Wednesday, April 4, 2012

Job Creation Snake Oil

Chuck Johnson reports in Monday's Missoulian (read the article here) that all of the Republican candidates for  governor are claiming that the best way to get Montana's economy growing is to break down the "regulatory barriers" that are holding businesses back and to "fast track" natural resource development. 

This is standard Republican fare, of course, and it's designed to resonate with voters who are frightened by the dismal state of the economy and are desperate for solutions. But solutions are not what they're getting from the Republican gubernatorial candidates. They're getting snake oil.

If you want to know what makes employment grow, and then stop growing, it's instructive to compare Montana's job growth between 2000 and 2010  to what was happening in the rest of the country.  The chart below depicts the growth over this period of all jobs in the US (in blue) and Montana (in green). It also shows the growth of Montana natural resource jobs (in red). All the job figures are expressed as percentages of their 2000 values.*

What the chart shows is that for the nation as a whole, employment dipped a bit in the relatively mild recession of 2001, but then grew steadily until 2007. In 2008, with the onset of the Great Recession, it fell sharply. Over this same period, the Montana economy did quite a bit better. Our job growth was significantly faster than the rest of the country's, and we avoided the 2001 downturn completely. Of course with the Great Recession, Montana job growth turned into job loss, but not quite as badly as it did elsewhere in the country.

Now here's the question: between 2000 and 2007, were Montana businesses growing so fast because they were free of  oppressive government regulation? In 2007 did regulatory barriers suddenly leap up and ensnare them? Well, of course not. Before 2007, Montana businesses showed that they could function very well indeed in a regulatory, tax and business environment very much like the one they have right now.  What changed in 2007, and led to the reversal of job growth, was not any change in the regulatory environment. It was the collapse of the US economy, on which the health of Montana's economy heavily depends. And if candidates tell you that by scrapping regulations (and presumably all the protections those regulations provide) they can reverse the effects of the biggest economic downturn since the Great Depression, run the other way.

What about the other element in the Republican formula: natural resources? It's a long story, but it's pretty clear that before 2007, Montana enjoyed rapid job growth despite the fact that employment in natural resources (agriculture, forest and wood products, mining, and primary metal products) was, at best, stagnant. My former colleague at UM, economist Tom Power, has said that counting on natural resources to drive economic growth is like trying to drive a car looking in the rear view mirror.  It's thinking that what worked in the past will work in the future. It's time to look through the windshield.  There's a changing world out there presenting us with new opportunities. Those were the opportunities Montanans seized to create job growth and economic vitality before the recession. When are the Republican candidates who want to be governor of Montana going to understand that?

* I prepared this chart using data from the US Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. You can download this and lots of other data from this source by clicking here.

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