By current standards, Minnesota’s economy is among the best in the nation. But will it continue to be in the top tier?
Last year, the Bureau of Economic Analysis said that Minnesota ranked 13th in per capital personal income. The state’s average income of $42,843, was six percent higher than the national average. That’s pretty good, though I suspect it’s lower than most Minnesotans would have expected.
Yesterday, a new report, Rich States Poor States, 5th Edition, looked at each of the states, and gave Minnesota a very different evaluation: It put Minnesota at 41 out of 50 states, both for recent economic activity, and in expected performance going forward.
“Minnesota at 41? That’s crazy talk!” Let me explain.
The looking backward component examined growth in three variables: personal income, population, and non-farm employment. Growth is the important word here. To paraphrase Frank Sinatra, you can be riding high in April, and shot down in May. Some economies continue to grow, while others stagnate.
Between 2000 and 2009, Minnesota’s per capita income grew 33 percent. Good, but that gave the state a ranking of only 29 among 50 states. In that same time, non-farm employment fell slightly, putting the state at 28th among the 50. Minnesota also lost domestic population, putting it 39th in the country in “absolute domestic migration,” which measures, among other things, how people respond to the economic climate of a state. On three measures, Minnesota was below average. Weight these three variables equally, take an average, rank the states again, and you come up with a composite ranking: Minnesota dropped to 41 out of 50 states.
What about the future? Here, the authors take 15 different measurements that reflect state policy. These include rates for income taxes, property taxes, sales taxes, and also taxes as a percentage of personal income. Other measurements include the existence and quality of limits on taxation, the existence (or not) of a right-to-work law, and the number of public employees (both an asset and a liability) as a portion of the population. Once again, Minnesota came in with a ranking of 41 out of 50 states. So Minnesota is by absolute standards doing well. But in the department of “what have you done for me lately?,” the answer may be “not much.”
The report will bring back the classic chicken-and-egg debate: Does Minnesota enjoy a higher-than-average income due to its higher-than-average level of taxation and government spending, or does the state’s above-average income allow it to pay for a more-active-than-average public sector? While I admit that some public spending has economic benefits, I’d argue for the latter explanation. Once you get beyond a certain size and scope of spending, government ceases being a necessary good and starts being a luxury good. And I think it’s fair to say that Minnesotans have treated government as a luxury good: We can afford it, we’re smart enough to spend it wisely, and we like our extensive social safety net, bike trails, sports stadiums, arts facilities, etc. Need a little more money? Oh, just tax the rich; they like it here anyway.
But can we continue our habits? Looking at, say, the fact that spending on long-term care and health care will only go up, up, up, due to the Affordable Care Act (more subsidies!) and the aging of the baby boomers, I’d have to say no. Minnesota will have to spend less, tax more (and hope the people who pay the bills don’t leave), or do both.
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On a note of disclosure, I was involved in the creation of Rich States, Poor States as an editor. Another thing to note is that it was produced by the American Legislative Exchange Council (ALEC), a group that has in recent months been accused of everything from letting large companies buy legislation to providing the intellectual justification for the shooting of Trayvon Martin. Needless to say, I think ALEC has been maligned for political purposes. If, on the other hand, you have some helpful criticism to suggest to the authors, drop me a line, courtesy of the Center, and I’ll pass it along.