What steps can a state government do to promote economic growth? Stateline.org recently discussed the topic. It noted that it’s hard to answer that question, since “state economies are often at the mercy of the larger national economy. It’s also because governors can’t negotiate free trade deals the way a president can, or lower interest rates the way the Federal Reserve can.”

The article takes the predictable red/blue prism of tax cuts versus public works projects. So it cites, among other developments, Gov. Dayton’s bonding proposal. And there is a place for bonding, though it’s important to remember this simple truth from economics: diminishing marginal returns. In other words, the first $1,000 has some benefit, the next $1,000 may have some benefit, but less than the first $1,000 did, and so forth. Unfortunately, electoral and legislative politics drives government in a way  (“Christmas tree bills”) that suggests the law of diminishing marginal returns doesn’t exist.  But as the article mentions, public works have the political advantage of being highly visible, with ribbon-cutting ceremonies and the like. (The same holds true for opening up casino gambling–also mentioned in the article–and sports pork.)

The shape of economic development is sometimes outside the ability of government to address: Minnesota doesn’t have North Dakota’s petroleum-based raw materials, for example. But a state can take some steps: a predictable and not onerous regulatory regime, laws that encourage a well-educated workforce, a sound road network that facilitates the movement of people and goods, and of course tax laws that are not harsh when compared with those of other states.

Right-to-work laws get a mention in the article, and we (Center of the American Experiment) have argued that the state ought to look at such a law as one item in the tool box.