John Spry's Blog : Economics and Public Finance

Debunking politicians’ bogus jobs-creation claims

By John A. Spry

St. Paul Pioneer Press (MN) – April 23, 2017

You might think that President Donald Trump and Minnesota Gov. Mark Dayton don’t have a lot in common. But they both use the same flawed reasoning to claim that they can create jobs by borrowing money to fund construction projects. They produce bogus jobs numbers by omitting costs of their proposed projects from their calculations.

Trump’s “Priority List for Emergency and National Security Projects” claims that spending $137.5 billion on 50 infrastructure projects will directly create 193,350 job-years. A job-year is one job that lasts for one year.

Gov. Dayton’s “2017 Jobs Proposal” claims that borrowing $1.5 billion and funding his list of bonding projects would create 22,950 jobs.

The comically false precision of both executives’ job claims is a hint that these numbers may not survive scrutiny. No competent forecaster would ever claim to be so precise as to be able to forecast national or statewide employment effects to within 50 jobs.

The correct way to budget for capital expenditures, like infrastructure projects, is to carefully identify and measure both the benefits and costs of each project.

The cost of each project includes both the cost of spending on concrete, steel, and other inputs and the wage bill to hire workers. Gov. Dayton claims “that for every $1 million in construction project spending in Minnesota approximately 15.3 jobs are generated.” Dayton’s erroneous analysis labels the cost to taxpayers to pay workers as a benefit. The expense of paying workers is a cost, not a benefit, to the government.

When we, as taxpayers, use concrete, steel, and workers to build a publicly financed project those resources are not available for alternative uses in the private sector economy. Therefore, the use of these resources for a publicly financed project are a cost to society.

The cost of a proposed project includes both the dollars of tax revenue collected to finance the project and the dollars of value destroyed by the tax distortions, or bad decision-making created by the tax rates to raise tax revenue. Trump and Dayton incorrectly omit the cost of tax distortions created to fund their proposed projects because their analysis fails to acknowledge that borrowed money is paid back with tax dollars.

These errors by the Trump and Dayton administrations would embarrass any accounting student, let alone a competent practitioner of real-world capital budgeting.

Gov. Dayton’s proposed $7.85 million expenditure to restore and open the closed Minneapolis Veterans Home Truss Bridge provides a helpful example of capital budgeting. This bridge, built in 1908, has been closed since 2014 because of severe corrosion.

An open and safe bridge connecting the Veterans Home and Hiawatha Avenue over Minnehaha Creek is the benefit of this project. A cost-benefit analysis would add up the value of each routine trip over the bridge plus the even higher value of allowing emergency vehicles quicker access to the Veterans Home. These benefits should be weighed against the costs of inputs and labor to fix the bridge.

This correct approach to capital budgeting explicitly recognizes the tradeoffs between the benefits of public projects and their costs.

Unfortunately, President Trump and Gov. Dayton only measure inputs into projects. They make a common mistake by not measuring the benefits of their proposed projects. They compound their mistakes by classifying the costs of inputs into projects as the benefit from the project.

This mistaken analysis logically leads to the incorrect conclusion that we could have more jobs if only we borrowed more and more money to run up the size of the government debt. Greece’s national debt of 177 percent of its GDP and its 23 percent unemployment rate shows the error of this mistaken analysis.

This mistaken analysis fails to tell the difference between proposed projects that create value for society and proposed projects that destroy value. When the government approves projects that cost more than their benefits the government makes its citizens poorer.

The government should avoid hurting people by making them poorer.

As Abraham Lincoln observed, “There are few things wholly evil or wholly good. Almost everything, especially of government policy, is an inseparable compound of the two; so that our best judgment of the preponderance between them is continually demanded.”

President Trump and Gov. Dayton should follow Lincoln’s advice by weighing all of the costs of proposed projects against all of the benefits from proposed projects as they consider infrastructure spending.

John A. Spry of St. Paul is an associate professor in the Department of Finance at the University of St. Thomas. He’s on Twitter at @JohnASpry

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Oppose Minnesota’s undemocratic single-payer health plan proposal

By John A. Spry

St. Paul Pioneer Press (MN) – November 1, 2018

Democrats in California and Vermont said they wanted single-payer health care. However, they have been unable to get a majority of lawmakers to pass the massive tax hikes needed to finance single-payer.

Minnesota Democrats have a plan to create a statewide single-payer health plan funded with state taxes, without lawmakers voting for tax hikes. Minnesota Democrats’ legislation would give an appointed Minnesota Health Board the unlimited power to tax. This unelected board would run the entire health care system in Minnesota with both tax and spending authority. This unelected board would enact the massive tax hikes that Democratic legislators are unwilling to support publicly.

This legislation is sponsored by the Democrats’ candidate for lieutenant governor, State Rep. Peggy Flanagan, Democratic State Senate Leader Tom Bakk, congressional candidate State Rep. Ilhan Omar, and thirty-seven other Democratic lawmakers.

This legislation stands in opposition to the Minnesota Constitution. The Minnesota Constitution proclaims that all political power is inherent in the people. It provides for the regular election of public officials in the legislative, executive, and judicial divisions. It is democratic and good that legislators and the governor are accountable to the people at the next election.

The Democrats’ legislation says that regional health boards would select eight members of the new Minnesota Health Board. The first eight members selected by regional health boards would then appoint seven additional members who would have to be members of specified health care interest groups.

These 15 appointees would never be accountable to the voters at a ballot box. They would have control over life and death decisions for every Minnesotan.

Americans have proudly rejected authoritarian rule by unelected officials. Our Revolutionary patriots proclaimed “No Taxation without Representation.”

In that American tradition, the Minnesota Constitution gives the power of taxation to an elected Legislature. It further requires that this “power of taxation shall never be surrendered, suspended or contracted away.” It is democratic to never let the elected Legislature surrender its power of taxation to an unelected Minnesota Health Board.

Putting the unlimited power of taxation into the hands of government officials who are selected instead of elected is a gross violation of the Minnesota Constitution and the basic idea of representative democracy.

Why do Minnesota Democrats want to give the power to tax and spend to the appointed members of the Minnesota Health Board?

They explain at the marketing website for the single-payer Minnesota Health Plan (MHP): “The Legislature and Governor would have no authority over the MHP revenues. This is necessary in order to prevent the use of MHP premiums to balance the state budget, and would also prevent politicians from starving the health plan of needed funds, a problem that occurs in some of the countries where politicians are responsible for funding their national health plans.”

This quote is a scary declaration of support for rule by unelected authorities instead of the elected Legislature and governor.

These single-payer supporters openly express their opposition to the democratic process in other countries because they do not like the policy choices made by those countries’ elected representatives.

The advocates of the Minnesota Health Plan want to take away your current health insurance and replace it with the health insurance the unelected government board decides you will have. They even want to take away your right to vote for the people who will make these decisions.

The single-payer Minnesota Health Plan puts health care decisions in the hands of people who are never accountable to the people at the ballot box. That is a terrible way to run a government.

We should preserve government by the people, of the people, and for the people by opposing the undemocratic single-payer Minnesota Health Plan.

John Spry is an associate professor in the department of finance at the University of St. Thomas. Follow him on Twitter at @JohnASpry.