Ramstad: Minnesota's economy is doing better than expected, but can it last?

Minnesota's economy is doing better now than I thought it would be when I started writing this column six months ago.

You may have missed it, but on Friday we got the state's first really big economic datapoint of 2023. Minnesota's GDP grew 2.2% in the first three months of the year.

That outpaced the nation as a whole, which grew 2%, a level that itself was a surprise. Put on the party hats and do a little dance. For the last 20 years, it's been rare to see the Minnesota economy grow faster than the nation's.

It was the dead of winter, but the first quarter was when farmers got the last of their payments for the work they did last year. And their income — the second-highest on record — was a key driver for overall growth at the start of 2023 in Minnesota and its surrounding states.

Drought, as it has in the past, yielded higher commodity prices that turned out to be lucrative for the state's commodity producers. That may happen again this year.

But don't dance too much. While the latest growth rate is better than the 1.2% growth Minnesota experienced for full-year 2022, it's still below the 3.4% average of the last decade.

President Joe Biden is touting the nation's growth, saying it beats other countries. But many people still worry a recession is on the way — and may even be needed to cool inflation.

In a year or so, we'll know how Minnesota fared amid today's countervailing forces.

A drag on consumer spending will soon appear as young adults across the country, including a half-million in Minnesota, begin repaying college loans that have been on pause since 2020. Friday's Supreme Court rejection of the Biden administration's $10,000 break on those loans means that drag will last longer.

But this weekend also marked the start of the new fiscal year for state government, which is undertaking the largest jump in spending since the 1970s. That's sure to be stimulative to the Minnesota economy.

Even so, I still believe lawmakers did the wrong thing by spending nearly all of a record surplus and lifting overall spending nearly 40% for the next two years. They should have returned more of that surplus to taxpayers, and let them direct the money through the economy.

Many people overestimate the role that elected leaders and governments play in the economy. And there's some of that happening now with the more assertive role Biden has driven the federal government to take in the U.S. economy, a kind of "New Deal lite" or a modern industrial policy.

While a substantial shift from the 1980s and 1990s, Biden is building on the crisis-related economic interventions in the George W. Bush and Barack Obama administrations, and the cherry-picking approach to economic investments by Donald Trump.

Biden administration officials have made clear that the type of economic growth matters, even more than the amount of it. And they believe government should step in when the private market fails. But their view of failure is so expansive that, as Greg Ip noted in the Wall Street Journal, there's "effectively no limiting principle on government intervention."

"A modern American industrial strategy identifies specific sectors that are foundational to economic growth, strategic from a national security perspective, and where private industry on its own isn't poised to make the investments needed to secure our national ambitions," Jake Sullivan, the president's national security adviser, said in a speech in April.

That's why Commerce Secretary Gina Raimondo and Sen. Amy Klobuchar were at Normandale Community College in Bloomington last week talking with local high-tech executives and educators about the Chips and Science Act, which will send $50 billion in federal money to chipmakers over the next decade.

As I listened to them, I found myself thinking this assistance is smart, particularly because I know that governments in Asia have long helped their domestic chipmakers.

But then I wondered: Why does that seem OK to me when the big jump in Minnesota's government doesn't? The answer is the Biden administration's moves, while large compared to recent norms, are proportionally much smaller than what happened at the State Capitol this spring.

The $5 billion a year to the chipmakers is not nothing. But it's a fraction of the $50 billion that U.S. chipmakers spent on research and development last year — and the tens of billions more they spent on factories and equipment. It's also a tiny drop of the $6 trillion or so that the federal government spends each year.

One goal of the Chips Act is to help build about a dozen chip factories in the U.S. But Raimondo and Klobuchar emphasized that more workers are needed in chip factories right now. "This is a growing market for students," Klobuchar said.

That's really the message that matters because Minnesota should count on neither government nor drought for growth.