Obstacles to Escaping Minnesota’s “Lost Decade”
Second of a two-part series (read part 1)
Compared with most of our major trading partners, Minnesotans, their businesses and farms are on the road to recovery … if the rest of the world can make steady progress towards economic recovery and stability. That’s a big “if” considering an earlier Minnesota 2020 article noting that Minnesota is in its 12th year of a “Lost Decade.”
We’re also in a political period in which conservatives and progressives are gearing up for a major election where national and Minnesota's legislative control are up for grabs. This is not the climate in which people explain economic trends in any depth. Rather, they opt to offer quick fixes and sharp rhetoric.
“I do have a problem with anyone saying that we need to get back to where we were before 2007 (start of the Great Recession), since that would only lead us right back over a fiscal cliff again,” said Roger Prestwich, the former Minnesota Trade Office education director who is now professor of international business at Metropolitan State University in the Twin Cities.
In adition to the housing bubble of the past decade, he highlights earlier unsustainable growth periods like the dot.com bubble in the late 1980s and the post-Reagan years of the 1990s to make his point. "These bubbles gave us all the false sense that we were on a gravy train that would run forever,” he said. “We borrowed like crazy, especially on credit cards and home equity loans, and spent like there was no tomorrow.”
Tomorrow has come. Data from the U.S. Labor Department (BLS) gathered by the Minnesota Department of Employment and Economic Development (DEED) show Minnesota employment was falling and poverty was rising well before the 2007 start of the Great Recession.
The earlier bursts of economic growth were largely internal bubble creations, as was part of Japan’s problems during its Lost Decade of stagnation when its real estate market collapsed and later, in 1997, when the Thai baht currency collapse spilled over on Japan’s trade and manufacturing sectors.
The Wall Street financial market and U.S. housing market collapses have pushed fragile economies over their own “fiscal cliffs” since the Great Recession. And those countries are now threatening the U.S. economy and jobs for people at multinational companies in Minnesota.
Countries worldwide with weakening economies are turning to austerity measures at precisely the wrong time, according to International Monetary Fund statements, because returning economies to some semblance of normalcy and growth will require consumption of goods and services. Individuals are cutting back on those purchases, Prestwich notes, and political quick fixes are missing the mark.
“Lowering interest rates or taxes to even zero will not generate investment or economic growth if demand is flat and shows no signs of improving,” he said. “The argument that lowering taxes on the wealthy or on firms will result in economic and job growth is disingenuous at best.”
Capital isn't the problem for getting the economy moving forward. For instance, Bloomberg Business Week reported in late August that major U.S. banks have $1.7 trillion in cash reserves. Prying that loose into productivity and job-creating, job-sustaining investments will require signs that demand is growing and sustainable for skilled workers and professionals. That will then create secondary demand for workers from the increased purchasing power of a Middle Class, added Cherie Rollings, director of operations for Hennepin Technical College.
On the positive side, Minnesota has a 5.8 percent unemployment rate, compared to the nation's 8.3 percent, Germany's 6.8 percent (one of the developed world's strongest economies), and 8 percent in the UK, which is in recession.
The so-called euro zone has a whopping 11.2 percent unemployment rate as a group, while the Chinese and many Asia economies are slowing down or showing various bubbles of their own.
On the negative side, we need these countries to sustain growth for our economy to grow through trade. For those same reasons, Prestwich gives the Obama administration credit for an export plan – not welcomed by all in labor – that seeks to encourage and help exports of U.S. products to keep high-skill, high-paying jobs and hard currency at home. “Everyone here wins – workers, families, local businesses, communities, the local tax base, shareholders, the state, the nation.”
It will take a lot of ‘winning’ for Minnesota households to feel comfortable with the recovery. Whether it is mid-way, or well past a “lost decade’ with stagnant economic growth, there are signs of an uptick in the Minnesota economy that could be stunted by financial collapses abroad.
What should be obvious is this: The frail Minnesota recovery is susceptible to shocks from either internal pressures, like election year histrionics, or external shocks, like any number of problems abroad might produce. There are no quick fixes.