Minnesota And The New Normal By Tom Stinson U Of M Econonmist
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Transcript of Minnesota And The New Normal By Tom Stinson U Of M Econonmist
Minnesota and the New Normal
Tom Stinson, University of MinnesotaMay 2010
Recent Economic and Demographic Events Have
Changed the Outlook for as Far as We Can See
This Recession Was More Severe Than Those of 1990-91 and 2001
The U.S. Economy Lost 8.4 Million Jobs in the Great Recession
Total U.S. Wages Fell in 2009Quarterly Year-Over-Year
Percent Change
Household Net Worth Fell by More Than $17 Trillion Dollars
Minnesota Saw a 30 Percent Jump in Workers Turning Age 62 in 2008
0
10,000
20,000
30,000
40,000
50,000
60,000
7/05 to7/06
7/06 to7/07
7/07 to7/08
7/08 to7/09
7/09 to7/10
7/10 to7/11
7/11 to7/12
Year Turning Age 62
Wo
rke
d W
ith
in P
as
t 5
ye
ars
2005 ACS
The Age Distribution Has Changed
From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
Source: Minnesota State Demographic Center, rev 2007Numbers are rounded
Labor Force Growth Is About To Slow Sharply
1.52%
1.12%
0.75%
0.43%
0.10% 0.13%
0.27%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1990-2000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Ave
An
nu
al C
han
ge
The Old Normal+ The Great Recession
+ Long Run Demographic Changes= The New Normal
The “New Normal” Probably Means
• Higher interest rates
• Slower economic growth
• Increasing numbers of retirees
• Less consumption; more saving
• A more diverse population
• A shift in the balance between private and public sectors
• More uncertainty in our personal & national futures
More 65+ Than School Age by 2020
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1950 1960 1970 1980 1990 2000 2010 2020 2030
18-24
65+
5-17
Census counts & State Demographer projection, revised 2007
Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004
$1,855$1,074 $1,445
$2,165$2,747
$3,496
$6,694
$9,017$9,914
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
<55-
14
15-2
425
-34
35-4
445
-54
55-6
465
-74
75+
Avera
ge
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
The “New Normal” Probably Means--2
• A shift in the balance between private and public sectors
• Chronic government deficits & cuts in service
• Worries about how to pay for past promises
• Creative destruction/disruptive innovation will change the way we deliver services
• A whole new way of looking for opportunities
FY 2012-13 Budget Gap Now $5.8 Billion
($ in millions) FY 2012-13
Resources $32,906
Spending 38,695
Difference ($5,789)
Inflation $1,181
Planning estimates assume:•Complete repayment of the K-12 aid deferral. Delaying repayment would save $1.163 billion•.No repayment of the K-12 Property tax recognition shift. Repayment would cost 564 million.•No continued GAMC spending. Restoring the GAMC to its former level would cost $928 million. Current agreement costs $214 million.
If State Health Care Costs Continue Their Current Trend, State Spending On Other Services Can’t
Grow
3.9%
8.5%
0.2%0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Revenue Health Care Education & AllOther
An
nu
al
Av
e G
row
th 2
00
8-2
03
3
General Fund Spending Outlook, presentation to the Budget Trends Commission,August 2008, Dybdal, Reitan and Broat
Minnesota Faces a Fiscal Trap• The issue is a long run, structural one—
short run solutions will not solve the problem
• Trend growth alone will not be sufficient. Fundamental changes are necessary
• Revenue growth will slow. Efforts to increase it will be met with resistance
• Spending pressures will increase driven largely by issues of aging and health
• State spending will shift its focus from education, infrastructure and higher education to care and support of the aging
The Great Recession Has Been The Great Recession Has Been Blamed for Raising the Level of Social Blamed for Raising the Level of Social
AngstAngst
But What Is Really HappeningBut What Is Really Happening
Is That We Have Entered A Is That We Have Entered A
““ NN ee ww NN ormal”ormal”
Grieving For The “Old Normal”• Denial – “This is not happening.” “Just wait, things will
return to normal.”
• Anger -- “Who is to blame?” Rage and gridlock rule and anyone who symbolizes life, energy, progress, success, happiness, etc. is treated with resentment and mistrust.
• Bargaining – “I’ll change if this just goes away.” Somehow, we can get back to the old normal if we just return to good, ole fashioned (conservative/liberal) values.
• Depression (emotional, not economic) – “What’s the point in trying?” “We are all doomed anyway.” The certainty/finality of events is finally recognized.
• Acceptance – “It’s going to be okay.” Looking for opportunities begins.
But Why Fear The New Normal?It Plays To Our Strengths!
• Future economic growth will depend increasingly on increasing productivity and less on labor force size
• Education has been the key to Minnesota’s productivity and prosperity
• Future productivity increases will depend on decisions and the investments we make now
• Public Sector Productivity Growth Will Be Essential
Productivity Is Not Just Producing at a Lower Cost
Increasing Productivity Also Means
Making things better
(improved quality)
Making better things
(innovation, new products)
Making Better Things May Be The Area Of Greatest Potential
• Efficiency efforts have focused on transformational and transactional jobs
• Largest future productivity gains are likely to come from entrepreneurial innovations– Seizing opportunities offered by disruptive
innovations– Improving the quality of existing processes,
products, and services– Developing new products and services– Adapting business plans to the “New Normal”
Education Is The Key To Productivity
Minnesota High School Graduation Ratio
57%
85%
60% 62%
89%85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
AmericanIndian
Asian Hispanic Black White Total
2 Y
r A
ve R
ate
2004-05 through 2005-06 graduates. Based on 10th grade enrollment three years earlier.
The Fiscal Catch-22
If we don’t make the necessary public investments in human capital, research and infrastructure, then we won’t have the productivity gains needed to provide the resources to make those investments.
“If something can't go on forever, it will stop.”
Herbert Stein, Chair President Nixon’sCouncil of Economic Advisors
“I skate to where the puck will be, not to where it has been.”Wayne GretzkyHockey Great