Monday, June 19, 2006

What can governors do about the state economy? 

Not much, says Ed Lotterman. He thinks there isn't that big a difference in the economic policies of Tim Pawlenty and Mike Hatch:
Decisions at the national level affect inflation, unemployment and growth. States cannot coin money or pump up the national debt. Much ballyhooed state business subsidies have little overall effect. And governors generally possess less power than legislatures. Who next occupies our governor's office will have little effect on whether the next four years here are prosperous or not.
Really? Take a look at this chart, and see where the freer economies are. Now if you'd like to argue that Hatch and Pawlenty have the same policies I would listen, but Lotterman doesn't say that.
Republicans from Teddy Roosevelt to former Minnesota Gov. Arne Carlson stood for prudent finance and balanced budgets. They wanted fiscal discipline but if costs could not be cut, taxes had to cover outlays. Republicans generally favored letting markets alone whenever possible and avoided trying to micromanage economic activity.

Pawlenty places priority on tax reductions, regardless of what happens to state finances. He adores ad hoc micromanagement, especially when it can be cast in the guise of tax reductions such as his JOBZ program. He scorns the counsel of Republican Party think tanks on the best ways to tackle environmental and resource conservation problems. If Pawlenty is mainline GOP, this ain't your father's Grand Old Party. In many ways, Hatch's opportunistic populism represents an old tradition among Democrats. Hatch is not a pragmatic pro-business centrist like Bill Clinton or Harry Truman. But he is honest in that he does not even give lip service to letting markets function.

At his worst, Hatch is a pale Minnesota version of populists like Argentine dictator Juan Peron. Such leaders believe in championing truth and justice against the dark forces of business. They think they are the only ones who fully understand just what truth and justice are. Moreover, they insist prosperity will flourish once they can call the shots.
Pawlenty, in other words, is more a Kemp/Forbes Republican than a Dole/Rudman Republican. You might recall how well Bob Dole ran in general elections? Unfortunately Lotterman hasn't kept up with the news -- TPaw was a Kemp/Forbes Republican, but couldn't bring himself to insist on the spending cuts needed over the last two years, and now signs on for taxes for stadiums and state parks. (I cannot wait to see what Strommie says about this article. I bet he has a coffee-tinged laptop.)

Lotterman's comparison of Hatch to Peron, however, is like a knife. What did Peron do to the Argentine economy? He helped kill it, according to Mauricio Rojas:
The policy which Per�n resolutely introduced had the following main outlines: a radical redistribution of incomes in favour of the workers, an equally radical attack on the resources of the agricultural sector, heavy investment in industrial development, an extensive policy of nationalisation and, ultimately, an attempt to build up a state-corporatist society on clear fascist lines.
As a result, exports in the post-war period fell by more than 40%. Do we really think tort reform -- where Minnesota is currently in the middle of the fifty states -- is going to be improved by a Governor Hatch?

While Mitch and I might argue about whether Pawlenty should get much credit for the jobs report or not (we never got to this on Saturday, though it was in the stack of stuff we wanted to cover), it is really quite a different thing to say that state law has no effects on state economic growth.
In 2005, per capita personal income grew 31% faster in the 15 most economically free states than it did in the 15 states at the bottom of the list. And employment growth was a staggering 216% higher in the most free states. It hasn't been a "jobless recovery" in states that have adopted pro-growth tax and regulatory policies.
I'm pretty sure a guy who draws comparisons to Juan Peron isn't going to get us back to that top 15. The question really is, what about the guy who can't decide if he's a younger Jack Kemp or a nicer Bob Dole?