Free association question, meet informed answer.
During the Feb. 28 presentation of the state’s February economic forecast, we noticed something that made us think about the semi-obscure French economist Thomas Piketty. So we asked Gov. Tim Walz about it.
Luckily, Walz knows all about Piketty’s door-stop-sized 2013 book, “Capital in the 21st Century.” He even seemed glad to get asked about it. (The thing is a chore to read, so who wouldn’t want credit?)
“Thank you for doing that,” Walz said. “I spent about a month reading that.”
But before we get deeper into his response, let’s back up a moment. What made us think about “Capital” was the state’s increasingly tepid forecast for revenue growth.
The forecast predicts that a 3.2 percent state-revenue growth rate for fiscal years 2018-19 will tumble to 3.0 percent in 2020-21. (We asked some smart folks in the room that day and they assure us that revenue growth is roughly analogous to economic growth, which is important to our theme here.)
After that, revenue growth is projected to fall to 2.3 percent in 2022-23: Piketty territory.
Piketty’s central argument is that the return on capital (the money rich folks get off their investments) is historically greater than any returns from pure economic growth (the factors that generate income for the rest of us schmoes).
And since real economic growth has been slow throughout all of human history—with a big exception of the anomalous post-WWII era—Piketty argues that money usually concentrates into the hands of the richest. Because capital usually does OK.
The Frenchman further argues that those old slow-growth norms—which he measured from the 1700s on—are re-establishing themselves and will dominate this century. One measure of that is global output growth, which Piketty predicts will drop from 3 percent to a more historically normal 1.5 percent annually during this century.
Which means, to him at least, without a redistributive change in economic policy, wealth concentration is only going to get worse.
So we asked the governor if that worries him, given the revenue forecast.
(Didn’t we already mention it was a free-association question?)
The governor’s short answer: Yes. He is worried about that.
Walz called out congressional Republicans who pushed big tax cuts in 2017. Walz, who was in Congress at the time, said he heard the GOP repeatedly predicting the tax reductions would generate 5 percent to 6 percent growth in gross domestic product.
“And when many of us said we don’t think we’re going to get that, they said yes we would,” Walz said. “That sugar high that we got in growth that came out of the 2017 tax bill, it’s starting to come down.”
Walz also noted that, as Piketty spent much of his book predicting, “wealth disparities are starting to happen.” The governor stressed that the answer to income inequality is investment “in the fundamentals that we know are at the heart of our economy.”
By that he means public spending on things like a trained workforce, broadband technology, transportation infrastructure, that sort of thing. And of course, he wants to raise the gas tax by 20 cents. Piketty’s a big one for tax hikes.
Bottom line, the governor thinks Piketty’s right. “Yes,” he said, “I think that there is the potential that there may be a little more of the norm over long-term growth.”