What will become of Nevada’s economy?

 For most of our history, Nevada has hitched its cart to just one industry at a time. First, that industry was mining, as prospectors looking for gold in California spilled back this way. Then it was easy divorce. Then, after the 1930s, it was gambling. Most recently it was construction, to build houses for Californian taking advantage of their housing bubble, which incidentally brought the bubble here. Eventually we were building houses for construction workers who were coming here to build houses.

Now folks ask about whether gaming or construction will bounce back. Or they talk about renewable energy, but I am skeptical that it will create many jobs for us. I think most of that business will go to out-of-state firms with the expertise, and most of the jobs will go to firms producing the products in other states, and workers who move here only for installation and then return home.

I think there is no silver bullet. I think gaming may bounce back a little, but it is a competitive industry now and we can’t ride that horse alone. There is no easy way out.

Instead, we have to do the hard work, and it will be a long slog. We can’t bribe firms to move here with no taxes, but we can attract them to come here if we can create a workforce that would make them profitable. We have to stop thinking of education as a consumption good, and instead see it as an investment good. The payoff will take time, but if you look at the best-performing states, and the best-performing countries, over the long run, you will see that education and worker productivity matter a whole lot more than tax rates.

And we can’t know what the industries of the future will be. It was easy when we could legalize industries that were prohibited elsewhere, or when we have a natural resource like the Carlin Trend or the Big Bonanza. But in a competitive world, the new industries will come from new ideas we have yet to imagine. So the resources we need are the people who can imagine them, and the workforce we need to implement them.

Which brings me to Nevada’s budget crisis. What about that?

I think we’ve been looking at this the wrong way. I think we let our political tribalism blind us to the fact that we have more in common than not. We are like Giants fans who choose to hate the other team, and forget to just love baseball. Good plays can be made by players on both teams, and good policies can come from both parties. Bad policies too.

We all want Nevada to prosper. We all know private markets are crucial. And we all know that some things can’t be done by private markets, and the public sector is crucial too. We all want the public sector to hire good people to do the work we need done, just like we all know we need good people for the private sector too.

So as I said before, we should stop thinking of the state as a luxury good, as a consumption good, and instead think of it as an investment good. Businesses don’t prosper by saying they can’t afford to invest, and neither can the state.

People say you can’t spend your way to prosperity, and you can’t solve problems just by throwing money at them. Sure, that is right. But we also can’t cut our way to prosperity. A business that did just that would not remain in business long.

To achieve this, Republicans and Democrats in Nevada will have to work together, and not retreat to their partisan positions and their tired old slogans.

Republicans need to concede that we might need to find new revenues to make up for the ones few people are paying any more. No new taxes is just bullshit that politicians say to get votes, but it is not a good policy.

We need to realize that the state government is not the federal government, and it is also different from local governments. Governments have increased demands during bad economic times, but decreased revenue. State governments have a balanced budget constraint, and ours is also the guarantor of K-12 spending when local revenues decline. This is a recipe for economic destabilization.

While we are at it, we need to figure out a better tax structure than the one we have. An efficient tax has low rates but a broad base. Getting the lion’s share from a declining industry like gaming is bad policy. Taxing only merchandise but not services, and only merchandise sold in brick and mortar stores, is bad policy. Taxing only payroll is bad policy.  And taxing only people from out of state is just irresponsible.

Similarly, Democrats need to concede that there are bad policies we have enshrined in state law that can make our state budgets grow too fast in the future. The university system has a defined contribution for retirement, not a defined benefit, and the rest of the state government should move towards that too. We need to take steps to reduce the ever-expanding costs of providing medical care. Collective bargaining rules have meant that some public sector employees are paid more than labor market conditions would require, especially for some sectors of local government, and this needs to be addressed. And tying pay to performance is usually a pretty good idea too, at least if we can measure performance.

Pay should be about markets, not fairness. How much do we need to pay to compete for good people, to attract, retain, and motivate them? We may find that some state (and especially local) employees are overpaid, but we will also find some are underpaid. It cuts both ways.

We need to start by deciding what it is we need the state to provide, and figure out how to provide it the best we know how. Then we need to figure out how to pay for what we need. We can’t just stop providing human services, especially when unemployment is so high. We can’t abandon our responsibility to educate our citizens, and we can’t simply empty out our prisons, stop trying to prevent crime, or stop putting out fires.

What type of society do we want to create, and what type of Nevada would make productive people want to live here? How can our K-12 system compete? How do we create universities that can both produce the research our state needs, and be an attractive magnet for our best students to remain in the state?

If we aren’t willing to do this, then we ought to all just give up now and move. The last person who leaves can turn back in our statehood. But I love Nevada, and I sure hope we don’t take that approach.