Don’t Blame Blue-State Policies for Red-State Outcomes

Conservatives frequently claim that “blue-state polices” are hurting Minnesota’s economy. One line of analysis they have used is to identify negative or lackluster economic trends since the turn of the century and then lay blame for them at the feet of progressive public policy. There are at least three problems with this line of analysis.

First, economic trends are driven by many factors, of which state tax policy is only one—and often not a particularly important one at that. The economy of a state is swept upward or downward by national or global trends, many of which are beyond the control of state policymakers. For example, a recession (or a recovery) can impact states differently depending on each state’s mix of industries. Changes in global energy prices can stimulate or deflate the economy of energy producing states. Droughts, changes in commodity prices, and international trade rules can help or hinder the economies of agricultural states. These forces generally swamp the impact of state fiscal policy choices; winnowing out the impact of fiscal policy amidst the impact of other more powerful forces can be nigh onto impossible.*

Second, the claim that Minnesota has been dominated by “blue-state” public policy since 2000 is highly suspect. The 21st century began with the implementation of a significant cut to the state’s progressive income tax, which was preceded by an even larger income tax cut enacted in 1999. With the election of conservative Governor Tim Pawlenty in 2002, Minnesota’s fiscal policy was dominated by a “no new tax” agenda, which largely precluded tax increases to deal with the state’s recurring budget deficits. The momentum of “no new taxes” carried into the first two years of the Dayton administration, as the new governor yielded to legislative conservatives in order to end the 2011 state government shutdown, resulting in continued budget cuts in the FY 2012-13 biennium with no significant revenue increases.

An examination of public expenditure trends from the U.S. Census Bureau provides supporting evidence of the predominance of “red-state” policies in Minnesota during the first thirteen years of the 21st century. Minnesota total state and local government expenditures per capita fell from 16.0 percent above the national average in fiscal year (FY) 2000 to just 3.9 percent above in FY 2013 (the most recent year for which Census Bureau expenditure data for all fifty states is available), while Minnesota total state and local government expenditures per $1,000 of personal income fell from 7.8 percent above the national average in FY 2000 to 2.6 percent below the national average in FY 2013.

Exp 2000-13

During the period from FY 2000 to FY 2013—when real per capita state and local government spending was increasing nationally—Minnesota state and local government spending per capita declined by $728 (6.5 percent) in constant FY 2013 dollars, the third largest decline among the fifty states.† Meanwhile, Minnesota state and local spending per $1,000 of personal income fell by 2.7 percent—the fifth largest decline. The drop in state and local government spending in Minnesota over this period in absolute terms and relative to other states demonstrates the success of conservative “no new tax” policies in shrinking the size of government in Minnesota and belies claims that Minnesota has been dominated by “blue-state policies” during the 21st century.

The only period during the current century when progressive policies dominated the fiscal agenda in Minnesota has been the relatively brief period since the 2013 legislative session, when state policymakers enacted tax increases that were primarily targeted to high income households, increased public spending to replace cuts that had been made over the preceding decade in several areas (such as K-12 and higher education), invested in new areas (such as all-day kindergarten), and enacted significant property tax reform and relief.

Third, while Minnesota’s economic growth lagged behind the national average based on some indicators (and surpassed the national average based on others), the periods of underperformance do not align with the relatively brief interval when “blue-state” policies prevailed in Minnesota. If anything, the state’s economy performed less well relative to the national average during the period when Minnesota’s fiscal agenda was dominated by conservative policies. To the extent that conservatives seek to ascribe Minnesota’s economic performance over the course of the current century to the ideological tone of state fiscal policy, they must be willing to accept ownership of the sub-par performance that occurred during the period when they effectively dictated that policy.

Subsequent articles in this series will examine Minnesota’s economic performance since the turn of the 21st century based on trends in wage, employment, and gross domestic product (GDP) growth, with the ultimate goal of critiquing the conservative claim that Minnesota’s economic problems are the result of “blue-state” policies.

 

 

*On occasion, there are abrupt changes in state policies which produce economic repercussions that are difficult to deny. For example, in August 2012, Kansas embarked on an extreme supply-side inspired binge of tax and spending cuts that coincided with a fiscal and economic hangover; Kansas GDP growth, which had outperformed the national average over the decade preceding 2012, has underperformed the national average in 12 of the 14 quarters since August 2012. The only other two states that have done as poorly (Louisiana and Wyoming) are big energy-producing states that have been hit by the drop in energy prices. While conservatives may deny any connection between the fiscal policies adopted in 2012 and Kansas’ subsequent poor economic performance, it is almost impossible to deny that the fiscal changes enacted in 2012 have caused severe and recurring budget deficits in that state. However, instances in which the economic impact of state fiscal policies can be so clearly identified are rare.

The conversion from nominal (i.e., unadjusted for inflation) to constant FY 2013 dollars is based on the implicit price deflator for state and local government purchases. The use of this implicit price deflator was the subject of a February 2016 North Star article.