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Conservative group calls Minnesota's economy average, 'unimpressive'

ST. PAUL — Minnesota’s economy is meh — average — and underlying factors suggest “signs for concern,” according to a report issued Tuesday, Dec. 4, by a local conservative think tank.

That contrarian view — Minnesota is among tops in the nation by several measures — is the conclusion of the Center of the American Experiment, a Golden Valley-based group that advocates for free-market principles and frequently criticizes liberal Minnesota policies like taxation and light-rail spending.

The report, "The State of Minnesota’s Economy: 2018," is subtitled "Minnesota’s economic growth continues to be unimpressive."

The state’s economy is growing, but it’s growing below the national average, said economist John Phelan, the author of the report, and the numbers reveal weak underpinnings.

That assessment comes at an important time for Minnesota’s economic policy. On Thursday, state budget officials will provide a forecast of the state’s budget and the state’s economist, Laura Kalambokidis, will provide an overview of how she thinks the state is faring. Kalambokidis declined to comment Tuesday.

That assessment will set a baseline for how lawmakers and Gov.-elect Tim Walz will negotiate how much the state needs to tax and spend — and on what — over the next two years. Walz is a Democrat, and the budget forecast will be given by members of the administration of Gov. Mark Dayton, also a Democrat.

If the forecast shows a state budget surplus, expect Republicans to say that means it’s time for a tax cut, while Democrats say the money needs to be spent.

'Below average'

Garrison Keillor might say otherwise, but to hear Phelan say it, Lake Wobegon’s vision of a state that’s above average is long gone.

“This surprises many people: Minnesota is a below-average worker-productivity state,” Phelan said Tuesday. High taxes and a lack of venture capital and entrepreneurialism are dragging the state’s economy, he argues in the report.

Phelan cited data that has become popular with conservative economists: gross domestic product per worker. By that measure, Minnesota ranks 28th among the 50 states and Washington, D.C., and is well below the national average.

It’s in stark contrast to the figures cited by economists, including gross domestic product per capita. By that measure, Minnesota is indeed above the national average and ranked 15th.

The difference is that per capita measures the state’s economy against its entire population, while per worker measures it against only those who are employed. At 2.8 percent, Minnesota’s unemployment rate is tied for the fifth lowest in the nation. Which is a good thing — unless you’re looking at how much each Minnesota worker contributes to the economy, in which case it’s not as good.

What to believe?

Phelan acknowledges that “there’s always a touch of art to go along with science in economics.”

And indeed, attempts to rank the economies of various states are all over the map.

In the past year, Minnesota has been ranked 40th by Business Insider, 17th by WalletHub and seventh by 24/7 Wall Street.

With conflicting rankings, it's difficult to determine where the state stands economically.

All ideologies in moderation, said Michael Belsky, executive director of the Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy. As an expert in the government bond industry — which assesses state economies and their political climates — and a former elected official himself, Belsky said the truth between the harms and benefits of taxes lies somewhere in the middle.

“There’s a balance,” Belsky said. “The political leaders who are very dogmatic are important to the process, but you need those people in the middle. You can’t overtax, but you can’t cut everything because you’re only going to get what you pay for. You need people in office who are willing to look at the big picture.”

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