Minnesota v. Wisconsin: Huh?

It has become newly fashionable to compare Wisconsin’s rather anemic economic recovery to Minnesota’s rather more robust one — and to suggest that this is proof that Gov. Mark Dayton’s aggressively liberal policies are therefore superior to Gov. Scott Walker’s more conservative approach.

Professor Larry Jacobs of the Humphrey Institute, for example, published a well-argued (and completely wrong) commentary in the New York Times recently making precisely this argument. Other, more ideological players have made cruder arguments along the same lines.

All these arguments are made using a common logical fallacy, “post hoc ergo propter hoc (after this, therefore because of this),” that in English could be paraphrased as “correlation does not mean causation.

Let’s establish some basic facts: it is indisputable that Wisconsin’s economic recovery has been pretty modest, while Minnesota’s has been much more robust. If I were advising a job seeker, I would suggest moving west from Milwaukee, but would advise him to not stop in Minneapolis. I would suggest moving to the Dakotas.

Not to belabor the obvious, but the Dakotas are booming. Not because of good or bad government policies, but because of the mix of their industries. It would take especially bad government policies (or perhaps a hyper-environmentalist such as Mark Dayton) to stop the boom there.

Minnesota, too, has been more blessed by industries that have enjoyed an economic bounce the past few years. The Fed’s money printing has been good for the financial industry, and low-cost retailers such as Target also perform well in poor economic times. Health care has been on a roll, and insurance isn’t doing too badly either.

So much of our economic fate has been tied to the industries that dominate our economy. Wisconsin is heavily dependent upon manufacturing, and especially manufacturing of capital equipment, so they took a major hit with the downturn. They benefited from the building boom, and were hurt more by its collapse. That’s why Wisconsin’s unemployment was lower during the boom, and higher after the collapse.

Yet Wisconsin, despite this fact, has unemployment at a lower rate than the national average.

With that out of the way, let’s take a quick look at the policies Jacobs and his liberal friends point to as spurring greater economic growth in Minnesota, as well as those that supposedly have held back Wisconsin.

Jacobs points to “investments” in higher education, K-12, and preschool in particular. Add to that investments in the Mayo Clinic, the Vikings Stadium, and the Mall of America.

The final point he brings up is Minnesota’s enthusiastic embrace of Obamacare — Wisconsin chose to let the federal government manage its exchange, as did most states.

What do most of these policies have in common? They haven’t actually happened yet. The Vikings stadium just broke ground the other day, and the Mayo investment is purely notional at the moment. The money for education is not a jobs program, and in fact has led to only minor employment. It is supposed to be about preparing the workforce for the future, not supporting the current workforce.

Obamacare? Not only has Obamacare not created a single job, it hasn’t even insured a single person yet. Not one, because its start date is January 1. This, I think, is telling about the quality of the evidence for Jacobs’ argument in general.

In other words, not one of these policies has had a significant economic impact to date. Far from showing that a high taxes/high services policy works, these facts seem to show that economic growth can happen without government expanding. We will have to wait for the results of these policies to bear fruit before we can say much more than that.

What about Wisconsin’s sins? Well, Walker hasn’t invested enough in education, famously fought with public unions, and supposedly hasn’t invested enough in public infrastructure.

Again, each of these policies is about changing the future trajectory of the state and the economy, not current economic conditions. Even a major infrastructure building campaign wouldn’t have much impact on actual employment numbers. Walker’s main sin, it seems, is not raising taxes as Dayton did.
There is a bigger flaw in the analysis by Jacobs and others, though, that is worth mentioning: Walker’s policies were not primarily aimed at providing short-term pain relief, and frankly neither were Dayton’s for the most part. Government will (hopefully) never provide the economic engine for growth, but can only support and/or live off of it.

If Walker had been only interested in short-term political gain, picking a fight with the public employees’ union would have been a poor choice. It was painful and politically costly. He did it because under the prior regime, reform was nearly impossible.

Dayton’s investments in education — love them or hate them — are about improving the outlook 20 years from now, not today. And the most bitter critics of his tax increases don’t believe that dramatic tax increases have immediate effects on the economic climate, but rather affect investment and moving decisions that reveal themselves over several years. Businesses rarely pack up and move at the drop of a hat, or make investment decisions in short order.

That’s what I mean by Jacobs and others indulging themselves in a logical fallacy: They look at the short term alone without understanding the entire picture. In 1981 Ronald Reagan and Paul Volcker tightened the budget and the money supply to rein in inflation, causing one of the worst recessions in memory.

By 1984, the economy was booming and inflation was tamed. But if you judged them in 1982, you would have decried their cruelty.