A Cold Detroit

Today's economic vocabulary lesson is about two terms or phrases that every good economist should know;

Brain drain and capital flight.

As you know your Captain left Minnesota and he left for two reasons. He left because of the harsh winters (15% the reason) and left because of Minnesota's knack for being consistently liberal (85%). He would have liked to have stayed, his friends were there, he had a nice little bachelor pad, but in short the overall environment was becoming too hostile and too parasitic for him to tolerate. He suffered bouts of depression and literally felt trapped as where he really wanted to live (out West) just didn't have the job base the Twin Cities did.

Now, leftists can go ahead and complain and say I'm a cry baby or "good-riddance," but none of that changes the fact that I did indeed leave because the political climate was too liberal. That was my choice and those were my reasons. You have to deal with that.

But the left may want to hold their criticisms and mockery for just a little bit, because as this short little piece points out, something is wrong with Minnesota. Its housing market is not recovering as fast as the rest of the country. Matter of fact, it's ranking with states like California, Michigan, Nevada and Florida. All of which were notorious for having property bubbles, unlike Minnesota.


Now people will speculate and opine and theorize, and if you are on the left you will give no real serious consideration as to the genuine causes of this problem. You'll simply blame the Tea Party or George Bush or Pawlenty or what have you. But, again, why you might want to hold your criticism and mockery of me, I have an uncanny track record of being right on all things economic. So maybe you could mute the "hey hey, ho ho, capitalism has got to go" sophomorities and listen, because I may just be right once again.

Understand Minnesota and Minnesotans PRIDE themselves off of having a disproportionate amount of fortune 500 employers. They boast 3M, General Mills, Best Buy, etc. etc. And in the olden days when you could go to the U of MN, major in chemistry, pick up a job at Medtronic and all would be well, that was fine. And although Minnesota has more or less consistently voted democrat due to its Scandinavian heritage, back then people abided by the honor system. You didn't go on welfare unless you needed it. Education WAS key to your success and we invested in it heavily. You had the church or your family take care of you. And a stern amount of Norwegian shame was brought upon you if you stayed on the dole too long. And everything work until (as with what happens with all nice socialist utopias) not so honorable people started taking advantage of the system.

People moved in from other states where their welfare benefits were not so generous. The next generation decided they would get an education, but not in things 3M, General Mills or Polaris needed. They voted for more and more social programs and touchy feel good stuff. They built atrocious buildings for government housing such as Cedar Riverside and other eyesores. The cities decided to start spending more money on non-essential items to the point today they were about to spend $50,000 per drinking fountain to promote "art." The U of MN no longer served the students and jacked up tuition much higher than inflation. And the students might have complained, but they were told it was evil republicans that were cutting their spending. But it didn't matter anyway because Jimmy was just going to major in sociology which didn't cost as much as a degree in "computer science." Besides, that "math stuff" was for Asian kids, not good ole suburbanites from Bloomington and Eden Prairie. And mercy me almighty, did we not invest in the "chilllldreeeeen." Always more money for public schools. Never enough. But that was good because they were our future. They were going to become future teachers to teach future children who would in turn also become future teachers to teach future children, because children were the future and apparently teaching held merit unto itself and never needed to be translated into genuine economic production.

The ultimate result, Minnesota government spending went from 6% GSP to 12%. And even that hides the true costs as municipalities regularly increased property taxes at multiples of the inflation rate (your Captain had the honor of having his property taxes increase by 300% in 10 years in Minneapolis). But the larger point is that public sector grew at the expense of the private sector.

Now, normally your Captain would go on and cite this as the cause of the lack of economic growth and the decline in property prices. But that would be only half fair. For you have to understand the public sector pulls from the same pool of people for its employees. And what the Captain is finding out as he gets older and pulls more data, it isn't necessarily the public sector that is the core of the problem, it's the quality of the people. After all, whether you work in the public sector or the private sector, this still is a democracy. And Minnesotans, dutifully and regularly voting in higher taxes, more government spending and with the help of the always-willing-to-indoctrinate University of Minnesota, a very anti-corporation, anti-American, anti-capitalism psychology. It didn't matter where you worked. Minnesotans with regular consistency kept voting to shoot themselves in the foot.

Of course, if you're pulling from the same pool, that meant the private sector was also as incompetent and corrupt and the public sector. And mercy was it.

Yeah, US Bank might have hired you back in 1965 (when it was First Bank) if you graduated from the U of MN. But by the 1990's not ONE investment banking firm would consider you unless you went to an Ivy League school. Sure 3M might have hired some local chemical engineering majors in 1968, but not now. Most of their growth and expansion has been done outside Minnesota. And of course you could land a job at the second largest private firm in the country, Cargill if your name was Smith. But now, unless you are a Cargill or know a Cargill or know somebody who works at Cargill, good luck. In one generation, Minnesotan employers had gone from hiring people based on skill to hiring people based on connections.

But forget nepotism and cronyism. Let's just assume there still are companies out there who just want to hire a good ole Joe and don't care about who they are or who they know. Certainly the average Joe working his way out of lower-middle income Fridley stands a shot at getting a job was Wells Fargo downtown. right?

No no no.

You see, we can't be hasty. We can't just "hire somebody." We need to follow rules. Procedures. Policy.

We need HR.

Though not unique to Minnesota, HR has played a vital role in ensuring the average Joes and Janes of Minnesota don't make it. The connected networked ones can simply by-pass HR. But no you middle income types from Richfield! Oh no. No, you have to go and answer stupid questions that would never have been conceived of back in 1957, AND coincidentally have no right answer and have proven not to have any predictive value in you future performance as an employee (though they have proven to give power trips to power-hungry 20 somethings who found accounting and finance to be too difficult of a business degree to attain).

And even then the decay within the private sector isn't fully accounted for. And that's the precise word to use. Just general "decay."

For as the quality and caliber of Minnesotans tanked, is it any surprise you would have amoral people not only working in the ranks of corporate America, but soaring through those ranks? And gee, what industry is historically prone to attract scammers and schemers who are always looking for a short cut and may have no moral qualms about the economic ramifications of their actions? Could it be...hmmmmm..... BANKING?????

Hate me if you will.

Think I'm arrogant and cocky (which I am).

Call me every name in the book.

There is one simple fact, conservatives and liberals, democrats and republicans, Minnesotans and non-Minnesotans all have to accept about me;

If I was in charge of the banks in Minnesota (if not the nation)

Minnesota (and the nation)

would

not

have

the

housing

and

economic

problems

it

has

today.

You wouldn't be facing 9% unemployment, perpetually dropping housing prices and a stagnant economy. You wouldn't have your property taxes jacked up 300% in a decade. You wouldn't have had your tuition jacked up 10,000% since last week. But of course, me theorizing about what I could have done if "I were king" is a pointless exercise. I was never in such a position of power, I wasn't even close to being in an influential position of power. I too was the average Joe from Fridley. So what's a guy to do? The only thing he can do.

Leave.

But here is where the point comes full circle, and permit me just another few ounces of arrogance.

Is it a good thing one of the few guys who could have stopped the housing crash in the state is leaving? I know some of you are happy I'm leaving. These are the same people who cannot explain why we just can't "create more government jobs" to get Minnesota out of its economic malaise. But politics aside, is it in the best long term interests of Minnesota to have people like me leave? And the corrupt bosses who are to blame for the crash stay (because they know to work the system).

The reason I ask is it's not just me. It's others.

Anecdotally, I know many friends that have left.

Nick, arguably the best cell phone salesman you could ever meet. Hard working, honest. Not only would he have made a great employee (and he did), he would have made a great husband. He's in Kansas now.

Chad, another friend of mine who took its IT genius to North Carolina and never looked back. Brought his wife with him and they now have not just a nice house, but a nice computer business.

Dustin, hard working statistician. Got fed up trying to find reliable employment here. Headed again to Kansas.

And forget these guys. I know tons of people, all in their 20's and 30's who just want out of Minnesota. They can't find jobs, and if they did find jobs, they run into the corrupt, inefficient, bureaucratic BS that didn't exist in Minnesota in the 50's and 60's.

But all my anecdotes are irrelevant. If you want to look at the state demographers data or census data, look and see how many of the youth are sticking around. And we're not talking welfare recipient youth who are just going to stay around, spit out some future welfare collecting youth and demand more taxpayer money for the "chillllldreeeen." We're talking the GENUINE economic future of Minnesota. The STEM-educated 20 and 30 somethings. The ones who will work. The ones with purchasing power. The ones who, even without a degree, just want to work. And the veritable geniuses who could have prevented things like economic collapses. They're leaving (you look up the data, I'm too tired right now).

Of course the stewards of Minnesota have failed to keep the state up as a viable economic entity. And while at the age of 18-22, we may have been sold on how "cool" it was to go to "Uptown" or how awesome it was to attend "the U," in the end when we want to work, produce something of value, buy a house and not be taxed every step along the way let alone embark on the impossible lottery of maybe catching the HR representative in a charitable mood or bumping into Tad Piper, why on god's green earth would we stay in Minnesota?

And now you understand our two vocabulary terms of today.

Brain drain is when your smartest people leave. Either because their employment prospects are too low, or they know that at the income they'd make you tax them too high, they leave. And they take not only their production with them, but their spending, their tax base dollars and (quite honestly) their exemplary law-abiding citizen behavior.

Capital flight is when money flees out of your country, state or city in search of better returns. 3M's CEO may have said something about this, but I'm sure you MPR folk chalked this up to him just being an "evil greedy capitalist" and cannot understand why 3M has expanded overseas and not here.

In both cases, you now have the key to understanding why housing prices in Minnesota are more reflective of Detroit and Las Vegas than it has been in the past.

You're losing your producers. You're losing your contributing members of society.

And how that translates economically (and I'm really trying to make this simple so you understand) is that you have less dollars chasing after homes which drives their prices down (of course the banks of Minnesota flooding your market with housing didn't help either, but eh, don't listen to that stupid kid from a non-Ivy league school).

In the end I fear we can look to Detroit as the ultimate outcome for Minneapolis. You would think the citizens would realize how anti-business democrats, anti-corporate policies and suffocating EPA and environmental regulations soon enough to prevent the utter destruction of a town, but apparently not. Apparently the propaganda of socialism tastes so sweet and is so intoxicating you are completely oblivious to it destroying your neighborhood around you. You are completely oblivious to how it destroys your life and your family. And it is so powerful, you can't understand how anti-business, anti-capitalism, anti-individual policies suffocate, if not, eliminate growth.

But for some people that connection is very clear. And those are the people with the brains and the capital. Those are the producers and innovators. Those are the entrepreneurs or just plain ole hard workers who are willing to support themselves and produce something of value. And for all you Minnesotans who are those people, do yourself a favor.

Get the hell out before it becomes a cold Detroit.

And of course, enjoy the decline!