I'm curious to do some research on education spending, Mitch. Where did you get the figures on per capita income and spending? Here in Seattle there's a huge uproar over, guess what: school closures. They're also talking about ending forced busing ( finally ). ( The Seattle Times even admitted that busing did nothing to help the students. ) Education issues here are wacky beyond belief.

With money being spent on subsidizing work stoppages by teachers, day care, and defending lawsuits by Mary Kay Laterno's new in-laws, there's a constant refrain about how we need to spend more money on education, which makes no sense. ( The money's there, but it's not getting to the kids. )

Thanks.

It's very mean to bring up cojones. Nick was bullied in high school by luckier kids, who had cojones.

Mitch:

I have a wonderful spreadsheet, using per-pupil spending from the Department of Ed and the State Auditor, that shows per-pupil revenues from Local/State/Federal sources...going back to 1996. Broken to the district level, including a comparison of average teacher salaries and superintendent salary. Contact me if you'd like a copy. It blows 'ol Nicky-boy out of the water.

"We pay the same taxes as you do (probably more), we do more to build this state than you do, and we have a lot more to be proud of than you do; we'll own this state by '08"

First of all the (probably more) comment weakens your argument. I'll tell you right now I pay my share and probably more than you. So what does that mean? Do my views now overrule yours? Of course not. That line of arguing only reinforces the idea that money buys government and that it should.

To the point of building the state, what are you basing any of this on?
Besides the state was in pretty good shape by most measures before this generation of Republicans were in power. Is it a higher tax state? Yes but you came here anyway. Was it a traditionally liberal state? Yes but you came here anyway. Why? I would imagine it was because the job and career opportunities exceed ND's. So despite these contradictions to your particular political views you came here and stayed.

I would like to know what you attribute the Twin Cities historic financial health to? I am not saying that it is the government or liberalism since the private sector is where the wealth has been generated, but the argument that lower tax and smaller goverment would drive more success does not seem to be proven out by the examples of some of our neighboring states either. In fact in many cases the lower tax states are financially the weakest in terms of the dynamicism of the economy.

"I would like to know what you attribute the Twin Cities historic financial health to?"

Err, well, sitting on the Mississippi probably didn't hurt.

Steve - You response is not productive for debate and not funny enough to be worthwhile (unless of course you just wanted to show everyone you can spell Mississippi which you should be proud of) - Maybe you could explain why the Twin Cities financial success has differed from the St. Louis metro area.
I heard they were on the Mississippi too. Apparently there have been mixed results with that silver bullet.

Nick, I'll take a shot at that one. Maybe having one of the larger and busier international airports in the nation planted smack dab in the middle of the Cities has something to do with it? Maybe being a convenient hub for distribution of goods coming from Lake Superior/Duluth has something to do with it? Maybe the Mayo Clinic located 80 miles South has something to do with it? Maybe having one of the larger IBM facilities, also located 80 miles south has something to do with it? Can you name any such economic advantage that even comes close in the Dakotas?

I'll ask a different question, Nick. Do you honestly believe that higher taxes in the Dakotas would somehow spur more dynamic economies in those states? If so, please explain how that would work? Because, you know, it seems to me that Minnesotans pay higher taxes because we were blessed (or cursed?) with a lot of freakin' happenstance economic luck. Apparently there's a luck tax. Who knew?

Nick, I had a long involved response to you, and it got eaten somehow.

Minnesota - meaning mainly the Twin Cities - has a bunch of advantages; it's the commercial, financial, adminstrative, cultural and social center of the upper midwest; it's at a historical confluence of resources and access (from the rivers and Great Lakes to the railroads to air travel); the World Wars and the Cold War treated the mining industry (outstate) and defense and technology (metro) industries very well. This is a set of advantages not shared by the surrounding states (although Fargo and Sioux Falls both weathered the last recession a lot better, in proportion, than the Twin Cities did).

I moved here to be a musician; not much market for that in North Dakota.

Question: Given the huge commercial blessings Minnesota has had, would we have done better or worse had we eschewed the structured communitarianism of our Scandinavian heritage, and adopted a less-intrusive government (married with high spending for the University and the philanthropic history of the local business community)?

"First of all the (probably more) comment weakens your argument. I'll tell you right now I pay my share and probably more than you."

The point being that Nick Coleman's constant refrain - that dissenters from the "Happy To Pay..." canard are "Tax Evaders" - is extremist, wrongheaded baked monkeydoodle.

Wow, who pissed in your Cheerios this morning, Nick?

Here I thought I was pointing out that geography might have as much or more to do with the Cities' economic successes as tax structure (or other factors, as Ryan considerately pointed out). But apparently by being slightly flippant about it I caused you to completely miss the point. Sorry.

[boring mode] Historically, St. Louis lost out to Chicago because of its reliance on river traffic instead of adding railroads. I don't know what St. Louis' condition currently is, so I can't say what might have led to it, but I tend to think higher taxes wouldn't help.

I *can* say that being in a high-tax state (and county) hasn't helped out Milwaukee all that much (even with a bigass lake right next to it, silver-bullet boy). By comparison, the Cities (and greater MN) are/were diversified into more than just heavy industry, which has been suffering for decades in the US and has been Milwaukee's downfall.

Another comparison: Green Bay hasn't suffered nearly as much as Milwaukee, but neither did its economy explode like the Cities in the late 90s. Everybody still needs paper, and as long as it's economical to manufacture it in the States, Green Bay will do fairly well. There are some signs of diversification, but if paper production were to be offshored quickly, Green Bay would be in a world of hurt for a long time.

So being in a place with the geography and resources to produce something needed by the rest of the country helps, but if a city doesn't (or can't) build on by attracting high-tech, financial, health care, or other industries, it is bound to suffer sooner or later.[/boring mode]

Crap — Nick Coleman uses the word "wingnuts"?

I'm going to have to find a new word pronto. Any suggestions?

Monkeydoodle monitors? Moon (a)battoirs? Bushistas? Help me out here!

Oh, and the other Nick (Coleman) can take his "I'm a real Minnesotan" schtick and cram it. Last I checked, even us Packer-fan/born-and-raised-Wisconsinites pay the same taxes, vote in the same races, and live in the same freaking place as supposedly "real" Minnesotans. (Or did I miss the "2nd class citizens" line on my driver's license?)

Oh, and we pay less (or at least used to) to attend the U of M than "true" Minnesotans, Mr. Coleman! You must love that...

Funny how Nick Coleman resorts to bigotry against recent arrivals to make his point. Apparently Somalians are more welcome than North Dakotans (even though he favors a light rail system that takes away passengers from those same Somali cab drivers).

First of all Mitch's post argued that Republicans are doing more to build the state and have more to be pround of than Democrats (Although the entire left should not be lumped in with Coleman. His argumentation skills are weak, his hypothesis' are tenuous at best, etc.) I would like to know how that argument is justifed.

As for the whole financial sucess thing: I don't have the answers.

However, I think you guys have come up with exactly what I was pointing at. The tax structure being high is NOT what created the success and conversely lower taxes won't either. Geopraphical factors are important but they don't explain why big, no resource economies, such as Japan exist. A well educated workforce (Investment in the U has produced much of that) seems to be the leading strength. North Dakota seems to have that but can't retain its graduates. I'm not sure that they can change that as the upper-midwest economy appears to have matured to a point where small-metro's don't grow.

Ryan mentioned the airport - a whole bunch of taxes paid for that. The Mayo and IBM -why did the locate in high tax Minnesota? I would think it is because of access to graduates.

Any thoughts?

Steve - I apologize for being a bit harsh. The sarcastic tone in your comment degenerates the discussion quickly. When that happens I, and people like me who differ in opinion from most of Mitch's readers, see little reason to post thoughtful arguments. I would just like to preserve the signal to noise ratio if possible.

Nick,

Many questions there, some of which may become a post tomorrow.

However, point of order/history: the Mayo located here well over 100 years ago, because the Mayos happened to live in Rox.

IBM? Probably the proximity to the U of M et al.

Damn haste...

I should also add that most of Minnesota's *big* businesses - 3M, Cargill, Day/Hud/Target, Mayo, Honeywell, Pillsbury, CDC, Sperry, GenMills, etc - located here long before MN became a high-service state, and that all of them (save perhaps Mayo) saw their peaks in MN long ago.

What have MN's big companies been since the "Minnesota Miracle?" Best Buy, Fingerhut, Target - low-margin service businesses? The various Biomeds, which need huge numbers of university grads, access to transportation and *massive* startup capital, and operate perforce in highly regulated environments anyway? Financial Services companies like USBank, Wells Fargo, TCF - ditto?

Like I said, there might be another post coming up here...

I somehow doubt that the Mayo brothers started practicing medicine in Rochester because of its rich access to college graduates. And IBM planted itself here in the 50s because land, and lots of it, was dirt cheap. Seeing as how it was initially envisioned as primarily a manufacturing plant, I don't think the reason it landed here had much to do with access to graduates, and a lot more to do with being a stone's throw away from the Cities.

"The tax structure being high is NOT what created the success and conversely lower taxes won't either."

I'm not an economic expert, but I'd like you to maybe qualify that statement somehow. I mean, from my perspective, if I had an extra $50 each paycheck because an ineffectual beaurocratic social program was phased out, thus requiring less taxes, I'd probably pump that money right back into the economy. Again, it's just me, but I like being able to decide how to spend my money rather than having the government decide that for me. I can handle some taxation. After all, streets are nice, and I guess I can sleep a little better at night knowing a portion of my taxes may be somehow finding its way to feed the poor. But the case for taxation to those ends starts to crumble when I find myself with less in my paychecks with no apparent benefit to be seen.

Nick-

Fargo is a small upper-midwest city that has experienced quite a bit of growth lately (over 20% in the '90s).

Mark G, Wingnut is the ONLY term Nick C. uses to refer to conservatives on his show.

The company I work for has started 6 new plants in the last few years-all of them located in states other than Minnesota due to taxes. They keep their headquarters here (in Warroad MN)and their main production plant, but everything new goes elsewhere. 3 are in ND and doing nicely.

Minnesota won out just because of its natural resources. The State supported more types of industry: logging, mining, fishing, shipping, and farming. And with that rich diversity of industry, naturally, next come the merchants, the bankers, and the investors. Then it's just a matter of time till artists, panhandlers, and civil servants show up.

Ryan - I agree that government should be effective as possible. As I hope anyone should.

My understanding is that from an economic standpoint though government spending is the same as individual spending. Let's just say that the $50 per paycheck extra you are paying pays for some government workers. Well those workers wages pay taxes, they use their pay to buy things like houses, cars, use paper, files, computers, at work etc. and basically plow the money back into the economy. It may not result in the same allocation of resources as if you had it but it doesn't just disappear from the economy.

In macroeconomic theory the equation for aggregate demand ie the entire amount of demand within the US economy is AD = I+C+G+(X-M)=GDP where I is investment, C is Consumer Spending, G is Government Spending X is Exports and M is Imports. By definition since G is spending based on tax revenues (Amounts removed from C and I) any increase in G will require a decrease in C or I and vice versa for a decrease in G but the aggregate demand doesn't change. *

*Obviously this is an oversimplification but it illustrates the point.

I look at the companies like Haliburton that essentially are the outsourcing of government spending as good examples of this. People are investing in that company and make money. The company derives much of its revenue from government contracts, the contracts are essentially paid with taxes (and a considerable amount of debt currently) and so on. Their employees are essentially the same as a bureaucrat except often times much more expensive due to generally higher wages in private industry

For the people who commented on the Mayo - I wasn't aware of when it was started (that is why I put "I would think..." in my response.) Do you thing the U had a role in its continued prominence? I would guess that is the case but I am not informed on that issue. Similarly for IBM - The idea they would like to be close to the TC's to me means they want to be close to the labor pool, which is highly educated and productive relative to many other regions. I have no support for this but it seems quite likely.

Colleen - I have worked as a coporate tax advisor for a number of years and rarely do companies locate based on tax policy alone. That may be the case for the company you work for however in my experience the tax rate differentials only come in to play when all other variables are equal ie not very often. There usually needs to be a fundamental business reason for locating in a particular area such as the cost of the laborers, land or capital, access to a particular demographic or market, access or ability to attract high level talent, transportation access for distribution channels etc. Taxes are not usually in the top 5 reasons. They are a concern but generally less so.

Elder -
Fargo' is growing but not anywhere near the rate of cities in the Sunbelt (niether is the TC for that matter) Also its population size is not large enough for 20% growth in the 1990's to be world changing in an economic sense. I am not trying to diminish the city however it is unlikely that it will ever be on equal footing with the Twin Cities in terms of economic dynamicism. Fargo (the city specifically) is really not a subject that I can speak intelligently about though.

Mitch - I look forward to more on this

Where I wrote "AD = I+C+G+(X-M)=GDP"

it should read AD = I+C+G+(X-M)

GDP is the intersection of AD and AS (Aggregate Supply) I apologize for any confusion.

Nick seems to be implying that centrally planned and coercive capital allocation is as effective as decentralized and voluntary allocation of capital by many millions of decision makers. I disagree.

As to Best Buy, somebody will one day write a fascinating history of the company (hmmmm). The company was nearly belly-up on many occasions as a very small retailer, until the geography/meteorology of Minnesota worked it's magic, in the form of a tornado which struck the Sound of Music store located in Roseville.

Left with damaged, but saleable, goods, and down one store in which to stock and sell merchandise, management rented space on the Fairgrounds to hold a heavily advertised sales event. The results were astounding, and the notion of continuous power retailing of consumer electronics took hold with management.There were many more blips on the journey to where the company is now, with outside management consultants playing a vital role in lending needed expertise, but it all started when Minnesota's weather set events in motion. Who knows? If that tornado had set down a couple hundred yards to the north or south, perhaps nobody would have ever heard of a company called Best Buy.

Will -

Where did I say that centrally planned economy would be just as effective?

The model is a simplification (As all economic models are) but the equation can be found in any intro to Macroeconmics textbook. A coercive capital allocation would seem to address the government controlling the supply side of the equation rather than the demand side. A centrally planned economy model would imply prices being set by something other than the intersection of supply and demand.

Does the equation imply a transfer from one person to others throught taxation? Yes it does. This is how the world actually works right now and probably always will to some degree.

It does demostrate that taxes are reinvested in the economy in the form of demand from the people employed by the government or employees of companies like Haliburton, their suppliers who benefit etc. The allocation of purchases by these people may be different than it would in a hypothetical no tax world but the money will be spent somehow.

Are there impacts to the growth or decline of Aggregate Demand over time due to the government spending? Of couse. But those are difficult to substantiate numerically - ie different policy perscriptions from different economists.

In fact the idea that deficit spending can be good comes from this basic concept - Increase Government spending through debt without reducing Consumer spending or Investment and Aggregate Demand goes up stimulating the economy. Obviously this will require taxes in the future to repay the debt but...

Well, yes, Nick, but forcing capital to be allocated to entities which cannot obtain capital otherwise is likely to be rather less effective than having capital allocated to entities which obtain it by making themselves attractive voluntary destinations. Now, since our soldiers do need to be fed (among the services Halliburton provides) and private armies are unlikely to defend the Republic well, I fully realize the need for some measure of coercive capital allocations. I begin, however, from the perspective that coercive capital allocations, and thus taxes, should have to clear a very, very, high bar before going forward, namely that near-conclusive proof is delivered that failure to allocate coercively would threaten us with a non-functioning society.

On the Federal level, of course, this bar is so often ducked under that it is only in the faintest historical memory that there was ever a time in which it was asked whether any particular action by national government was appropriate. It is not nearly as egregious on the state level, but a huge percentage of coercive capital allocation on the state level is for the purpose of public education. There is much reason to doubt whether allocation of capital for said purpose in many, many, states is achieving efficient results, and there is reason to believe that a less coercive, more decentralized regime (ending all Federal involvement may set beneficial forces in motion), would result in better use of capital. In short, I'm not so sure that high tax states really are getting their money's worth in terms of education. Too bad federalism is so devalued that 50 laboratories cannot help provide some answers.

Someone above mentioned that Mitch was saying in this post that Republicans are doing more to build the state than Democrats, but I didn't get that impression. He might think that, and might even have meant that, but I got the impression that he was specifically saying that lots and lots of non-"real" Minnesotans produce/build more than Nick Coleman ever has or ever will. Am I wrong?

Steve - I was the one who mentioned it the Republican Democrat thing. I can see your understanding of it too.

Mitch's response "We'll own this state by '08" to Coleman's 2008 comment (Election year) seemed political charged ie Republicans/Democrats? Pehaps he is referring to Republicans from places other than MN? Not sure.

Mitch can you clarify?

Will - I see where you are coming from now on the coercive capital idea. I agree the more effective schools are, the better off we are in the long run. I think that is everyones intentions for the most part.

Nick,

According to your analysis, the economy would not be harmed if we raised taxes and doubled spending on the military since all those soldiers and defense plant workers would just spend the money instead of the taxpayer. What you miss, of course, (I suspect intentionally)is that as much as we need the military, soldiers and defense plant workers produce nothing of economic value, thus someone else must produce what they consume. The key to a healthy economy is figuring out how the efficiently produce goods and services that people want to consume, not simply producing consumers who produce nothing.

"It does demostrate that taxes are reinvested in the economy in the form of demand from the people employed by the government or employees of companies like Haliburton, their suppliers who benefit etc. The allocation of purchases by these people may be different than it would in a hypothetical no tax world but the money will be spent somehow."

Except that to get that one government employees salary, you must first take several times that amount of money out of the economy by way of taxes. Figure in the salary, benefits, overhead, and the cost of whatever tax funded program that said government employee is working for, and the fact that @ 30% of the salary is going to taxes, and you can see that increasing government payrolls is a hugely inefficient way of increasing demand. How much does it cost to employ one civil servant who makes $50,000? $150,000? More?

Nick-

You've been a trooper so far in this discussion and, for the most part, have been very civil. However, I have noticed that whenever you're challenged on a point your response is to try to go back and change the meaning or context of your original statements. For example you said:

"I'm not sure that they can change that as the upper-midwest economy appears to have matured to a point where small-metro's don't grow."

When I commented that Fargo has in fact grown 20% in the '90s, you come back with a comparison to Sun Belt cities (which has not been part of the discussion up to this point) and this curious statement:

"Also its population size is not large enough for 20% growth in the 1990's to be world changing in an economic sense."

20% growth in Fargo may not have a significant impact on the world economy (I guess we really are talking macro economics here) but it certainly does for the residents of the city and for the state of North Dakota. There's an article in the current issue of The Economist about the growth of Fargo and the number of people who are moving there from other states. While most of the state of North Dakota is continuing to suffer population loss as a result of migration, Fargo is thriving.

(For the record, I am not a member of the Fargo Chamber of Commerce and have not been paid for these comments.)

It's gotten too serious here, so I figured I'd throw this one out:

Maybe the 20 percent growth for Fargo was spurred primarily due to the movie "Fargo?" It could happen, you betcha.

Elder - My point with smaller metro areas in the mid-west is that they (Mid size cities) do not grow at rates disproportionate enough to the major metro areas where they could feasibly catch up (As opposed to areas in the sunbelt where smaller metros are becoming big metros) This is not to say Fargo isn't thriving relative to its size. As I stated before I cannot write intelligently on Fargo itself. I apologize if you percieved my response as a dodge, as that was not the intent.

Robert Said - "What you miss, of course, (I suspect intentionally)is that as much as we need the military, soldiers and defense plant workers produce nothing of economic value, thus someone else must produce what they consume. The key to a healthy economy is figuring out how the efficiently produce goods and services that people want to consume, not simply producing consumers who produce nothing."

You are absolutely right in the hypothetical situation where everyone is a government employee we would have serious problems and I was not trying to avoid this. I simply don't see that as a fact pattern that is either desireable or possible. Marginal increases and decreases in taxes however (like the differences between states in taxes) don't get us to the point where no one is producing anything. The differences between state tax liabilities when you add up all the different types of Sales, Income, Property Taxes etc. is only a few percentages. That may be significant but not inherently negative in a functioning economy.

Jarhead said "Figure in the salary, benefits, overhead, and the cost of whatever tax funded program that said government employee is working for, and the fact that @ 30% of the salary is going to taxes, and you can see that increasing government payrolls is a hugely inefficient way of increasing demand."

I'm assuming you are referring to the whole deficit spending argument. Economically all the money is still going back into the economy. The benefits are provided by some insurer who pays people - (even if it is more state people in the case of a state administered plan), the overhead allocation is for supplies, rents, computers etc. which are purchased from companies that pay people to make them and suppliers to produce them etc.

Think of it this way, if the government sells bonds to non-US persons in order to run a deficit(the non-US piece is important) we can increase Governmental spending without raising taxes (which reduces Consumer Spending) or reducing Investment (US investors aren't the ones buying the bonds in lieu of other private market investments). That would increase aggregate demand in the equation. Now lets just say that the government uses the additional revenue to hire some police and build some buildings. The police get paid and spend their money in the economy, they each get a computer so HP's sales go up, They each get a desk so some office furniture manufacturer will have increased sales. The buildings are contracted out so some builder hires a bunch of people and pays them to build. His suppliers' sales go up since he is now going to need a lot more supplies, etc. All the money gets plowed into the economy. It doesn't disappear. (This all assumes net imports do not change)

However eventually the government will have to repay the debt which will reduce Aggregate Demand at some future point.

As I said before this is all intro to MacroEcon stuff not my theories.

Ryan - Very serious indeed. It almost makes me want to go back to school and take another econ class. At least I could get credit for that.

Everybody - Thanks for civil discussion.

"You are absolutely right in the hypothetical situation where everyone is a government employee we would have serious problems and I was not trying to avoid this. I simply don't see that as a fact pattern that is either desireable or possible. Marginal increases and decreases in taxes however (like the differences between states in taxes) don't get us to the point where no one is producing anything. The differences between state tax liabilities when you add up all the different types of Sales, Income, Property Taxes etc. is only a few percentages. That may be significant but not inherently negative in a functioning economy."

Huh? You are just trying to muddy the waters here, Nick. I gave a simple example of the macroeconomic principle involved, as did you. The same principle applies to your ramblings, it’s just more difficult to see.

You don’t need more courses in economics. Unless you are really stupid I thing you understand very well the principles involved. You need more courses in PR so you can learn how to create less transparent political spin.

Robert - I am not sure what you are referring to as political spin with regards to that post. I agree if we were to double the military that would change things but that is not the issue. No one is proposing to radically change the amount of tax collected in the state. A billion dollar increase in tax would be less than 1% of MNs GDP ($166 billion in 1999)

My basic position is that higher marginal tax rates in MN ie (differences between states) aren't inherently bad, and vice versa. This does not mean that they have no effect, just that they CAN be positive, not that they always are. The government levies taxes and uses them to pay for programs. Let's say the only policy options were to build a road connecting your major centers of commerce by levying a 7% tax, build a Twins stadium funded by a 5% tax on the citizens or do nothing. It is quite likely that over time the 1st option would prove to be the most beneficial to the economy and that the second is probably the worst with the no tax model in the middle. Clearly different governments make different decisions, some are better than others.

Nick, I was simply rebutting the following statement:

“My understanding is that from an economic standpoint though government spending is the same as individual spending”

That statement is only true if government expenditures produce something of economic value. Governments by definition produce lots of things that are necessary but have no economic value. Public goods with economic value are more often than not produced inefficiently since governments allocate resources based on political considerations not just economic considerations.

Sloppy statement on my part

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