Minnesota’s economy is doing better than expected, but can it stay that way?

Minnesota’s economy is doing better now than I thought when I started writing this column six months ago.

You may have missed it, but on Friday we got the state’s first really big economic data for 2023. Minnesota’s GDP grew 2.2% in the first three months of the year.

That beat national growth, which grew 2%, a figure that was a surprise in itself. Put on the party hats and dance a little. Rarely in the last 20 years has Minnesota’s economy grown faster than the country’s.

It was the middle of winter, but in the first quarter farmers received their final payments for the work they had done last year. And their income — the second-highest on record — was a key driver of overall growth at the start of 2023 in Minnesota and surrounding states.

As in the past, periods of drought led to higher commodity prices, which proved lucrative for the state’s commodity producers. That can happen again this year.

But don’t dance too much. While the most recent growth rate is better than the 1.2% growth that Minnesota saw for full-year 2022, it’s still below the 3.4% average over the past decade.

President Joe Biden is touting the country’s growth, saying it is outpacing other countries. But many people still fear a recession is imminent — and may even be necessary to cool inflation.

In about a year, we’ll know how Minnesota fared in the face of today’s opposition.

Consumer spending will soon take a hit as young adults across the country, including half a million in Minnesota, begin paying off student loans that have been on hold since 2020. That means the Supreme Court’s rejection of the Biden administration’s $10,000 cut on those loans on Friday The resistance is holding up longer.

However, this weekend also marked the start of the new budget year for the state government, which is making the biggest leap in spending since the 1970s. This will certainly have a positive impact on the Minnesota economy.

Even so, I still believe lawmakers did the wrong thing by spending almost the entire record surplus and increasing overall spending by almost 40% over the next two years. They should have returned more of that surplus to taxpayers and allowed them to funnel the money through the economy.

Many people overestimate the role elected leaders and governments play in business. And some of that is happening now with the more assertive role that Biden has given the federal government in the US economy, a sort of “New Deal lite” or modern industrial policy.

Although this is a marked change from the 1980s and 1990s, Biden is building on the crisis-driven economic interventions of the George W. Bush and Barack Obama administrations and Donald Trump’s cherry-picking approach to economic investment.

Biden administration officials have made it clear that the type of economic growth is more important than the amount. And they believe the government should step in when the private market fails. But their view of failure is so comprehensive that, as Greg Ip noted in The Wall Street Journal, there is “virtually no limiting principle for government intervention.”

“A modern American industrial strategy identifies certain sectors that are fundamental to economic growth, are strategically important from a national security perspective, and in which private industry alone is unable to make the necessary investments to fulfill our national ambitions secure,” Jake Sullivan, the president’s national security adviser, said in a speech in April.

That’s why Secretary of Commerce Gina Raimondo and Senator Amy Klobuchar were at Normandale Community College in Bloomington last week, speaking to local high-tech leaders and educators about the Chips and Science Act, which plans to invest $50 billion in federal money over the next decade will send to chip manufacturers.

Listening to them, I came to the conclusion that this support is wise, especially knowing that Asian governments have been helping their domestic chipmakers for a long time.

But then I asked myself: Why does that seem okay to me when the big leap in Minnesota’s government doesn’t? The answer is that the Biden administration’s moves, while large by recent norms, are much smaller in proportion than what happened in the state Capitol this spring.

The $5 billion a year for chipmakers isn’t nothing. But it’s only a fraction of the $50 billion that US chipmakers spent on research and development last year — and the tens of billions more they spent on factories and equipment. It’s also a small drop from the roughly $6 trillion the federal government spends each year.

One goal of the Chips Act is to support the construction of about a dozen chip factories in the United States. However, Raimondo and Klobuchar emphasized that more workers are currently needed in chip factories. “This is a growing market for students,” Klobuchar said.

That’s really the message that counts, because Minnesota shouldn’t count on the government or drought for growth.