A generous safety net helping economic growth

In his last post about our State Policies Matters report, Rick Haglund wrote of the much more generous safety net Minnesota has compared to Michigan. I wrote on the topic in a post entitled “The safety net and employment”.

Both of us have noted that Minnesota disproves the all too conventional wisdom that a generours safety net discourages people from working. Minnesota spends nearly $500 more per capita on health and human service programming compared to Michigan, has a far more expansive earned income tax credit and far more generous unemployment insurance benefits. And as Rick writes:

That protective net has not trapped Minnesotans and turned them into a bunch of government-dependent slackers. Far from it. Minnesota’s employment-to-population ratio of 67.2 percent in April was the fourth highest in the country, according to the latest data of the Brookings Institution’s Hamilton Project. In Michigan, which has trimmed welfare and unemployment benefits, 56 percent of the adult population was working in April. Michigan ranked 41st in that measure.

So much for the safety nets discouraging work.

The other all too conventional wisdom reason for a miserly safety net is that it hurts economic growth. Its the topic of a terrific Paul Krugman New York Times column entitled “Inequality Is a Drag”. Krugman writes:

For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth. … But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. … But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.”

Krugman uses food stamps as an example of how safety net programs can expand opportunity and long term expand the economy. He admits that the evidence is that food stamps does somewhat reduce work effort, but that is more than counter balanced by research that shows that  “Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution.”

He concludes: “Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.”

Its a path Minnesota has been following for decades. The results have been more employment and higher incomes for Minnesotans. Seems like its time for Michigan to get on that path.

 

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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