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An Example of Why Government Action Is Usually Screwed Up

By May 6, 2020Commentary

Yesterday’s coronavirus briefing opened with an extended discussion of the economic and budget forecast for Minnesota.   (video)   The effect is devastating.  I can assure you that none of this was analyzed or estimated before the Governor issued the stay-at-home and shutdown orders.  He had the gall to say that everyone understood there would be a catastrophic effect on the economy.  The Governor never mentioned the effect on the economy when he issued the orders and he had no economic modeling or analysis done.  He just flew blind, both in terms of the real need to take such drastic action and in regard to the economic and other impacts.  I keep emphasizing what pathetic decision-making this was.  600,000 people, at least, are out of work.  The effect on the state budget is similarly devastating, and we are looking at large and ongoing deficits, with no obvious way to make up those deficits.  The notion that the federal government can somehow endlessly bail out the states is a fantasy.

And here is the usual example of how irrational most government actions are.  Congress decided to help the states with unemployment costs due to the epidemic.  In doing so, it added extra payments to the unemployed beyond what they typically would get.  These extra payments last through the end of July and for many workers actually add to up to more than they were being paid at their jobs.  How unbelievably stupid is that, you are giving people an incentive not to go back to work, even if their job is available.  A survey indicates the difficulty this will cause for small businesses especially.  (Survey)  Most notably, one-third of small businesses that have laid workers off say they either won’t or aren’t sure they can rehire those workers.  28% of small businesses have laid off people and 30% have furloughed workers.  96% said that some workers have quit due to the virus and 96% of those businesses say that this is due in part due to the expanded unemployment benefits.  Declining revenue and school closures are also obviously factors affecting these small businesses and their employees.

The states need to get people back to work and their economies moving, or their resources and ability to help people will be severely impaired.

Join the discussion 2 Comments

  • Harley says:

    I am confident that many of the people in the Minnesota legislature didn’t sign up to help solve a severe financial crisis when they decided to seek office. Their previous plans to fund more programs, direct more money towards their friends in education, and explore some fun projects won’t be happening any time soon. They are about to begin their education of what a financial hurricane looks like and will struggle to come up with realistic ideas to lead us forward (“You don’t think raising income taxes now is a good idea?”)

    I chuckled to see Walz raise the topic of possible staff cuts in his update. The small business owners and entrepreneurs in MN made those severe adjustments weeks ago, and government should have done the same. The University of MN is now several meetings into planning their budget action steps, with a hiring freeze to be discussed this week at the Regents meeting and voted on in June (their PPT slides are on the Regents web site). The top 200 officers of the University have agreed to forgo 5 days of pay, which works out to a 1.9% salary reduction. Same for the football coach and the basketball coach who agreed to the reduction. In comparison to the many blue collar workers in Minnesota who lost their jobs, the nominal financial sacrifice of University leadership should embarass them, as the storm about to hit them is much more than a 1.9% impact.

  • Patrick says:

    Most Minnesotans don’t acknowledge that Government can give NOTHING to anyone that it doesn’t first take from someone else. They’re all about to find out what happens when you impoverish the entire country, and there is no one who can pay increased taxes. Maybe we’ll get a spending decrease by necessity!

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