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Opportunity Costs

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I’m too upset by the prospect of a government shutdown to write anything coherent.  It happens.  So I dug through the last time we had this problem potentially looming in 2011 and found this piece.  It’s not only still relevant, but it ties into our recent piece on the Triple Threat of forces on our economic health that no one is really dealing with.  I hope you enjoy this repeat from 31 August 2011.

You can’t have your cake and eat it, too.  It’s a silly old saying with a huge dollop of folk wisdom hidden in the middle of it.  But money spent is sometimes more than just money gone – in an integrated world it’s a choice to make one connection when another one might have been a better choice.

Rather than just measure how much money is going in and out, it might be better to understand what we could buy with the same money.  The technical term for this is “Opportunity Cost”, or what we give up by making the choices we do.

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Gameday in Washingtoon

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Another year, another battle over the budget.  This time the threat is a trifecta, a showdown over shutting down government, defunding Obamacare, and a default on the Federal Debt by not raising the debt ceiling.  The stakes could not possibly be higher – and yet just about no one outside of Washingtoon wants to be in this game in the first place.  How did it get to this?

First of all, this is about the Republican Party and absolutely nothing else.  Boehner and the leadership had to prove their mettle to more vocal Tea Party members if they wanted to have a chance to keep their positions.  But there is little doubt that even if they win the greater party outside stands to lose the most in this game.  For the rest of us, all we can do is hope that nothing stupid winds up happening.

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Summertime Party! (For Now)

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The US government ran a surplus in June!  Stocks are at all-time highs!  The party is starting in a big way in the normally lazy daze of summer.  Are you ready to join it?

Not so fast.  Barataria has been a source for positive economic news for at least a year now, but it’s always been tempered with caution.  Things are turning around, yes, but the headlines hide the work that still needs to be done to make this into something much bigger.   It’s up to all of us, really, to find a way to make it happen.

But we do have a party, at least as long as Ben Bernanke is buying.  He’s a fun guy, really.

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Where does Minnesota’s Money Go?

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Heading into the new Legislative session at the start of the new year, we can expect that things are going to be different.  The DFL is in control of the House, Senate, and Governor’s office for the first time since 1990 – and comes in with a lot of pent-up demand from their own interest groups.  Attention tends to focus on social issues such as universal marriage, but we predict here that most of the time will be focused on the budget.

As discussed here, there is a structural imbalance of $1B per year obscured by a 2002 law that restricts how the forecasters are allowed to figure the state’s budget (though this is not without controversy – see the comments).  We can predict that this will be plugged primarily by flattening out tax rates and making the highest earners pay a similar rate to most of the state, 12.1%-12.3% of defined, taxable income.  And we have determined that, on balance, Minnesota is a remarkably average state in terms of its total size (represented by combined state plus local income) and net tax burden.

But what about expenditures?  How does Minnesota compare with the rest of the nation?

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Minnesota Budget – A Solvable Problem

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The Minnesota state budget forecast came out with more bad news – a deficit of $1.1B for the biennium (2 year) cycle of 2014-2015.  How can we have these deficits year after year?

The answer is a short and simple one:  it’s actually worse than what they are telling us.  But a new DFL controlled legislature will be able to work with Governor Dayton to take care of it, once and for all, without an awful lot of pain.  The longer answer is that we can expect even more fundamental reform in the works.

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