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.
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A whole lot of lead up to…nothing. Dude, I /think/ I know where you’re going with this, but if you want to provide some wisdom, you need to just say it. If you don’t like government spending, fine, say it. If you don’t like taxes, fine, say it. But telling us what we already know isn’t a solution to anything, or even helpful.
As for governments not spending what they don’t have, that horse has left the stable, lived wild on the plains, and died of old age. The thought of a spartan government is a grand idea, but it is only that. Even those of you that sit comfortably fingering the money of others, would find things uncomfortable. After all, the greatest amount of money spent by the government in this country is for protecting wealth. The second greatest amount of money spent by the government in this country is spent convincing the rest of us that we’re wealthy enough to benefit from that.
An example? Our military. If you think it exists to protect and spread “freedom,” think again. It’s there to protect our trade interests and our property. Those who have a greater stake in those gain the most. If our military suddenly went away, the poorest in our country would probably see little difference, and maybe an improvement, if some other country successfully occupied us.
Another example? Our Congress. You should well know that our economy is no longer product based. Congress made sure that the penalties for exporting jobs weren’t enough to deter companies from maximizing profit overseas. As a result, our economy is almost wholly consumer and service based. Now, even service jobs are being exported. (In an open global market, Americans have very little to offer–we want to live a first world life, yet we’re not going to spend our money on our own education and health. We’re ignorant and we’re shortening our own productive life spans.) One can hardly blame businesses from making decisions that maximize profits, but one can certainly blame individuals that worry about padding their own pockets and succeed in doing so by padding the pockets of their representatives to make it happen. Better yet, put one of those very people on a bus (or rather a personal jet) to Washington. For pity’s sake, spending on Mitt alone has topped $57 million in this campaign. And Obama and Newt are tied at $17 million. I’d happily take 1% of any of those.
No, sir, glittering generalities are not helpful at this juncture. Except maybe free advertising for your firm specializing in money. (Oh, and in case you didn’t know, economies don’t behave like businesses. Applying your financial magic to such a big and unpredictable beast won’t work the way you expect it. Stick to helping businesses squeeze money out of unusual places.)
Where’s the beef?
This is one of the least clear, most empty essays MinnPost has presented. Nothing to it, just an attempt to scare (“fiscal cliff”) and then some pablum–others might call it “thin gruel”–about how Minnesota should do what it should be doing in the first place. Duh.
And the point is….
I quite agree with R. Kahler-what’s your point Mr. Allerheilligen? I interpreted your comments to be a criticism of the Republican leadership of our Legislature. It seems they could not cut enough to balance the budget, would not raise taxes back to the Ventura levels and so ended up with what you call “financial maneuvers” or “form over substance.” If that’s your point say so-its about time someone from the business community did so.
I think the business community is being very foolish to haggle over the marginal tax rates in Minnesota since the taxes go towards things that matter to business-roads, infrastructure, schools, health care for low wage employees. Sure work on reforms to systems like education but don’t foolishly reinforce the no new taxes crowd so that no systems work well. It’s just not enough money to get worked over considering the benefits. Business executives need to differentiate their own personal tax situation from the best interests of their company. Sure no income states are attractive personally and climatically but even the clown who runs TCF moved back to MN with it’s income taxes from third world Florida.
Someone soon is going to discuss Kahler’s other point (and business will rue the day) that our military system exists to protect commerce-so why not let business’s pay for it and the rest of us will cover social security medicare etc. It’s the federal taxes that are out of control and killing all of us not state taxes that provide things we all use.
Let’s be careful!
PJ O’Rourke once said that the test of a good speech is whether anyone could disagree with it. If we apply the same rule to this piece we get . . . what? Not much, I’m afraid. The author is evidently not afraid to alienate those who believe who should approach economic decisions with reckless abandon.
Is there anyone out there who thinks we should NOT be careful when we make spending and tax decisions? We can all argue about specifics, but at the same time, everyone thinks that they are being careful (not the other guy, of course). Republicans are reckless with taxation, Democrats are reckless about spending. The discussion can and does drone on in this vein for hours, if not years. Nothing new about that.
Instead of general admonitions towards prudence, let’s hear some concrete proposals: What should we do, carefully?
Economists
There is an old sayings with a variety of versions but here is one of them, get 10 economists in a room and ask them a question you will get 11 different answers.
We should all move to ND where their state fiscal problem is what to do with the Billions of dollars (yes Billions) of oil tax revenue that keeps flowing into the state treasury.
It is interesting MN and its politicians have not figured out a way to leverage a booming economy with a state that borders MN.
Where’s the beef?
I agree with the other commenters that the piece is so general and empty as to amount to fluff with which one can do nothing, but also wish to pick a specific nit.
I am getting so tired of hearing that governments “should not spend money they do not have”. This is such a well-worn piece of boilerplate, and worse, is simply absurd. Bonding is all about spending money you do not have – i.e., borrowing to cover the high cost of public works over the short term, and paying it back over the long term. Without bonding, much of what government does could simply not be done.
Private sector companies and individuals do the same thing. Ever buy a house? Invest in a business expansion? Unless you’re a one-percenter, you borrowed (spent money you didn’t have) to do so.
State governments, unlike the federal government, require their budgets to be balanced, so there is no deficit spending at the state level. That’s what the shutdown was all about.
The one place “spending money they do not have” is a real and chronic problem is the federal government. I think we all agree that that needs to be brought under control, although occasional deficit spending there is both necessary and not a concern – for example, to fund stimulus spending during an economic downturn, *ahem* – unless it gets out of control, which both parties have let happen at the national level.
I do agree with this bit: “engage in financial maneuvers to balance budgets “, which I guess alludes to things like Pawlenty’s favorite tactics of budget shifts, stealing (er, “borrowing”) from schools, not counting inflation on the spending side, etc. Yes, that needs to stop.