“Minnesota is strong at the core” is the title of commentary by Art Rolnick, senior vice president and director of research at the Federal Reserve Bank of Minneapolis, in yesterday’s Star Tribune.  Rolnick is also a member of Minnesota’s Council of Economic Advisors and a respected public policy sage.

Rolnick notes that Minnesota’s unemployment in 2004 was 4 percent, well below the national rate, but recently climbed to 8.5 percent, which is approximately equal to the national rate.  Nonetheless, Rolnick is upbeat on Minnesota’s long term economic prospects and cautions against focusing exclusively on the state’s unemployment rate.  According to Rolnick, “Minnesota’s growth potential should be measured with a review of as many data as possible to get a more complete picture.”

Rolnick’s advice is sound.  That is why a 2008 Minnesota 2020 report, “Minnesota’s Slip Toward Mediocrity: Less Investment, Less Return,” focused on a wide range of indicators when gauging the state’s performance relative to the rest of the nation.  This study found that, while Minnesota is above average on most indicators, its performance on most measures — including personal income, median household income, and employment growth — has slipped relative to other states since 2002.

More recent information shows that Minnesota’s median household income, poverty rate, and homeownership rate has continued to slip relative to other states, although we remain above the national average on all three measures.  (Minnesota 2020’s 2009 update to the 2008 investment report will be released before the end of the year.)

Rolnick’s optimism for Minnesota’s future is based on “the state’s commitment to quality infrastructure, most notably, education.”  Rolnick argues that employers come to Minnesota “because of the workforce, which is one of the most highly educated in the country, and because of the state’s general commitment to public infrastructure, which is the backbone of an economy.”

Rolnick further argues that too often Minnesota’s policy debate is caught up in a discussion of “whether government is too big or too small and whether taxes are too high or too low.”  Instead, policy discussion should be focused on “return on investment” (ROI).  In a nutshell, Rolnick advises that the state should focus public dollars on programs with high ROI and reduce spending on programs with low ROI.

Rolnick cites public education as an example of a high ROI expenditure.  “Speaking of ROI, Minnesota’s economy has historically been very strong, in large part, because of the state’s commitment to education.” However, Rolnick cautions “with growing numbers of children in poverty who are entering kindergarten without basic learning skills, the state may soon find itself with a big problem — young adults with little or no future who will only become a cost to society.”  Rolnick notes that early childhood education produces a high ROI.

Herein lies the problem.  During the era of “no new taxes,” investment in public infrastructure — “the backbone of an economy,” according to Rolnick — has waned.  For example, Minnesota’s real per pupil investment in public education has deteriorated.

As noted in “Minnesota’s Slip Toward Mediocrity,” Minnesota is by no means an economic basket case.  We are still outperforming other states on most economic measures.  However, prosperity is not a Minnesota birthright.  In recent years, our state has been coasting on the strength of past investments, while allowing its current investment in public infrastructure to dwindle.

Rolnick’s optimism regarding Minnesota’s future is conditional.  Our past prosperity was largely the product of prudent investments in public infrastructure.  If we continue to allow these investments to wane, the prosperity that we take for granted will erode.

The last word here belongs to Rolnick: “Back in the late 1950s and early 1960s, when Minnesota was an economic laggard, the state made a long-term commitment to upgrade its education system.  That kind of foresight helped forge a strong economy that has lasted for decades.  With similar foresight and commitment, this economy can continue on this path for decades to come.”

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Tags: Education, Minnesotans, unemployment

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