Do Liberal Policies Produce Economic Growth? No

That might seem obvious. But liberals don’t admit that their policies are the path to poverty. Rather, they claim that the bluest states are the most prosperous. In that regard, Minnesota is often Exhibit A. Minnesota’s well-educated, healthy, socially conservative, hard-working population, combined with the state’s rich and diverse natural resources, have historically produced a strong economy. Liberals try to take credit for those good qualities, attributing whatever success the state has enjoyed to its traditionally liberal government. See, e.g., here, here, here and here.

Perhaps the silliest of these themes is the Minnesota (blue state) vs. Wisconsin (red state, supposedly) comparison. Wisconsin, despite having elected Scott Walker governor, is no red state. In 2012, Wisconsin’s overall tax burden (#4 among the states) was even heavier than Minnesota’s (#8), and that is likely still true today.

Two weeks ago today, the think tank that I run, Center of the American Experiment, released a definitive report on Minnesota’s economy authored by Dr. Joseph Kennedy, former chief economist for the U.S. Department of Commerce. You can read or download the report, titled “MINNESOTA’S ECONOMY: Mediocre Performance Threatens the State’s Future,” here. The report is 37 pages long and is dense with charts and graphs. Probably the easiest way to convey its findings is by reproducing the executive summary, with a few charts added. Where appropriate, click to enlarge. The report demonstrates that in recent years, most states’ economies have performed better than Minnesota’s:

Many Minnesotans believe that their state’s economy performs well above the norm, and therefore vindicates the “blue state” policies that, for the most part, have prevailed in Minnesota for a number of years. Unfortunately, a systematic review of the facts does not bear this assumption out. On the contrary, the data show that Minnesota’s economy has been average, at best, over the past 15 years.

Worse, leading indicators are nearly all pointing downward. If nothing changes, Minnesotans can expect their economy to perform below average in the years to come. Indeed, this is exactly what the state’s own agencies currently project.

Specifically, a thorough analysis of a broad range of economic data shows that:

Minnesota’s economic growth is now just average while productivity continues to be below average. Minnesota’s growth in gross domestic product (GDP), the most basic measure of economic success, historically grew a touch faster than the U.S. However, from 2000 to the present, Minnesota’s GDP growth settled to just average with the U.S. Looking at GDP per worker, the average Minnesota worker in private industry, in both goods producing and service producing sectors, is less productive than the average American worker.

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Most states have done better than Minnesota in both income growth and job growth from 2000 to the present. Minnesota ranks 30th in per capita income growth, 34th in growth in disposable income, and 28th in rate of job creation.

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The Twin Cities rank average or below average among major urban areas in economic growth and job creation. The Twin Cities area ranks ninth out of the largest 15 metropolitan areas in growth in economic output since 2001, and eighth out of 15 in job creation.

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Areas where Minnesota looks strong are driven primarily by Minnesotans’ work ethic rather than by a dynamic economy. Minnesotans have higher than average per capita incomes. This is largely because, compared with other states, more Minnesotans are in the labor force. Similarly, Minnesota has higher than average household incomes, mostly because the state has more two-earner and three-earner households.

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While in the recent past Minnesota’s economic performance has been mediocre, numerous danger signals indicate an even weaker future unless policy changes are made.

In recent years, Minnesota’s job growth has centered on less productive jobs. It is clear that the jobs being created are not necessarily the most valuable. In some occupations with a high impact on GDP, such as mining, information and utilities, the number of jobs has stagnated or even fallen. In contrast, the fastest growing occupations, health care and educational services, have a relatively low impact on GDP. For as long as this continues to be the case, net job growth may not imply rising average incomes.

Minnesota’s high-technology employment is declining. In 2015, there were fewer Minnesotans working in high-tech jobs than there had been in 2000, both in absolute numbers and as a percentage of the work force.

Minnesota is suffering a dangerous decline in entrepreneurial activity. Venture capital is declining. New firm formation is falling. In addition, the rate of new entrepreneurs is below the national average and dropping.

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Productive Minnesotans are leaving the state, while residents of other states are not choosing to move to Minnesota. Every year, Minnesota suffers a net out-migration of thousands of households to other states. In 2014, the net household income lost in this out-migration was $948 million, a figure that has been rising steadily. Minnesota now ranks 47th among the states as a net destination for households with incomes over $200,000. The overwhelming majority of this loss of Minnesota residents is to lower-tax states.

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Minnesota’s own agencies predict the state’s future performance to be below average. Minnesota Management and Budget projects growth in personal income and jobs to be lower than the national average in each of the next four years. The Minnesota Department of Employment and Economic Development projects that in the ten years from 2014 to 2024, Minnesota will underperform the nation with respect to job creation in 19 of the 22 major job categories.

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For most of its history, Minnesota has enjoyed a strong and diverse economy. That history built up a high standard of living. Minnesota has long held key advantages that should contribute to a more productive and prosperous economy. Minnesota is among the nation’s leaders in educational attainment, family cohesion, workforce participation, health, cultural amenities and low crime. Minnesota also possesses abundant agricultural, mining, and timber resources.

Despite all of these advantages and the state’s prosperous past, the analysis of Minnesota’s economy reviewed here shows that Minnesota’s recent economic performance is mediocre. Worse, data show a declining level of business creation, entrepreneurship, investment and job growth in key industries, all of which weaken future growth prospects. It seems clear that if the state continues on its present course, its economic performance will soon lag well behind that of most other states. Indeed, lagging growth is exactly what official economic projections predict will happen.

Are Minnesota’s blue-state policies responsible for its economic underperformance? There is no question Minnesota’s higher tax and regulatory burdens add to the cost of doing business. In recent years, Minnesota has increased these burdens while a number of other states, such as North Carolina, Indiana and Tennessee, have taken serious steps to reduce them. Without any other obvious weak points—beyond the inescapable realities of the state’s northern locale—Minnesota’s tax and regulatory burdens are among the only suspects at the scene of Minnesota’s mediocre economic performance.

In the wake of American Experiment’s groundbreaking report, liberals will no longer be able to claim that Minnesota’s example proves that the blue state model can work. Rather, the debate will be centered here in Minnesota, as residents try to get the state back on the path to above-average growth.

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