Monday, November 19, 2007

What to do with a bad state economy? 

My friend Dave Aiekens at the St. Cloud Times sends me a link to an interview with state economist Tom Stinson in the new MinnPost. I commend it to my more conservative friends; as Dave pointed out in his email, I'm not the only person who's a bit pessimistic about the state economy. Given Stinson is writing up the new budget forecast as we speak, we cannot look at this interview and figure there'll be much glee.

Stinson responds to a question

MP: There has been a lot of debate about whether this is because of a lack of investment in government or a refusal to pay taxes, or, on the other side, too much taxation hurting the business climate. How much of a factor are these things and how long does it take before these decisions are reflected in economic performance?

TS: There is not much you can do in the short run to stimulate a large economy like the State of Minnesota's. Typically it takes awhile for a cumulative impact to be noticeable. But one of the large changes that may have occurred is that the production of defense material has become more important in the U.S. economy than it was five or 10 years ago. And that is not an important sector in Minnesota. So to the extent that the growth in the U.S. economy is coming from defense production, Minnesota is bound to grow more slowly.

Another place where we have to be concerned is our investment in new technology. We are not talking about just the state government's investment, but the broad range of investments in research and development. The identification of new products and new processes and new ways of doing things has slumped significantly in Minnesota compared to what it was 20 or 30 years ago. It could be that part of our underperformance economically is that we just haven't been investing enough in r&d compared to the rest of the country.

I wonder if Tom has seen my note on the new study on Minnesota's place in acquring international patents. Now try to square that with the latest press release from St. Cloud's own state Senator Tarryl Clark:
Sen. Clark said the Legislature must focus on passing a new bonding bill, a transportation finance package to fix the state�s roads and bridges, as well as a new tax bill aimed at spurring job growth and reducing property taxes soon. Many other strategies to promote growth in the emerging bioscience and renewable-energy industries should be examined, according to Sen. Clark.
What in this would fix the Minnesota economy? The tax bill being discussed raises taxes on some in order to give others the possibility of a property tax break. At best that's sloshing money between households. If you raise taxes on rich individuals, from where do you get the money for private investment? As Craig Westover points out, "Talk about how �we� distribute the resources �we� have easily becomes talk about how �we� distribute the resources �you� have."

Gary Gross provides a reminder of what the Senator wanted to use to fix our economy last year. Leo suggests the taxing will continue until morale improves.

It's no use pretending the problem of a softening economy isn't there. The sooner conservatives recognize it and propose what to do with it, the sooner they can start beating back the tax proposals of Sen. Clark. Next week will focus the mind...

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