property. So-called living wages are a good example of how to discourage businesses from locating in Detroit.”

But he thinks the nation's economic health in the year ahead depends mostly on something else, a factor of the reach of Detroit bureaucrats: Gasoline prices. Mr. Littmann expects them to peak about where they did last year, at around $2.30 a gallon, and then start down by July 4, if not earlier.

By summer's end, he hopes to see them in the $1.30-$1.40 range, barring new complications. If so, he thinks the economy will be fine. But if not, he thinks a recession may be inevitable. “We need more refinery capacity, clearly. There's not an oil shortage.”

Whatever happens, though, the man who watches the numbers plans to keep his finger on the region's economic pulse, as he has since 1970, and to keep dispensing advice, welcome or not. And, irrational as it sounds, that's somehow reassuring.

Jack Lessenberry is The Blade's ombudsman and a member of the journalism faculty at Wayne State University in Detroit. E-mail him at OMBLADE@aol.com or call 1-888-746-8610.



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