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An Economist’s View: Dayton’s rich-vs.-the-rest economic view is simply wrong

This op-ed appeared in the Duluth News-Tribune on June 13, 2017.

Embattled Gov. Mark Dayton has been on the road lately. On May 30, after a marathon legislative session that went into overtime, he finally signed off on a state budget for the next two years. Then, suddenly, he yanked funding from the Legislature, saying he would reinstate it only if legislators agreed to renegotiate the deal they had just reached with him. After such shoddy maneuvering, you can’t blame him for high-tailing it out of town.

As reported in the News Tribune, Gov. Dayton told Duluth media that the Republican majority in the state House and Senate were “once again (putting) the priorities of corporations and wealthy individuals over the priorities of real Minnesotans.”

This was nothing but the sort of divisive, us-vs.-them rhetoric the governor and his supporters would deplore had it come from a Republican. Why do Minnesotans become less “real” as their wealth increases? Is Gov. Dayton, himself one of the rich thanks to his family inheritance, less “real” than the guy at Dairy Queen?

As well as being distasteful nonsense, such ranting is poor public policy. Gov. Dayton is only reinforcing a rich-vs.-the-rest message.

He has been taking his economics from the wrong economists.

In the 19th century, Karl Marx argued there was an inherent clash between labor and capital. This clash, he argued, would only be resolved by revolution and labor’s victory.

But another 19th-century economist, less well known, had the opposite idea. The Frenchman Frédéric Bastiat argued that capital and labor were less productive individually and needed each other. The interests of one were the interests of the other — what he called “economic harmonies.”

To see what Bastiat meant, and why Dayton is wrong, try to imagine digging a ditch with either capital or labor alone. Send a laborer into a field with her bare hands and she won’t produce much of a ditch. Throw a shovel, a capital input, into the field, and it will just lay there. But give the laborer the shovel and you will get ditches.

Won’t mechanized ditch diggers come along and put some of these laborers out of work? That is the current worry about robots taking jobs. Yes, it will put some of the laborers out of work, but the remaining ones will upskill to use the new machinery; they will be more productive and earn higher wages. And those who do lose out here will be reemployed elsewhere in jobs that do not exist yet. A recent report said that robots could take 38 percent of American jobs in the next 15 years. That’s 38 percent of existing jobs. This is why, despite the long history of predictions of increased productivity leading to rising unemployment, we actually see greater productivity and low unemployment.

There is another way to look at this economic harmony. Whatever may have been the case in the 19th century, in America today, the capitalists and laborers are often one and the same. Via 401ks, at least 52 million Americans are capitalists. They own stocks and bonds as part of their retirement portfolios. These schemes have done more than political redistributors of wealth to put the ownership of the means of production into the hands of American workers.

It would be easy to be hard on Gov. Dayton, a man who inherited his fortune, for blasting those who, for the most part, have earned theirs. The truth is that he simply has the false notion of the economy as a zero-sum game, a notion shared by so many policymakers.

The economy is a positive-sum game, however. We can all get better-off together. We will not make ourselves better-off by bashing others.

John Phelan is an economist for the Center of the American Experiment (AmericanExperiment.org) in Golden Valley, Minn.

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