A Tale of Two Saint Pauls

 It was the best of times in Saint Paul, it was the worst of times, it was the age of affluence, it was the

age of poverty, it was the epoch of opportunity it was the epoch of squandered chances, it was the season of progress, it was the season of the status quo, it was the spring of competence, it was the winter of partisan incompetence, we had everything before us, we had nothing before us.

Saint Paul is a challenged city that has made a lot of mistakes.  It has overused Tax Increment Financing (TIF), rendering it fiscally poor and unable to perform basic city services such as snow plowing, filling potholes, or reconstructing and repaving streets.  The TIF also impacts the City’s schools, impacting their taxing capacity to fund programs.

In addition, stretching over several administrations and city councils, there just does not seem to be a priority or interest in addressing core city services.  For years I used to argue that one could get elected to local office anywhere in the US by running on core services such as streets, sidewalks, parks, fire, and policing.  But that no longer seems to be the case, at least in Paul.

In part due to the polarization and nationalization of American politics that extends down to the local level, voters seem less interested in these issues than before and candidates for local office run on national or global issues such as world peace or climate change.  Public officials in St. Paul seem uninterested in local issues, unwilling or uninterested in the nitty gritty of what local government is supposed to be about.  Single party rule, where there is no chance that come November this year when city council faces re-election, renders the threat of losing less than a viable check to force officials to focus on what is important as opposed to what is needed or essential.  Partisan and interest group capture have corrupted the decision making process.

But St. Paul officials also seem bent on simply making choices in the absence of evidence. This is the case now where the City and Planning Commission are preparing to eliminate single-family zoning.  

There is a fashionable belief among planners now that elimination of single family zoning will decrease residential segregation and housing costs. There is no evidence that densification will do that.  We already know in Minneapolis and from larger macro studies across the US that densification has not improved housing affordability and it has done little to increase overall supply.  Moreover, we see signs in Minneapolis that the elimination of single family zoning has led to venture capital buying up undervalued property in undervalued neighborhoods (mostly populated by people of color).  Eventually the new unit produced will be for more affluent users  because developers will build those units which are most profitable, and not necessarily those that are the most needed or affordable.

Think of the elimination of single family zoning as government-sponsored property flipping.  It is a new version of redlining that will foster gentrification in St. Paul.  The neighborhoods that will be most affected by the elimination of single family zoning will be Midway, Frogtown, Rondo, and perhaps the Payne and Arcade areas of the city.  Some of these neighborhoods have already experienced the largest property tax increases in the city; again an early city of gentrification.

But there are other reasons to question the elimination of single-family zoning. Jane Jacobs, whose Death and Life of Great American Cities is perhaps the best book ever written on planning and cities, points out, cities are generators of diversity.  They thrive on diversity in all forms, including architecture, design, and lifestyles.  Cities need many different types of neighborhoods and housing to be successful.

Years ago I consulted with one local city.  We realized they had a problem.    They were a bedroom suburb that had only one type of housing.  What they lacked is housing for everyone and for the cycles of our lives.  Cities need housing for singles, young couples, families, empty nesters, and then older people.   If one does not provide this diversity of housing people leave.

Cities need to retain all types of residents, including middle class individuals who wish to own their own home. There are all kinds of reasons to encourage home ownership, ranging from wealth building, producing neighborhood stability, to maximizing lifestyle choices.

In moving to eliminate single family zoning, St. Paul will do little to rectify the intense economic and racial residential segregation that exists.  Instead, it will only exacerbate existing gentrification and development patterns characteristic of the city for the last generation or so. What is needed is a change in policy and in how the City is run, but this decision is not an example of what positive change should be.  It is another sign of uniquely the problems St. Paul confronts.

Alas, all well-run cities are alike; each badly run city is badly run in its own way. 

What Does it Mean to "Think" and Why ChatGPT isn't That

 The media has gone wild over  ChatGPT and artificial intelligence. 

Many have declared them a major leap forward in thinking.  Some see it as rivaling if not replacing human thinking, potentially becoming a new tool for discovery and scientific progress.  Beyond the hype, the reality is what it does is far from what thinking is and  how scientific or other forms of discovery occur.

Philosophers have long debated what knowledge is and how we know what we know.  This is epistemology.  How we know is connected both to what can be known and to human existence.  Rene Descartes famous “I think, therefore I am” captures the idea that thinking or self-awareness is connected to  existence, whereas Martin Heidegger’s retort “I exist, therefore I think” reverses the relationship and raise questions about the limits of human understanding and what it says about who we are as people. He also suggests that merely thinking does not prove existence or that one  is human.

 Whoever is correct the point is that knowing and self-awareness are closely connected and arguably critical to what it means to be  human.  There is no indication that ChatGPT is actually self-aware in the way humans are—at best humans program it to mimic self-awareness.

More fundamentally,  ChatGPT fundamentally misunderstands first what it means to think.  Thinking is neither the mere massing together of facts not simple inductive statements.  Many philosophers once thought that ideas were mental representations of objects that exist outside our minds. We learn by sensing things.  The concept or idea of “chair”  is simply a mental  representation of some object we perceive.  Similarly, language philosophers said that words such as “chair” correspond to  real objects which words mirror or represent.

Few believe the above is true.  Philosophers David Hume and Immanuel Kant  powerfully argued that we cannot prove empiricism.  By that, how can we empirically prove that the word chair corresponds to some empirical object?  We somehow would need to get outside of our heads to prove this correspondence is t rue and that is impossible.  Kant further contended that thinking is not when ideas in our brain correspond to external objects.  We cannot prove reality exists independent of our cognition of it.  Instead, thinking or understanding occurs as a result of our minds filtering or structuring the way we see reality.  The same is true with language as Ludwig Wittgenstein pointed out—it is our filter or medium that helps us make sense of the world.

Thinking or, better yet, cognition is not an assembly of brute facts that exist our there. What counts as facts is determined by  our minds. What is a fact is contingent on context and it does not exist independent of our knowing.  Thinking is structured by what scientist Thomas Kuhn once called paradigms.  He and others argued that scientific knowledge is not merely the linear accumulation of more and more facts which lead to discoveries.  Scientific knowledge is often the shifting or rejecting of paradigms which are based on certain assumptions about the world.  For hundreds of years the Earth was assumed to be at the center of the universe and all knowledge literally revolved around that idea.  Facts were defined by a geocentric view of the world that also impacted theology and politics.

            When Copernicus proposed a heliocentric alternative it was not the result of an accumulation of facts. It was a rejection of a model premised upon a new set of facts as defined by that model. A Newtonian vision of the world had its own assumptions and definition of facts, as does a view based on what Einstein proposed or which quantum mechanics holds.

            The point is that thinking and knowledge are not the mere accumulation of pre-existing facts amassed inductively to reach new conclusions.  There  is a connection between how and what we know and what is considered knowledge.  ChatGPT and AI are pre-programed schema based on a specific definition of facts defined by a particular paradigm or set of assumptions about the world.

            ChatGPT, and perhaps much of AI right now, operates according to what was once called  the GIGO rule—garbage in, garbage out.  The answers or conclusions they reach are based on the assumptions or knowledge that goes in. This input includes the normative choices and definitions of knowledge and facts that the programmer decides are important.

            The boldest discoveries occur when paradigms are challenged and rejected.  It is about seeing the world in ways others have not.  This is what true thinking is about.   It includes creativity. This is not just true in the arts but also in science.  ChatGPT will  never be able to compose Beethoven’s Fifth Symphony, paint the Sistine Chapel, or determine E=MC².  Each of these examples are forms of knowledge and thinking, but they are more than grabbing facts and bunching them together.

            Mere accumulation of facts is not knowledge for other reasons.  Plato once said you can have truth without knowledge and knowledge without truth.   We may have a collection of facts but they do not add up to knowledge or truths.  But even more, and again Immanuel Kant pointed this out, many important things we know are a problem of judgment or what later philosophers would call understanding.  To know is to understand and that too is more that an accumulation of facts. It is rendering a judgment, making normative choices. 

            Many of the most important choices we make are about values.  David Hume  once declared that you cannot “derive an ought from an is.”  Even if we have facts, the facts do not tell us what to do with them.  Many of the most important choices we make such as what we should ethically do cannot be made based on facts alone.  Thinking, rather cognition, is more than a robotic act of  amassing facts, is making choices.   When someone does something stupid or wrong and we say to them “What were you thinking?” It is not always a question about ignoring facts, it is often a question of exercising bad judgment or because someone did not know better.

            In a world of ethical pluralism or where not all of us agree on what is the right thing to do, or in a world of epistemological pluralism where not all of us agree on the facts, ChatGPT and AI privilege a specific world view.  This too fails to appreciate what real thinking is.

            There is an adage that says that what separates humans from animals is the ability of the former to think.  Whether animals can or cannot think is a matter for a different day.  But what separates humans from AI is the capacity to feel emotion, to empathize, and to perceive or understand the world as it is, or as it could be.  All of this is what we mean when we say we think, and this is not what ChatGPT or AI currently does.

Competing for businesses? A lot matters more than local tax-break bait

 My latest is in the Pioneer Press and reprinted below.

For the last 25 or so years the City of Saint Paul has used a variety of tax incentives to encourage business location decisions and encourage economic development. Are they necessary? The simple answer is no, and there are far more effective tools than tax breaks to to encourage business development.

Perhaps at the top of any list of political myths is the idea that taxes, including their incidences and incentives, are serious factors affecting business relocation decisions. At the core of this belief is the idea that businesses make decisions about where to locate a facility based primarily, or perhaps even exclusively, upon taxes. As a result of this belief, state and local governments have engaged in dramatic tax wars against one another to lure businesses to their community.

What do we really know about the impact of taxes upon business relocation decisions?

The literature is clear — tax breaks to encourage economic relocation are economically inefficient and wasteful.

Social entreprenteur Michael Kieschnick reviews numerous studies and methodologies examining the role of tax incentives on business location decisions. He concludes: “Even though there were considerable variations in the specific questions asked, the types of firms in the sample, and the areas in the country, taxes and financial inducements were consistently ranked in the bottom one-fifth or one-tenth of factors mentioned by respondents.”

Economist Michael Wasylenko in his State Tax Notes survey of more than 100  studies on the impact of taxes on business location decisions finds little evidence that the level of state and local taxation figures prominently in business location decisions. State and local tax incentives and financial inducements are not the only or even the primary influences on business location decisions.

Still other studies by economists reach a similar conclusion. Roger Schmenner notes how economists see taxes as having minimal impact on business location decisions, even though economic development practitioners and elected officials disregard his evidence. Timothy Bartik reviewed 84 econometric studies undertaken since 1979 examining the role of tax incentives, generally finding that taxes across regions had little impact on location decisions.

In “Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs,” the authors examined 238 state economic development programs across the 50 states and the District of Columbia. The analysis looked at a range of economic incentives that included tax cuts, subsidies, tax incentives, loans and several other inducements, including Tax Increment Financing (TIF) districts and enterprise zones. They similarly found these tax incentives have little impact on business location decisions.

When businesses are surveyed regarding factors important to their economic location and relocation, taxes often come in way behind proximity to markets, suppliers, labor costs and the quality of the labor force. Former University of Minnesota professor Ann Markusen found that quality of life and the arts are also critical factors driving economic development.

None of these conclusions should come as a surprise. Many of these other factors occupy a larger percentage of a business’ budget than do taxes, and all of them are far more critical to the long-term success of a business than are taxes. Moreover, when pressed, businesses will actually admit to this in public. For example, nearly 62% of those interviewed in a California study on hiring tax credits indicated that the tax credits had never or rarely affected their decision to hire individuals. In the same study, nearly half of those interviewed stated that tax incentives for relocation did not affect their decisions.

Overall, the economic development literature states that tax incentives and levels of taxation are not major determinants of relocation, but instead might have some marginal influence in terms of a small choice between sites in areas not far apart.

The argument here is not that taxes do not matter. Instead, they matter but at a lower order or in more subtle ways than chamber-of-commerce-types of arguments would suggest.

First, when decisions regarding location are being made, other factors rank higher, such as labor costs or access to markets and suppliers. This is what businesses will first consider when making more macro or first-cut decisions regarding where to locate. Once these major factors are considered, then taxes become a secondary or tertiary factor to narrow down more specific locations or jurisdictions in which to settle.

Thus, when a business adds up all of the costs and factors affecting where it should do business, there may be only a handful of places that make sense for a business to relocate to. Here is the point where businesses then pit communities against one another seeking to extract cut taxes in a bidding war that pits cities or states against one another.

In sum, tax cuts have a marginal impact on business location decisions. They also serve to shift tax burdens to other home owners or residents. Rarely do the supposed jobs produced by the business relocation pay for themselves.

If cities such as St. Paul do wish to encourage business relocation and economic development, they are better spending their money on quality schools, workforce training, infrastructure and perhaps other public safety and services to improve the quality of life in a community.

The False Promise of Housing Deregulation: Why Densification Policies will Fail to Produce Affordable Housing

 Minneapolis is the city de jour when it comes to housing policy.  Planners across the nation herald the elimination of single-family zoning as a terrific move that will lead to the construction of more housing.  More housing, as the story goes, will lower housing costs and perhaps desegregate.  In effect, densification produces more and cheaper housing.

St. Paul seems to believe this too.

If only this were true.  I find it ironic that erstwhile so-called progressives have bought into the idea that simply deregulating land use laws will produce more housing construction, especially that which is affordable.  I can not think of two many other areas of social policy where progressives believe less regulation is good and that letting market forces operate will produce equitable solutions.  Yes, in many cases and places markets make sense, but does it when it comes to housing, especially housing that is affordable for those of low and moderate income?

I have been a repeated critic of the direction Minneapolis is taking in terms of housing–specifically arguing that Minneapolis’s 2040 plan is highly flawed and naïve.  The idea that “Let them build it and they will solve the housing problem” is a mantra of many.  I have argued that the simple deregulation of housing markets will not produce more affordable housing. Left to their own devices, developers will build high-end housing for the rich and not units for low to moderate income people because the former is more profitable.

Such an approach is simply a neo-liberal pro free market approach.

Housing markets are segmented–the market for high end units does little to depress costs for other types of units. If we want more affordable units we need to build them, or create incentives and structures to do that–simply dezoning or deregulating housing markets will not accomplish that.

The best evidence to support my claim is a recent article that appeared in Urban Studies (a pre-publication version is found here).  In a study by researchers at the Urban Institute they found that easing land use restrictions may not increase housing supply or decrease housing prices.  Their study was based on generate(d) a dataset of a variety of land-use reforms across eight US metropolitan regions encompassing 1,136 cities from 2000 to 2019.

Their major conclusion: Let us quote:

“We find that reforms that loosen restrictions are associated with a statistically  significant, 0.8% increase in housing supply within 3 to 9 years of reform passage, accounting for new and existing stock. This increase occurs predominantly for units at the higher end of the rent price distribution; we find no statistically significant evidence that additional lower-cost units became available or moderated in cost in the years following.”

The evidence is simply not there that unrestricted building that is supposed to occur as a result of deregulated zoning produces more affordable units.

There may be reasons to densify, but it will not yield the type of housing that is needed.  It will instead produce the type of housing that is most profitable to developers.

Ten Men, $1 Trillion, and the Personalization of American Capitalism

 Capitalism has always been about the accumulation and the concentration of wealth. 

 Marx and Engels first described that phenomena in their 1848 Communist Manifesto.  Thomas Piketty has also reminded us of that.  But what they never focused on was the personalization of wealth in capitalism and what that means for society.  The latest rankings of the richest individuals in America reminds us of the persistence and personalization of wealth.

Forbes just released its ranking of the richest individuals in the world.  Topping the list is Frenchman Bernard Arnault of LVHM, the fashion and cosmetics empire, with a net wealth of $211 billion.  Yet if we focus simply the  ten wealthiest in the world, seven of them are located in the US, with a combined wealth of $786 billion.  The ten richest Americans, including the likes of Elon Musk, Jeff Bezos,  Larry Ellison, and Michael  Bloomberg,  total $1 trillion dollars.  And this list does not even include the Waltons who own the Walmart empire or the  Koch family.  Of the twenty-five richest individuals in the world seventeen are American.

For some this is God Bless America!  It is the story of the American dream where any of us can become billionaires, or if all else fails, at least millionaires.  Yes while the US has the greatest number of billionaires in the world and perhaps the greatest density of billionaires per capita, it’s Gini coefficient, which measures economic inequality on a scale of 0 (totally equality) to 100 (extreme inequality), has fallen from  039 in 1970  to 0.43 in 1990 to 0.49 in 2022.

While the US was never an economically egalitarian nation, at least in recent history, it has fallen to become one of the least equal among any countries in the world that likes to consider themselves democracies.  Combine this with the decline in social mobility in the US that is getting progressively worse by generation, and it is hard to conclude that the American Dream does exist except for a few.

Capitalism has always been personalized, especially in the US.  It was once the story of the Vanderbilts, Duponts, Carnegies, and the Rockefellers who made money in railroads, finance, or oil.   They made billions at the expense of the workers whom they exploit, and then we lionize them as heroes and beg for their money when they created charitable trusts or foundations. We view them as benevolent and generous, forgetting how they made their money.  They were literally the faces of nineteenth and twentieth century American capitalism.

Today’s personification is Silicon Valley, social media, and tech.  In addition to Musk, Bezos, Ellison, and Bloomberg, it is also Bill Gates, Mark Zuckerburg, Larry Page, and Steve Ballmer.  It is still an American plutocracy, except the nature of the capitalist wealth and their faces have changed.

But we should not forget the other faces of American capitalism  These are the faces that John Steinbeck talked of in his Grapes of Wrath to Michael Harington’s The Other America to Barbara Ehrenreich’s Nickel and Dimed to apropos Faces of Povertythe documentary.  We have nearly thirty-eight million people officially in poverty, each a story of how the American dream is merely a dream for them.

It is no coincidence that there is a connection between poverty and billionaires.  The more that a fewer and fewer number of individuals are rich the greater the number of individuals who will be poor.  Compare the $1 trillion in wealth for ten Americans to the fact that the bottom fifty percent of Americans—roughly 165  million individuals—have a combined wealth of $4.1 trillion.  If your net worth is between $43,760 and $201,800, you are in the middle class.  Once you get below the middle class, there is no net worth—individuals are in the hole and owe more than they own.

Donald Trump and January 6, made many question the viability of American democracy.  Perhaps its viability should have been questioned even before that.  The problem with billionaires is not only that they are different from the rest of us—to paraphrase from F. Scott Fitzgerald—because they are rich, but also because they are using their economic power politically to keep themselves rich.

This essay originally appeared in Counterpunch.

What will fix St. Paul’s failing infrastructure?

This blog appeared originally in Minnpost with John Mannillo. 

April 10, 2023

As winter ends St. Paul residents yet again experienced badly plowed streets and now miles of potholes that need not just patching but complete reconstruction. The City of St. Paul wants permission from the state and its voters to increase the existing sales tax of ½% to cover the costs of road maintenance.

While the city does need additional revenue to perform basic city services such as road maintenance, the sales tax increase is literally patching over a bigger problem for the city – how to increase its tax base.

The roots of the dilapidated streets has many causes.

One, for years road repair was at best only patching. The city stripped off the surface asphalt without reconstructing the base, the latter often is the original and worn-out brick or cobblestone. Such quick fixes are short term cheap, long term expensive.

Two, for years St. Paul has failed to prioritize basic city services in the budgeting and staffing allocation. This is especially true with streets.

But perhaps the most important reason is simple – the City of St. Paul is broke. It just does not have the money to fund road maintenance, at least under the way it currently operates. Thus the request for the increased sales tax. However, the proposed increase will not provide enough new funding to cover even the stated needs, no less sustain many other new and existing ones.

The solution to the city’s street and ultimately financial woes must lie in increasing its tax base. It cannot rely upon the state for more local government aid. Partisan disagreement and outstate legislators who do not feel an obligation to support the cities, especially when they see obvious mismanagement are reasons for this.

Sales tax increases are not an option. They are regressive upon the poor and especially in a city such as St. Paul which is not a major tourist center, they will fall more heavily upon residents who are already overtaxed.

Other user fees are not reliable and individuals can avoid them. For example, according to the Bike Coalition, 5% of the population are regular bike riders. If this amenity is paid from property taxes, 95% of the people who never use a bikeway will have to pay for it. This isn’t fair to most people. Automobile owners pay for license and registration fees, and gas tax. These funds are paid by automobile owners’ for the use, construction and maintenance of roads. Shouldn’t bike users pay fees to cover all the expenses for their particular use of bikeways? Bike riders have been able to shirk their responsibility to pay for an amenity few of us use.

Again, the solution is not raising taxes but expanding the overall tax base.

The root of the problem goes back to when Norm Coleman was mayor. He convinced the city to use tax increment financing (TIF) to fund development and St. Paul continues to rely on it to this day.

TIF operates by giving developers property and other tax breaks to developers for many years. In theory, the development is tax exempt but in practice is supposed to be captured by St. Paul in order to finance the tax break. It is sort of like supply-side economics for developers with the false belief that if we cut taxes for them everyone benefits.

The problem with TIF is that property taxes – which pay for city, school, and county services – are twofold. One, it takes away revenue to pay for the services for St. Paul, its schools, and the county. Two, overused as in St. Paul, it exempts more and more property from taxes, thereby failing to achieve its objective of promoting economic growth and an expansion of the tax base. St. Paul’s tax base, already challenged by the number of tax-exempted government and non-profit properties in the city, exacerbates its problem by giving developers TIF handouts that they do not need.

Since 1995, St. Paul has increasingly granted TIF to developers as an incentive to build in its city. This has been so abused to the point that without TIF expenses (debt service and reduced property valuations) St. Paul could more than cover all the needs of road repair and the Parks Department. The business community has always welcomed this subsidy, as well as most elected officials who see a benefit from new development, often before elections.

St. Paul has numbers approaching 60 TIF districts (not only just individual buildings). The legal requirement is that a TIF grant can be awarded to any development that will solve a situation of blight, and that the project would not proceed “but for” TIF. This has totally been ignored in St. Paul. Developers, when asked if they would develop without TIF, the answer of course has always been “No.” Property taxes for all these developments, for at least 25 year terms are granted back to developers. This results in a shifting of property taxes to other businesses and homeowners.

It doesn’t end there. Any developer interested in St. Paul, must compete with a myriad of competition from other TIF subsidized properties. Too often TIF is the easy answer. The theory is TIF will attract additional development that will provide new taxes. But new development in these districts also qualify for TIF and again do not increase any tax base. We have used up our most attractive commercial real estate for development that doesn’t generate taxes. Instead, it increases our tax burden these developments require for services.

Incentive to build new commercial projects in St. Paul, where there isn’t adequate demand, depletes overall commercial occupancy in the city. Rental rates are forced down. Property valuation on commercial property is determined from net operating income. When this is reduced, so is our tax base. This is the opposite result of what we were told TIF would do.

Now, the national impact of a 39% average commercial vacancy in downtowns after the pandemic will impact our tax base even more. The taxpayers will have to cover much of the debt service for those projects with general obligation bonds and without assessment agreements that guarantee shortfalls in required tax receipts to pay TIF debt.

So, in order to recover, we first need to stop the financial bleeding. This TIF addiction continues today. A sales tax increase does not solve the problem. A new strategy to expand the tax base is really what St. Paul needs to do.

Dog the Wag: Trump, Indictments, and the Corporate Media

 

            Wag the Dog was a 1997 film depicting a presidential candidate seeking to cover up a sex scandal by starting a fictitious war to distract the corporate media and the American public.

            Now we have the corporate media and the American public obsessed with a presidential sex scandal that diverts our attention from  war in Ukraine and other more pressing issues.  We are dogging the wag at the benefit of Donald Trump.

            The American media is obsessed with Donald Trump because he makes them money.  In 2016 he received $5 billion in free media time.   This earned media  contributed to his victory over Hilary Clinton who raised far more money than  Trump.  Throughout his presidency the corporate media, including CNN, MSNBC, and FOX,  earned billions off of Trump.  He started the morning off with one or two Tweets, driving the daily coverage for the press which slavishly reported on everything he did or said. The more outrageous the better.

            It did not matter if he lied or not. Or whether he made sexist or racist comments.  Trump and the media were in a symbiotic relationship.  He needed them as a politainer (politician + entertainer) to get the attention he needed, and they needed him for copy, clicks, and profits.  They could not stop covering him, no matter what.  This is, as I have argued. American politics in the age of Trump.

            Never mind that the Trump tax cuts  made wealthier people like  him richer and hurt his base.  Never mind that he sought to gut much of the regulatory state.  Never mind that he packed the Supreme and lower federal courts.  Covering these matters were sideshows for the media, and Trump know how to make them a sideshow by driving the media agenda.

            Nothing has changed in Trump’s post-presidency.  Every comment, every stop, everything that Trump does gets covered.  And now we have a replay of a sex scandal.

            Trump allegedly paid off a porn star seven years ago to silence  her during his first presidential run.  Now its back in the news as Trump has become the first (ex-)president  to be indicted for a crime.  Starting over  two weeks ago when Trump announced he was about to be arrested the media is apoplectic over this.  Pundits, politicos, and political analysts are having a field day attesting to the merits of the charges—even though we have no idea what they actually are yet.  It’s as bad as ESPN pre-game speculation.

            The 2024 presidential election cycle script is already written for Trump.  The media will cover this indictment and perhaps others too, but the juiciness of this one involving sex and payoffs will no doubt dominate.  Trump gets the media moment he wants, reinforcing his grip on the Republican base and generating millions of political donations he will use for his legal defense.  He gets the coverage he wants, the media gets the viewers they want.

This is dog the wag.

The Magic Asterisk * Minnesota State Budget

 

       What if the State of Minnesota spent money when it did not have a plan for how to pay for it?  This is essentially what Minnesota is doing now–budgeting with a promise or a floating asterisk that spending today will pay for itself in the future.  This is the DFL version of Reaganomics from the 1980s all over again.

 

Asterisk One:  The Smoke and Mirrors of Reagan Supply Side Economics

            The Reagan tax cuts were based on a fiction.  The fiction was supply side economics and the famous Laffer Curve.

            Arthur Laffer at a restaurant drew a curve on a napkin.   He argued that cutting taxes would eventually spur more investment and therefore the increased economic growth would pay for itself and therefore no cuts to social-welfare programs would be needed.

            In reality, this was a facade.  It a 1980 president debate when then candidate John Anderson was asked how Reagan could cut taxes and increase military spending while balancing the budget, he responded it was possible only with smoke and mirrors.  He was correct.

            Eventually Reagan, with Democratic Party complicity, did cut the top rate on taxes in America, with the affluent and corporations benefitting the most. David Stockman, his budget director, recognizing that the cuts would not pay for themselves, indicated in his proposed budget that there would be $44 billion is future cuts, marked by a “magic asterisk” in the budget.

            What eventually happened is that the US recession and tax cuts hemorrhaged the US budget, thereby becoming the cudgel to force additional cuts to social welfare programs.

            In effect supply side economics forced economic choices upon a future Congress and president, the implications of which we still face more than 40 years later.

 

Asterisk Two: The Minnesota Budget

            Minnesota has a $17.5 billion surplus.  The source of the revenue is both one-time federal money tied into Covid relief, the other is taxes. 

            Covid funding is ending and is not returning, especially with a divided Congress unlikely to expend more money and a Republican House looking to cut.  

            Future tax revenues are not guaranteed.   Fears of recession are about as the Federal Reserve raises interest rates to slow inflation and fears of future bank failures are chilling consumer confidence.   Moreover, Minnesota’s economy is performing more slowly than many other states.  Altogether, continued tax revenue along the path Minnesota has recently experienced is not guaranteed.

            Yet despite this the Minnesota DFL, who hold a trifecta in the state government, are prepared to spend all the surplus, and then some.  It is spending for many worthy causes, but the sustainability  of the spending is a problem.

            The spending of one-time money is not for one-time projects.  It is for structural commitments to education, housing, and many other needs.  By structural one means that these are not one time spending commitments coming from onetime money.  They are the down payment on multi-year spending and priorities.  After the surplus is spent in the next biennium budget and beyond there will be a need to fund these commitments.  And the current and proposed taxes may not be sufficient to cover the expenditures.

            I have taught economic development and budgeting. I am well versed in Keynesian demand side economics and how government spending can encourage economic growth.  But overused, over stimulus by government spending can be inflationary and lead to budget deficits.  Government spending does not always pay for itself, at least not in the short run.  And in the long run, as John Maynard Keynes once said, “We are all dead.”

            Perhaps the idea is that spending all this money now on popular programs will ensure a DFL re-election. Or perhaps the popularity of the spending will create a powerful constituency for these programs and therefore they cannot be cut.

Or perhaps this spending is the new floating asterisk.  We do not know where the money to pay for these commitments will come from, but we will mark the savings or benefits with a floating asterisk as a placeholder until we do figure it out.