Budget forecast highlights the vastly different federal stimulus views of Pawlenty and state economist

The most interesting aspect of the release of Tuesday’s budget forecast — yes, we’re still in the hole, but it’s not so deep as it was — is the vastly different views held by Gov. Tim Pawlenty and the state’s longtime economist, Tom Stinson, on the effectiveness of federal stimulus programs.

In recent months, Pawlenty, perceived as a presidential aspirant, has been buzzing around the country, attacking almost everything the Obama administration has done to attempt to get the economy moving again.

While the governor has been in attack mode, Stinson has been nodding his head in approval over what Washington has done. Even Pawlenty’s commissioner of the Office of Budget and Management, Tom Hanson, seems to think that the feds’ stimulus money has had a positive impact in putting signs of life in Minnesota’s economy.

The role of stimulus funds first was raised with Stinson at a Tuesday news conference announcing the state’s latest economic forecast, which shows a deficit of $994 million, rather than the earlier $1.2 billion shortfall.

Economic signs improving
Although the improvement was small, Stinson noted that economic signs now are far better than those seen last summer.

Federal stimulus “spending has had a big impact on turning the economy around,” he said.

Tom Stinson

Tom Stinson

Simple and straightforward. The only debate over the importance of the stimulus programs, he said, centers on which portions were most effective, and that’s a debate that will rage on for years.

But there was more straight talk from the man who has served governors dating to Rudy Perpich, a job Stinson holds, by the way, always at the pleasure of those governors.

“Without federal action,”he went on to say, “we’d be losing jobs big time. The recession would have been extended for a year, at least.”

These viewpoints would seem to put Stinson as far from Pawlenty as you can get on any economic measuring stick.

So, Stinson was asked, do you and the governor ever sit down over a cup of coffee and just talk about economics?

“I don’t drink coffee,” said Stinson.

It was at about this time that Hanson, a Pawlenty appointee, did sort of a hip check on Stinson, edging him away from the microphone.

“Dr. Stinson speaks his mind,” Hanson said. But he wanted to make sure that people understand that Pawlenty and Stinson have long, friendly conversations about economics.

But, of course, this put Hanson at center stage. So reporters asked him about whether the federal stimulus money that Pawlenty so often attacks but eagerly accepts has been helpful to Minnesota.

‘Breathing room’ for budget
“We look at the money we have received as giving us breathing room,” Hanson said.

In fact, DFLers note, that even in the governor’s revised budget, needed to erase the current shortfall, there is an expectation of the state receiving another $400 million from the feds.

Stinson eventually got back to the microphone and was asked about the deeper economic meaning of such programs as the federal cash-for-appliances program, which was launched Monday and led to overloaded phone lines and website slowdowns as eager Minnesotans tried to grab a piece of a $300 million program.

The popularity, Stinson said, proves “Minnesotans and U.S. residents look for a good deal.”

What’s not clear, he added, is if the program will hurt appliance sales down the line.

But then he added that the cash-for-clunkers program the feds ran a year ago was hugely successful and that long-term “auto sales held up better than expected.”

This assessment of cash for clunkers was again directly at odds with the views of Pawlenty, who has ridiculed the program on the campaign trail.

Stinson also seems to disagree with his boss on the importance of getting a bonding bill completed quickly. Pawlenty vetoed the DFL’s $1 billion bonding bill, and the two sides apparently have not had meaningful discussions on reaching agreement on a replacement bill.

DFLers have said it’s important to move quickly on a bonding bill to fund shovel-ready projects before the fast-approaching construction season.

“We’ve lost 25,000 construction jobs,” Stinson said. “The sooner we get them back to work, the sooner they start purchasing things and paying sales tax and paying income tax.”

Again, Hanson stepped in.

“He’s the soon-to-be Nobel Prize winner,” Hanson said of Stinson. “The sooner you bond, the better it is, BUT . . .”

Tom Hanson

Photo by Craig Lassig
Tom Hanson

Hanson went on to defend the governor’s veto, saying that context of the overall budget and project priorities are important, too.

So what does Pawlenty think of the state economist who doesn’t seem to agree with the sorts of things potential candidate Pawlenty is saying?

“I had coffee with him this morning,” said Pawlenty at his news conference regarding the budget forecast. “He’s well regarded in Minnesota and beyond.”

Pawlenty’s take on the stimulus
But governor, what of your rather strong differences of opinion on the effectiveness of the stimulus programs?

“My critique of stimulus spending is that it should have been focused differently,” said Pawlenty, sounding just a little defensive. “. . . I’ve said many times that it should have been focused much tighter on infrastructure . . . roads and bridges.”

The no-new-taxes governor was quick to add that the best stimulus of all would have been a cut in taxes.

“A bigger bang for the buck,” said Pawlenty of a tax cut that he believes people would have pushed into the collapsing economy.

He suggested it was foolish of reporters to think there was any real difference of opinion between him and Stinson. You only need to “expand your horizons” to see how he and Stinson agree on the big picture, the governor said.

So, what of cash for clunkers, a favorite target of Pawlenty early in his national campaigning?

Apparently, no amount of horizon expansion brings the governor and the economist together on that program.

“We can get you reams of data” on how that program was a dismal failure, Pawlenty said. He argued that most of the people who bought cars during the cash-for-clunker program “would have bought cars anyhow.”

He noted, too, that cash for clunkers had a negative economic impact on junkyards and charities.

How about all of those federal stimulus dollars that have been used to balance Minnesota’s budget?

Without enthusiasm, the governor replied, “Temporarily, it’s helped Minnesota’s budget numbers.”

Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.

Comments (17)

  1. Submitted by Aaron Klemz on 03/03/2010 - 09:22 am.

    Pawlenty: “I had coffee with him this morning.” Stinson: “I don’t drink coffee.”

  2. Submitted by Brian Simon on 03/03/2010 - 10:49 am.

    Doug Grow writes
    “The no-new-taxes governor was quick to add that the best stimulus of all would have been a cut in taxes.

    “A bigger bang for the buck,” said Pawlenty of a tax cut that he believes people would have pushed into the collapsing economy. ”

    I’d like to see someone push him on this point, perhaps asking (more politely) that he prove it.

    It seems to me that a tax cut only benefits those who are paying taxes, whereas stimulus spending, perhaps on infrastructure, directly 1) creates jobs and 2) creates or repairs infrastructure necessary for an efficient economy.

    Aspiring presidents should always be asked to back up their rhetoric with data.

  3. Submitted by Mike Dudic on 03/03/2010 - 11:32 am.

    I fear any politician that supported Cash 4 Clunkers. That had to be one of the most irresponsible programs ever invented. How can we pump all of these new overpriced cars into an already saturated market (on the taxpayers dime no less) and expect anything but more repossessions and depreciating car values( i.e. http://repofinder.com)? The car dealers are now complaining about not having any used car inventory to sell. Let the free market be free.

  4. Submitted by Howard Miller on 03/03/2010 - 12:23 pm.

    When the “free market” is in free-fall, I’m all in favor of stimulus spending by our federal government, including cash for clunkers.

    It is quite the sight, seeing Republican politicians do the bob-and-weave trying to deny that stimulus spending pushed by President Obama in fact helped America. Too bad they couldn’t extend the President some credit for doing the right thing.

  5. Submitted by Brad Robinson on 03/03/2010 - 03:09 pm.

    So Mike, You think the market was already saturated with cars, while the governor says those cars would have been sold anyway. Which is it?

  6. Submitted by Richard Schulze on 03/03/2010 - 04:27 pm.

    We often hear the governor speak about the national deficit.

    Since we’re talking deficit (annual) rather than debt (accumulated), we should look to current budgets, no? The budget for 2011 is ~$2,276B, so the top 5 areas that are responsible for the deficit are:

    * Defense: $912B, or 40.0%
    * Interest: $459B, or 20.2%
    * Income Security: $229B, or 10.1%
    * Net Entitlements: $151B, or 6.6%
    * Education/Training: $122B, or 5.4%

    Which is about 82% of the total budget, ergo about 82% of the total deficit.

    It’s interesting to note that the interest portion is due to past deficit spending, and that Republicans have historically outspent Democrats in terms of deficit spending by about a 3-to-1 ratio. And that Republicans have historically increased the defense budget.

    We also hear from the governor that:

    The cost of the military is a pretty small percentage of the budget compared to bulging, wallowing, out-of-control government entitlements like Medicare and Social Security.

    Nope. Not so much. At least in terms of the deficit. Please see above.

  7. Submitted by James Hamilton on 03/03/2010 - 05:02 pm.

    Tax cuts may well stimulate spending, when those receiving them:

    Aren’t drowning in debt;

    Aren’t underwater on their mortgages (25% of American homeowners);

    Aren’t afraid that they’re about to lose their jobs;

    Aren’t faced with property tax increases needed to offset declines in local government aid;

    Aren’t battling steadily increasing health care costs;

    Can reasonably expect their income to rise over time; and

    Can otherwise feel that it’s safe to spend money.

    Last I looked, most of those I know aren’t quite that worry free.

  8. Submitted by dan buechler on 03/03/2010 - 06:37 pm.

    This is why we have bureacrats which is a good thing. Of course it is easy to demonize them esp. to those who aren’t in the know. Knowledge is a good thing.

  9. Submitted by David Willard on 03/03/2010 - 06:43 pm.

    Great to read Doug Grow again in his place as an evenhanded relayer of political news ala Sturdyvandt, NickBoy Coleman, The Ol’ Fake Trapper Garrison, the editorial teams of The Strib, etc etc. What we needed was more of the left striding their hobby horse issues and wailing on that poor colt. We get it. Pawlenty is not a Democrat or a Green or an Independent or a guy you Liber……I mean Progressyves or whatever you want to call yourselves this week. (Is it still “Climate Change” that will kill us if not for Prog/Lib/Enlightened Weenies dictates?)

    Anywho, keep it coming MinnPost. It sure is a breath of fresh air from that Gosh Darn Right Wingy Star Tribunski

  10. Submitted by Richard Schulze on 03/03/2010 - 07:11 pm.

    The federal budget deficit is a huge problem, to be sure. But you need to distinguish between deficits occurring this year and next when the economy is still trying to climb out of a hole, and deficits five to ten years from now. If government doesn’t spend enough in the short term to get jobs back, those out-year deficits will be even larger because tax revenues will be lower than otherwise and we’ll be spending more on unemployment benefits. The public doesn’t quite get this distinction.

    Conservatives meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They’re wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend.

    When the economy has as much underutilized capacity as we have now, government spending that pushes the economy to fuller capacity will of itself shrink future deficits.

  11. Submitted by Joe Musich on 03/03/2010 - 09:18 pm.

    Since when have people born experts ? We sure have a lot of experts out there now who’ve been blessed at birth with full knowledge about everything from science to economics. I wonder why those fools who’ve spent a lifetime on study and research, gathering and analyzing data, testing and interpreting ideas and possibilities and putting their works out there to be proven or disproven have wasted their time. Let’s hear it for the dark ages! Why do all that work when you can just toss any old thought out there, act like you know what you’re talking about and huff and puff when people disagree with you and you’ll probably end up in the lime light. What the heck while your’re doing that call up the gods to defend your posturing. Forget the ark ages go back to the devine right of rulers. And if that the case do away with education all together because it only gets in the way. Wow now I see what’s going on inm the mind of our chief executive.

    I think I’ll go with the person with the training. I still really value education.

  12. Submitted by William Pappas on 03/03/2010 - 09:20 pm.

    The commercial construction industry would be nonexistent without stimulus funds. The energy programs, affordable housing, transportation infrastructure and more are allowing tens of thousands of Minnesota construction workers to make a living, pay taxes and afford health insurance. Many of these funds allow projects that are mostly privately funded to get off the ground in light of falling property values. Make no mistake, without stimulus spending there would be no commercial construction in Minnesota.
    Tax cuts do absolutely nothing to stimulate commercial activity in a severe recession. Most economists that don’t have their heads burried in the sand of supply side economics agree on this fact.

  13. Submitted by Bernice Vetsch on 03/04/2010 - 11:21 am.

    Richard S. et al.

    At the website for Foreign Policy in Focus are reports of annual studies conducted by a team of experts in various fields, each entitled “A Unified Security Budget for the United States, FY 20….” Each recommends items that can be cut from the Defense budget without adversely affecting our safety. Each also recommends transferring some of all of what is saved to more effective non-military methods of creating peace — development aid, for instance, and diplomacy. (See http://www.fpif.org/reports/usbfy2010, and a related article called “Too Many Overseas Bases,”
    at http://www.fpif.org/articles/too_many_overseas_bases.)

    I think the relevant committees and the president actually did at least try to implement some of their ideas last year, but it’s an uphill road.

    If the upcoming Deficit Reduction Commission is paying attention to the nonsense of a defense budget built on hubris and lobbying, now might be the time for the commission to use this information as a base for urging Congress to cut esoteric systems designed to protect us from attacks from space, for instance. The commission might even give members the courage to override the efforts of defense contractors’ lobbyists to influence their decisions.

    Each year, 43,000 Americans die because they are unsured, and 90,000 from medical or hospital errors. Food shelf use is spiraling upward and the demand for homeless shelters is right behind. Are we keeping these people safe? We can no longer spend billions supporting the nonsense that only our military can keep the world safe, while leaving our population at real risk of harm from lack of health care, education, jobs and housing.

    Letters to Congress, anyone?

  14. Submitted by Paul Udstrand on 03/06/2010 - 10:29 am.

    Plawenty either doesn’t understand basic economics or he doesn’t care. I’ll go with the guy who understands economics and has accurately and reliably predicted/described the state economy over the guy who told us the magic would happen if we only cut taxes. Pawlenty has not really balanced the budget (in real terms) once his entire time as governor. He’s championed magic plan economics and Enron accounting and delivered huge deficits, either through ignorance or design. I think the Republicans deliberately create budget crises because if gives them an excuse to demand spending cuts, their over-all agenda is to dismantle government.

    Be that as it may, one economic fact needs to be realized by everyone: tax cuts do not produce real economic stimulus. You actually get more bang for the buck from taxes and government spending than you do from tax cuts(unless your spending on stadiums). For every dollar in tax cuts on average you get .50 in stimulus, while every dollar in taxes produces at least $1.50 in stimulus on average. Our tax incidence reports generally tell us that for every dollar we spend in taxes we 6-8 back in economic benefit. The economic fact is that taxes are investments that pay off well, and government services are assets not liabilities. Anyone who doesn’t get this basic basic economic fact is either ignorant or duplicitous. One reason I refuse to give money to MPR is they still get these money “advisers” on that act like the primary financial imperative for everyone needs to be to pay as little in taxes as they possibly can. They treat taxes like an ordinary expense instead of an investment, and government like a liability instead of an asset. This is a fundamental accounting error.

    Now one can’t conclude then that the more taxes you pay always the better, or that there are never any good reasons to lower or eliminate a tax, but economic stimulus is almost never a good reason to cut taxes, and can do more harm than good. We’ve been making public policy and economic policy based on faith based economics (efficiency of the markets, small government, etc.) for almost three decades and we’ve pretty broken the government and the economy as a result. Pawlenty has actually managed to inflict structural damage to the state governments revenue stream and ability to provide services. I think he did it deliberately due to ideological imperatives.

    Here’s the thing; this would be fine if Republicans hadn’t been duplicitous about it. But the Republican promise, the platform, was never to cut services, at least this isn’t what they told the general electorate. They talk in code, the base knows what “values”, “small government” and “choice” really mean, but everyone else mistakenly believes that guys like Pawlenty are moderate (because he’s so likable don’t ya know)and that he wants to improve government. They don’t tell people they plan to cut services, this way they avoid being asked which services they’re going to cut. They create a crisis that provides cover: “we’re not cutting services because we want to, we just have to”. It’s the duplicity that gets to me. When are we going to emerge from this fog of ignorance and duplicity if ever?

  15. Submitted by Richard Schulze on 03/07/2010 - 08:29 am.

    His legacy tells a different story. Six of the last eight years have been deficits for the governor. We have lots of red ink here in Minnesota. The governor has not made a lot of headway by leading Minnesota back into the black. Now that he is in his last year in office, the governor is finally ready to make the politically difficult budget cuts that are required?

    As for tax cuts for business’s that hire or create jobs. It is obvious now that while big business has stopped large scale layoffs, they are just plain not hiring. They have also probably figured out that starving, bankrupt consumers don’t buy much. Perversely, this means that productivity will keep soaring, as will corporate profits. Absent consumer demand why would any business add to their payroll?

  16. Submitted by Paul Udstrand on 03/07/2010 - 12:03 pm.

    I think all evidence clearly demonstrates that this governor has never had any intention of really leading MN into the black. He’s deliberately led us into the red because he knows he can force cuts to government services there. His imperative has been to dismantle government, not run it. Yes, we’ve had a recession the last couple years but this guy has never produced a truly balanced budget much less a black one. He’s not had one year where revenue actually matched or exceeded spending in the real world. There’s no rule of the universe saying the guy either doesn’t know what he’s doing or doesn’t care, it can be both.

  17. Submitted by Richard Schulze on 03/07/2010 - 01:46 pm.

    The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that’s been going on for years but which the this recession has dramatically accelerated.

    The housing bubble helped America stay near full employment for a few years. Besides other things such as home ownership and asset inflation, the housing bubble worked as an enormous job creation program. This helped offset the move of manufacturing offshore – you can make TVs or clothes in China, but you can’t build houses for Americans in China. Now that the housing bubble is over, these jobs look like they are gone for good.

    So please explain again how “tax cuts” work towards improving the employment scenario…

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