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Minnesota must maneuver smartly on a bumpy economic road

Our state economist is one of Minnesota’s most respected government officials. Dr.

Dane Smith
Courtesy of Growth & Justice
 Dane Smith

Our state economist is one of Minnesota’s most respected government officials. Dr. Tom Stinson’s bedside manner — a steady voice and straightforward diagnoses of our economic state of health — has provided continuity and a rational perspective in his 20 years on the job under Republican, DFL and Independence Party governors.

Although Stinson lacks the powers at the state level of a Federal Reserve Board chairman, his commentary tends to be accepted with the same kind of respect and between-the-lines speculation that has been afforded to Alan Greenspan and other fed chairs.

So citizens who care about the state’s economy should pay close heed to Stinson’s Q&A-style interview by Britt Robson on The topic: Minnesota’s economy in the last few years, for the first time in decades, has been chronically underperforming the national average. It’s also timely because everybody in Minnesota’s policy world is trying to guess what the numbers will be in the annual state budget forecast, scheduled for Nov. 30, at which Stinson always presides.

Some of the language he uses in this interview is very close to our own framework here at Growth & Justice. Most significant, Stinson suggests that our historic investment in public education and human capital was THE crucial ingredient in our success. Stinson does not say, as we do, that the anti-tax, government-cutting policies of recent years are wrong-headed. And he suggests that the recent underachievement might be caused in part by Minnesota’s relatively small defense industry in a wartime economy.

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State faces big choices
But here’s what he had to say about the reasons for Minnesota’s success, until recently, and the choices in front of us. Notice that the options he lays out all have something to do with the idea of investment and there is not a hint, at least in this interview, of further cutting taxes or downsizing government.

Minnesota’s economic record over the last half-century is one most states envy. The reason that occurred was because far-sighted public- and private-sector leaders figured out they were going to invest in the education of the baby boom generation…

We have got to be focused on the productivity of our workforce. Because that is really the only way we get growth in incomes, and it is what makes Minnesota attractive to managers of firms looking to locate here. The question is, how do we best achieve that productivity? Do we get it by investing in fancy new, faster machines? Do we get it by investing in education and health care for our workforce? Do we get it by investing in infrastructure? Do we get it by investing in more research and development?

Whether we make those decisions by making explicit changes in what we are doing, or implicitly by leaving things as they are, those decisions are going to have a major impact on our future economic output. Everybody has his or her own opinion as to what is important and what the balance should be. But there needs to be a public discussion, not on the question of taxes versus government spending, but rather on how we distribute the resources we have in a way that best enhances the future as well as the present.

Stinson reviews our past success, noting the steady climb in general prosperity and income per capita, from average rankings in the 1960s to a peak ranking of about sixth in per capita income in 2003, and a rather sharp fall to 14th since then.

Growth happened despite tax ranking
Growth & Justice notes that this steady ascent occurred during a time when Minnesota’s ranking on taxes and spending also was lodged permanently in the top 10, despite arguments all those years that our larger public sector was somehow anti-business.

The anti-tax forces finally prevailed and had their way. Some of the largest permanent income tax rate cuts in our history occurred in 2000 and 2001, followed by a deep recession and some of the largest state government budget cuts in our history in 2003.

We submit that our experiment with “no new (state) taxes” and a diminished public sector is simply not working. We need to invest more in public things for the common good, in the smartest, most cost-effective ways we can find, to restore a broadly shared prosperity. (See our website for our Smart Investments in Minnesota’s Students initiative.)

Finally, for those wondering whether the Nov. 30 budget forecast will be in black or red ink, note that Stinson toward the end of this interview uses the “R” word. Our sources at the Capitol say the betting is running heavily toward a projected deficit and an assumption of recession, even though the forecast regrettably will not provide for inflationary growth in state budgets.

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Dane Smith is president of the Growth & Justice, a 5-year old organization that describes itself as “a progressive economic think tank.” It was begun by former Star Tribune publisher Joel Kramer, now CEO and editor of Smith’s remarks are reprinted from his blog on the group’s website.

Want to add your voice?

If you’re interested in joining the discussion by writing a Community Voices article, email Don Effenberger at deffenberger [at] minnpost [dot] com.