About Growth & Justice

  • Growth & Justice is a progressive think tank committed to making Minnesota's economy simultaneously more prosperous and fair. We believe that at a time of deep partisan division, Minnesotans can unite around one goal: a strong and growing state economy that provides a decent standard of living for all.

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February 02, 2010

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Craig Westover

Charlie --

As usual, there is just enough truth in what you write to make it credible, but wrong. To a degree that is understandable. You accurately recount the "no new taxes" position as its supporters portray it, but they don't understand the problem and the economics much better than the left does.

So, let's address your question: Why did the reduction in the size of government in Minnesota not produce the relative improvement in Minnesota's economic performance that was predicted?

First government did not decrease in size. To get to that conclusion, you are defining "size" as a percentage relative to state economic activity. In dollars, which is how things are paid for, government grew. More importantly, however, the scope of government increased. It is the scope of government that has the most effect on economic development -- every time government extends its scope of taxation and regulation it creates activities at the margins that are unproductive. People stop producing and put effort into minimizing the impact of the regulation or tax.

That brings us to a second point. You will get no argument that Minnesota has probably not made infrastructure investment that it should. You, however, would attribute that lack of investment entirely to failure to increase taxes; I would argue as above that the state's failure to fulfill its constitutional obligations is more so the direct result of its expanded scope diluting both resources and attention that ought to be paid to those obligations.

A point about 80 percent of Colorado included in some type of enterprise zone. That is precisely the problem. If you want to attract new business to the state you don't do it by showing preference to geography through JOBZ-like programs or by targeting favored industries through "green" jobs. You do it by creating a level playing field for all businesses across the state. You do it by not constantly threatening to change the rules for business. You do it by being market friendly, not business friendly.

The last point is that all taxes are not created equal. Taxes on productivity -- corporate taxes and individual income taxes are highly inefficient and hit low-income wage earns hardest in the form of higher prices and lower wages in the case of corporate taxes. In the case of income taxes, in order to lure mobile high-wage earners to Minnesota employers must offer them higher gross wages to compensate for high tax rates -- which widens, not narrows the wage gap between rich and poor.

I often note that the problem conservatives have is that they tend to think just because the left has bad solutions to problems that there are no problems. The corollary for the left is just because the right doesn't understand the problem doesn't make the left's solution right.

The answer to the tax the rich/no new taxes debate is not some magical balance. The answer is returning government to its limited role, focus it on its constitutional obligations, debate what "fully funding" those constitutional obligations means, reduce with intent to eliminate extra-constitutional spending, reform the tax code so it is based on economic principles and minimizes marginal distortions and then and only then can we realistically talk about necessary levels of revenue required for government to work.

Charlie Quimby

Craig,

1. Just as government grew by your measure, so did the economy. So did inflation, population served and the cost of goods and services. That's why measuring size of government in relation to size of the economy makes sense and why that measurement tells us something absolute dollar growth doesn't.

2. I agree with your point on the effects of uncertainty about regulation on business. It is one of many uncertainties business faces, and it seems to be the one business can eliminate if it spends enough money in the right places. Change and uncertainty in the scope of government reflects shrinking as well as growing its influence. It also reflects the public's dissatisfaction when economic interests run roughshod and unrestrained. In some principled, constitutional wax world, all these inconveniences might be eliminated, and economic interests might make it a wonderful place, but I don't see it happening in this world.

3. I included the Colorado example because it is an absurd consequence of misguided policy. We agree on this point, but perhaps you are so used to me being credible but wrong that you missed it.

4. My agreeing with half of what you say, of course, achieves only half the nonnegotiable magical balance that gives libertarians everything they want.

Craig Westover

Points considered --

1) Your explanation doesn't get to the essential point that government shouldn't be growing services as the economy grows. Government will grow with population and may grow to accommodate new developments in established areas of authority, but it does not expand its scope of authority or service simply because more revenue is available. Government is constitutionally limited in how much service it provides.

2)The point here is market influences can be anticipated and the more effective businesses will do that and survive and prosper -- make the best use of resources. This includes reading public sentiment vis-a-vis corporate activities. Good example -- many bars were already putting in air filters and creating smoke-free rooms to accommodate non-smoking customers while others were catering to smokers, a market niche. The market was working, sorting out what the public wanted. Smoking ban legislation changed that overnight. It denied business the right to cater to smokers and obviated the investment others had made to cultivate the non-smoking market. It took away their competitive advantage. It's the arbitrariness of government intervention that is the problem.

3)We agree, but I'm not sure we agree on the misguided policy. I'm assuming you think the misguided policy is the patchwork of tax breaks. I see that as a consequence of the misguided overall tax policy that leads to the patchwork of tax breaks. The root cause is an inefficient unfriendly-to-the-market tax system; the tax zones are a consequence.

4)Understand that libertarians don't "want" in the same sense as liberals. Liberals (and conservatives acting like liberals)"want" specific end results and create policy to achieve those specific end results (no smoking in bars). Libertarians may "want" a specific end (I like smoke-free bars when I'm eating), but the process (principle) of a free-market is more important and they are not willing to sacrifice that principle to achieve their individual, specific end.

The essence of libertarianism is that a libertarian is not required to support or believe in everything a "libertarian" society might allow.

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