Tuesday, July 21, 2009

Jobs take more than education 

Gary gives us a lesson in how votes matter. In a vote for which no Republican joined the majority, the Minnesota House rejected a bill that would have provided for an investment tax credit for Minnesota firms. Within months, a firm in Minneapolis announced it would move to Wisconsin to develop products, and cited Wisconsin tax credits for "angel investors" as a reason for the move.

One of the common refrains of the DFL, that Gary cites, is that all we need to have high-paying jobs and investment in high tech is education. There's no doubt that education, or more generally additions to human capital, are part of the production process that will increase wages. But production is more than just human capital. You need bodies; you need physical capital; you need land; and most of all you need someone willing to accept the risk of guaranteeing those factors of production their payment regardless of whether what they produce is actually sold. (That last thing is of course profit, which is an incentive and not a residual.)

The productivity of any one factor is a function of the level of the other factors you have. All the brilliant people in the world won't be able to feed themselves if the physical capital they have to work with is destroyed. Reducing access to physical or financial capital renders Minnesota's investments in human capital nugatory.

To put it another way, our investment in education involves both benefits and costs. Those costs involve all the things we do not create in order to produce one more year of education for one more student. Any rational allocation of resources will recognize higher taxes as the cost of government-produced education. If the marginal productivity of the physical capital destroyed by higher taxes is greater than the marginal productivity of the human capital created by government education, more government education destroys wealth.

Gary quotes Rep. Laura Brod (R-New Prague), who gets it:
Minnesota needs to hear the wake up call that businesses like VitalMedix are sending as one after another flee our state and take innovation and good paying jobs with them. Many businesses are at the same tipping point and policymakers should be very concerned that the cost of doing business in Minnesota is simply out of whack and we are losing jobs because of it. Businesses and investors are price sensitive and have choices.
Gary identifies two local area representatives, Reps. Haws and Hosch, who voted against this bill. It should be doubly disappointing to their constituencies here in Central Minnesota, where a bioscience zone and a science initiative have been established by the state. It is like denying your garden fertilizer. You cannot support "education to create good jobs" with the one hand and deny the other factors that allow for job creation with the other.

UPDATE: I had meant to link the page with the vote before posting. Here it is. The amendment begins on p. 4911 (page 85 of this 114 page document) and the vote on p. 4918 (92).

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