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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

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.

Board composition



Financial duties

Stop train wreck of government shutdowns before they happen

St. Paul Pioneer Press (MN) – January 8, 2017

One of the first acts of both the new Minnesota Legislature and Congress should be to eliminate the possibility of the train wreck of a government shutdown. Currently, the government shuts down when government spending bills are not passed into law before the start of a new budget period.

Lawmakers should authorize funding for the government to continue to function when a budget year starts without new spending bills signed into law.

Government shutdowns hurt the people government is supposed to serve. During a government shutdown, we continue to pay taxes for services, buildings and monuments that we are prohibited from using.

For the 2013 federal government shutdown, our government attempted to block veterans and other citizens from visiting the National World War II Memorial and the National Mall by using its resources to erect barricades. Busloads of veterans on an Honor Flight tour sidestepped the government barricades to visit the World War II Memorial. The federal government had the money to erect barricades, yet it claimed it had to prevent people from visiting this memorial and the National Mall. The government used veterans as pawns in a political game of chicken instead of using public funds efficiently to let citizens visit the World War II Memorial and National Mall.

The federal government told many of its employees that they were not allowed to work during the shutdown. They did not get paid during the shutdown. After the shutdown ended, we paid $2.5 billion in compensation for days when federal workers were prohibited from working.

During the 2011 Minnesota government shutdown, motorists were prevented from using roadside rest areas. Government employees blocked citizens from entering our statehouse to express their views in person to their elected representatives about the government shutdown or any other issue. Elected officials and their staffers were allowed into our statehouse while the ordinary people of Minnesota were kept out.

These governmental actions designed to hurt people during shutdowns are unnecessary and avoidable.

Rhode Island and Wisconsin show that shutdowns are preventable even during periods of divided government. These states successfully use automatic continuing appropriation laws to prevent shutdowns. Rhode Island has used an anti-shutdown law since 1935. Rhode Island and Wisconsin regularly pass budgets without the threat of a government shutdown.

Our new Minnesota Legislature can learn from past Democratic and Republican continuing-appropriation bills that have been introduced in St. Paul and Washington in recent years.

In 2013, the DFL-controlled House passed former Rep. Phyllis Khan’s (DFL-Minneapolis) bill providing for automatic continuing appropriations for one year if appropriation bills were not passed by the start of the new budget biennium. Khan noted that “Thousands of Minnesotans are hurt by any interruption in government.” She also observed that the “uncertainty of an impending shutdown and the preparations that go with it also make our state less efficient and make it more difficult for state employees to do their jobs effectively.” This good idea died in the conference committee when the DFL-controlled Senate objected to Kahn’s continuing appropriations bill. New Minnesota Senate Majority Leader Paul Gazelka (R-Nisswa) has proposed similar legislation in the past.

At the federal level, Sens. Rob Portman (R-Ohio) and Jon Tester (D-Mont.) introduced the End Government Shutdowns Act to have an automatic continuing resolution continue the current level of government spending when appropriation bills are not passed by the start of a new fiscal year. Unlike bills by Rep. Kahn and Sen. Gazelka, this proposed federal legislation would reduce government funding by one percentage point after 120 days without appropriation bills being passed. Funding would be further reduced by one percentage point every 90 days until Congress passed spending bills.

Minnesota will have divided government for the next two years with a DFL governor and Republican Legislature. That combination produced a 20-day government shutdown in 2011. In 2005, a Republican governor and House of Representatives and a DFL Senate produced a nine-day partial government shutdown. This time let’s do better by removing the possibility of another government shutdown.

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.

The Economics of Taxation: Theory and Evidence for Budget Evaluation

In 2011 I testified before the Minnesota House Tax Committee about the Economics of Taxation; Theory and Evidence for Budget Evaluation.

My PowerPoint Slides are available here.


The Marginal Cost of Public Funds

Taxes are generally distortionary.  That is the cost to individuals in our economy of collecting a dollar of tax revenue exceeds the tax revenue that is collected because people change their behavior in response to price changes that are caused by the tax.  The marginal excess burden of raising a dollar of tax revenue is the technical term for how much extra pain is imposed on people in order to collect another dollar of tax revenue.  Economic damage is a helpful, non-technical term I often used to explain the marginal excess burden of a dollar of tax revenue to non-economists.

According to the federal Office of Management and Budget (OMB) during the Bush, Clinton, Bush, and Obama administrations, “Recent studies of the U.S. tax system suggest a range of values for the marginal excess burden, of which a reasonable estimate is 25 cents per dollar of revenue.” (Item 11)

This means that the total cost of collecting a marginal dollar of additional tax revenue from slightly higher tax rates is $1.25.  This includes both the dollar that is collected from people in the private sector economy and the economic damage from the distortions caused by the tax.  The dollar of tax revenue is a transfer from the private sector taxpayers to the government.  The extra quarter of excess burden is the cost of distorting decision-making. It is a waste to society.  Instead of making decisions only for common sense reasons some decisions are changed when relative prices are changed by the tax.  This behavioral response makes our economy less efficient.  The benefits of public expenditures financed by taxation should be weighed against the marginal costs of raising taxes.

According to the Office of Management and Budget, “Where specific information clearly suggests that the excess burden is lower (or higher) than 25 percent, analyses may use a different figure. When a different figure is used, an explanation should be provided for it. An example of such an exception is an investment funded by user charges that function like market prices; in this case, the excess burden would be zero. Another example would be a project that provides both cost savings to the Federal Government and external social benefits.”

Alternatively, if the marginal tax rate is especially high, then both the excess burden and the marginal cost of public funds may be larger because generally the distortions created by taxation increase quadratically with the tax rate.

U-Haul Costs to and from Saint Paul, Minnesota

One way rentals for a 26 foot U-Haul between Saint Paul, MN and Naples, FL.  Hat tip: Mark Perry.

Naples, FL to Saint Paul, MN: $1258

Saint Paul, MN to Naples, FL: $2,226

Premium to Leave from Saint Paul, MN: 77%

One way rentals for a 26 foot U-Haul between Saint Paul, MN and Austin, TX.

Austin, TX to Saint Paul, MN: $1239

Saint Paul, MN to Austin, TX: $1,704

Premium to Leave from Saint Paul, MN: 38%  

Perhaps there is a way to use an internet bot to create a panel of U-Haul prices over time to better understand migration?