Recession or not, fixing an underperforming economy requires investment


We can declare a recession officially and pin the blame on the elephant or the donkey, on Gov. Pawlenty or anybody else. Or we can wait and pray for a narrow escape. But either way, a big honking ugly reality is staring Minnesota in the face.

For the first time in decades, on a broad range of indicators, we are chronically underperforming the national economy. If the national economy goes further south, so much the worse for Minnesota.

This is happening despite extravagant promises a decade ago that permanent state income tax cuts, reductions which primarily benefited wealthier folks, would deliver us to an economic promised land. A resulting surge of private-sector investment and sustained job growth, it was argued, would create a rising tide to lift all boats.

At the time, of course, Minnesota WAS outperforming the national and regional economy – big time, despite our allegedly bad-for-business higher rankings in state-local taxes.

But instead of boom and betterment for everyone, Minnesotans slogged through a stubborn recession early in the decade, followed by a relatively short recovery that many middle- and lower-income families never saw. (Inflation-adjusted median income actually declined in Minnesota through the “recovery.”) And now the tide is heading out again.

Performing at less than average feels less than Minnesotan. But then so was the whole anti-government and anti-tax craze that exacted “no new (state income) taxes” pledges from elected officials at the turn of the decade. Minnesota, after all, has a strong tradition of investing in public goods such as education and transportation, and was one of the first states almost a century ago to establish an income tax.

So after many years of delivering first-rate and top-ranked public infrastructure, our state and local governments are significantly smaller, operating on 7 percent less as a percent of total income than they had 10 year ago. And that’s not because we cut the fat. On almost every front, middle- and low-income families now benefit less from the opportunity-enhancing and community-building effects of public investment.

Let’s review some of the short-changing. Skyrocketing tuition makes higher ed less accessible. The people who provide care in nursing homes receive paltry paychecks. State parks must charge more for programs of reduced quality, while hunters and fishermen see wildlife habitat eroding. Homeowners see fewer local government services but higher property taxes. Not to mention congested roads and “deficient’’ bridges.

All this adds strain, nickel and dime at a time, to ordinary working folks. And when the vast majority of people from the upper-middle on down are hurting, the whole economy eventually suffers.

Meanwhile, overall inequality is worsening in the new anti-investment era. Economists continue to document historic gains in the share of income and wealth enjoyed by those at the top five percent or one percent. Just this week, a collaborative study by the Minnesota Budget Project, the JOBS NOW Coalition and four other economic research organizations found that a whopping 1 million Minnesotans, or 20 percent of the population, are in working families that don’t have enough income for basic needs.

It may make sense for state policy makers to do some temporary, emergency pump-priming to get more people to work or put more money into the hands of consumers. But it’s even better to intervene in ways that provide some lasting stimulus – such as a larger than otherwise bonding bill and transportation package – to create jobs and create greater productive capacity to grow the economy for the long term.

In other words, invest in the education and infrastructure to equip citizens to contribute to – and more fully reap the benefits of – a growing economy.

We have a broad consensus, notably joined by many business leaders, that the main ingredients for economic success are education and workforce quality, efficient transportation and transit systems, plus better access to affordable health care.

It’s time to get back to the classically Minnesotan economic formula that helped make us great (or at least above-average) in almost every way. In three words: smart public investments.