Midwestern states have become both battlegrounds and test labs in the past three years for clashing theories on economic development. On one side are pro-business tax-cutting governors, often Republican, devoted to balanced budgets and anti-union policies. On the other are the pro-growth spenders, often Democrats, devoted to investment in education and infrastructure and willing to raise taxes to pay for it.
Several recent articles have totted up the results. First results give the nod to the liberal spenders. But it’s early days yet, and the conflicting returns may owe as much to history and previous governments as they do to the governors now occupying the statehouses.
The results are politically important. Most governors in the upper Midwest -- Indiana Gov. Mike Pence is the only major exception -- will be up for re-election next year. If all run for re-election, they’ll run on their records, good or bad. Control of statehouses will impact the presidential election of 2016. Most Midwestern states – again, Indiana is the only exception – are swing states.
This is the political background not only to election-year bragging rights but to the key issue facing the Midwest – how to recover from the region’s long-term economic decline and the impact of globalization, and restore a level of economic decency for its people.
In many ways, this argument pits Minnesota vs. the rest.
Minnesota Gov. Mark Dayton belongs to the state’s progressive Democratic-Farmer-Labor Party. In his nearly three years in office, he has raised taxes by $2.1 billion, with 62 percent of this increases being paid by the top 1 percent of earners. He has invested heavily in early childhood education, K-12 and higher education, and has both expanded Medicaid and embraced Obamacare.
Lawrence R. Jacobs, a University of Minnesota professor, wrote an article in the New York Times reporting that Minnesota, under Dayton’s leadership, is the fifth fastest growing state economy, rated the eighth best state for business, praised even by business for some of his investments. A recent article in the Minneapolis Star-Tribune reported that even some rural towns in Minnesota are coming back, almost literally from the grave.
Jacobs compared this record with that of Wisconsin under Gov. Scott Walker, who may run for the Republican presidential nomination next year. Walker became nationally famous for cutting taxes on spending, especially on education, and for waging war on the state’s public service unions. Three years into his term, Walker’s Wisconsin ranks 34th in job growth and the governor’s promise to produce 250,000 new private sector jobs is still 160,000 jobs short. Wisconsin’s unemployment rate is higher. The state remains stuck in recession, with private-sector wages down 2.2 percent in 2012, the 44th worst in the nation.
Another Minnesota professor, Louis D. Johnston of St. John’s University, writes that Minnesota’s per capita income runs ahead of both the national average and its neighboring states, including Wisconsin. Johnson noted that, back in the 1960s, the average income in Wisconsin consistently led that in Minnesota. Minnesota caught up in about 1968 and has been widening the gap ever since.
In Ann Arbor, Lou Glazer, the head of Michigan Future Inc., has run similar comparisons between Minnesota and Michigan, where the Republican governor, Rick Snyder, has also won headlines for cutting business taxes and signing a right-to-work law. Glazer compared Minnesota’s performance since 1990 with that of Michigan: Michigan lost.
In that time, Glazer said, Minnesota increased employment by 29 percent, Michigan by 7 per cent. Minnesota’s unemployment rate is two-thirds that of Michigan. In Minnesota, 79 percent of adults are working, compared to 67 percent in Michigan. In 1990, per capita income in Minnesota was $1,800 more than in Michigan: today, the gap is closer to $8,000.
Indiana Gov. Mitch Daniels left office last year with the cheers of conservatives ringing in his ears for his budget-balancing success. But an earlier blog noted that, during Daniels’ term, Indiana sank from 33rd in the nation in per capita income to 44th, and last in the Midwest.
Another blog assessed the impact of right-to-work laws and found there wasn’t much. There are 24 right-to-work states, where workers in unionized businesses don’t have to join the union or pay union dues. In unemployment and economic growth, these 24 split pretty evenly between high-performance and low-performance states. Most had lower per capita incomes, but that might be because most of them are in the South.
This review was prompted by a note from an Iowan noting that his right-to-work state also had a budget surplus and low unemployment. No argument there, except that Iowa has been a right-to-work state since 1947, in good times and bad. It’s a stretch to credit this status for everything that’s happened since.
The above indicates that, at the moment, the Democrats are winning the argument. So that should settle things, right?
The history of Midwestern states did not begin about three years ago, with the inauguration of Dayton and his Republican fellow governors. Most of the statistics cited above are rooted in events before their terms, sometimes long before.
As we noted above, the divergence between incomes in Wisconsin and Minnesota began some 50 years ago. More to the point, most Midwestern states – Michigan, Wisconsin and Indiana especially – have economies based on heavy industry. Industry’s decline in the last half century, culminating in the recession, has hit these states harder than it did Minnesota, which has less of a heavy industry legacy to overcome.
What can be said is that Walker hasn’t made things any better. Daniels made things demonstrably worse. With Dayton, so far so good.
Economists like Jacobs, Johnston and Glazer are on stronger ground when they argue that governors such as Dayton are preparing their states to compete in the global economy by spending in crucial areas such as education and infrastructure. Walker and Daniels, by focusing more on budget-cutting than investment, leave their states with no weapons to fight these global economic wars.
The betting here is that this spending will pay off with higher growth in the years to come. Is this a solid bet? Stayed tuned.