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Cutting traffic congestion will boost Minnesota’s economy

This is my second post this week about productivity. As an economist, I make no apologies for that. Increased productivity is the essence of economic growth. As Paul Krugman put it, “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” The same goes for states like Minnesota.

Productivity and economic growth (again)

Increased productivity is the ability to generate more output from the same inputs. If improved productivity means that one worker can do the same work as two use to, that frees one of those workers up to do something else, to provide a new good or service in the economy.

There have been gloomy predictions over the last couple of centuries that this process will end with large bodies of unemployed workers and stocks of unsold goods. After 200 years, we are not there yet. Instead, we see low unemployment and more goods and services available than ever before.

Congestion and productivity

So, while anything that enhances productivity helps economic growth, anything that blocks it slows that growth. Sadly, as we show in our new report “Twin Cities Traffic Congestion: It’s No Accident”, congestion resulting from bad local government policy is doing just that.

The report’s author, Randall O’Toole of the Cato Institute, explains how the Metropolitan Council and MnDOT’s obsession with wasteful light rail schemes and neglect of the area’s roads has seen traffic times increase and caused congestion. O’ Toole writes

“Thanks to congestion, the average driving speed in Minneapolis is less than 30 miles per hour, whereas it is more than 40 miles per hour in less congested cities such as Kansas City and Tulsa.

This means delivery companies such as FedEx and UPS must buy more trucks and hire more drivers. Manufacturers must maintain increased inventories of raw materials due to uncertain delivery schedules. Retailers and wholesalers must build new distribution centers, some of them outside of the Twin Cities, to avoid Twin Cities traffic. Hospitals and other healthcare providers must maintain larger inventories of medicines and other medical supplies. Utilities must hire more crews to maintain electrical, telecommunications, and other services.”

Reducing congestion would allow FedEx and UPS to make more deliveries with each truck and driver. Utilities could make more repairs per worker. Manufacturers and hospitals would be able to reduce spending on storing inventory. Retailers and wholesalers would be able to make use of economies of scale by using larger distribution centers farther away. Productivity in the Twin Cities would increase and so would economic growth.

In the economic recovery since 2009, US productivity growth has disappointed and our state has been no exception. Boosting it is the biggest challenge we face in terms of growing the economy and raising wages. A change in policy in the Twin Cities towards supporting an agenda of growth will leave us better off.

John Phelan is an economist at Center of the American Experiment.

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