Each day we’re presented with more evidence that Minnesota’s economy — and America’s as a whole — is slowly improving. Contrast today’s environment with our economic prospects three years ago and the difference is stark. Add to that picture the growing number of seemingly educated optimists, and one might argue there’s cause for us to be bullish.
Not so fast. From a macro-economic perspective, there’s a lot to be concerned about. So much so, that as a state, it’s imperative that we be careful and prudent in our expectations for growth for the remainder of 2012 and into 2013.
In a March 2012 Wall Street Journal opinion piece, Princeton University economist Alan Blinder talked about the “fiscal cliff” facing our nation. A cliff? That’s something “from which you don’t want to fall,” wrote Blinder. And the fact is that Minnesota and America are at the edge of a dangerous precipice. A big one. Blinder’s metaphor has gained traction with the press and politicians in recent weeks.
Six major decisions coming
As Blinder detailed, we’re about to enter a perfect storm. The anticipation of six major U.S. policy decisions coming in 2013 (Bush tax rates likely expiring, debt-ceiling spending cuts, payroll-tax holiday expiring, extended unemployment insurance expiring, the alternative minimum tax, or AMT, and health-care-reform tax impact) will likely begin to affect the economy negatively in the latter half of 2012.
Couple all that with the threat of policy tightening from the Fed, and the optimism that emerged in the first half of 2012 may quickly fade.
How we address these issues — along with the global impact of China slowing down and how the “European situation” evolves — will be critical. As a state, we need to continue to drive growth. However, it’s essential that we not overextend ourselves — in terms of nonessential investments, loose expense control and “rosy” growth forecasts — based on shaky optimism.
Plan with contingency approach
We should not subscribe to wholesale negativity nor temper our growth aspirations. But Minnesota does need to plan carefully with a contingency approach at hand. As a business community, we need to demand accountability from our elected officials with respect to financial stewardship and encourage more stable financial management of our government’s finances.
We should debate where government spends its money. Minnesota and other governments should not spend money they do not have or engage in financial maneuvers to balance budgets that are “form over substance” — sacrificing the long-term for the illusion of short-term budgetary achievements.
We cannot afford anything less from our elected officials in Minnesota and elsewhere if we are to sustain the fragile momentum our economy is currently enjoying.
Jarod Allerheiligen is Managing Partner of Grant Thornton Minneapolis.