The key to stability: broad-based tax cuts are the answer.

Frequently, people ask to what degree Michigan's economy has diversified over the years. They want to know whether we are as dependent on manufacturing as we once were. And more specifically, they want to know how prominent a role the auto industry still plays in our economy.

In four decades (1960 to 2000), the share of Michigan's wage and salary workforce devoted to overall manufacturing pursuits has risen from 34 percent to 50 percent above the national average share of workforce devoted to that sector.

Relative to its own base, however, Michigan has seen its manufacturing employment as a percentage of total wage and salary employment chopped in half, from 42 percent to 21 percent in 40 years.

What has supplemented that declining share of auto employment? Most of the growth in share of total employment has come in two areas: business and health-care services, some of which reflects spinoff and outsourcing by the auto firms.

Interestingly, when it comes to strictly transportation industry employment comparisons, Michigan's employment dedication has remained 4.5 times more heavily transportation-oriented than the U.S. average over the entire four-decade period. Said differently, Michigan has seen its own share of wage and salary employment devoted to transportation equipment slip from 14 percent to 6.3 percent in 40 years; yet, Michigan's labor resources remain just as disproportionately favoring autos, relative to the U.S., as they were in 1960.

Nothing wrong with this! After all, any region with a high-productivity, high-income core industry has the potential for attracting retail, construction and other equally productive ancillary industries.

Moreover, higher-income regions generate higher savings and investment. If high incomes are matched by continuously high productivity and a decent business climate, then such manufacturing-based economies can draw prodigious amounts of venture capital funds from other states and other countries. The auto industry provided this economic and financial thrust to Michigan for decades, from the 1920s through the 1960s.

Michigan's economic performance, given Michigan's continued bias toward production of large-ticket durable goods whose purchase can be postponed when consumers are uncertain about their fortunes, is dependent on low inflation and affordable financing and on gains in purchasing power of at least 2.7 percent per year for the nation.

The Federal Reserve's extraordinary money stimulation in 2001 threatens price stability and purchasing power in 2003, while pushing the economy up in 2002's election year. The one policy that would help Michigan the most over the short and long haul would be permanent income tax rate reductions across the board. Broad-based and permanently lower income tax rates always and irrefutably improve incentives to earn, save and invest. A better growth economy also enhances choices of consumer goods, employee job selection and revenues for the tax-men and tax-women.

David Littmann is senior vice president and chief economist at Comerica Incorporated.