Breaking down the‘Texas miracle’
Breaking down Rick Perry’s ‘Texas miracle’ – Ezra Klein – The Washington Post.
Since we have all been hearing about the stellar job growth that Texas has experienced since the end of the recession, I thought it fitting to unearth some of the fundamental reasons why this has been happening. According to most statistics, ~37% of all new jobs created in the United States since 2009 have come from Texas.
Although this article focuses on whether or not Rick Perry can take credit for much of the job growth, I found the hypothesized reasons behind the growth most intriguing. I’ll let you figure out the political stuff on your own. Here are some of the facts about Texas employment and job growth according to the article:
In June, Texas’ unemployment rate was sitting at 8.2 percent, better than the national average, but worse than in blue states like New York and Massachusetts. And Texas’ job surge hasn’t necessarily meant well-paying jobs: The state boasts the highest percentage of minimum-wage workers in the country, and its per capita income still sits below, say, California’s.
Rapid population growth. This is Paul Krugman’s explanation for the Texas miracle, and it’s one of the most straightforward. Since 1990, Texas has been adding people at twice the rate of the rest of the country, partly due to fast-growing Hispanic families but partly due to migration from other states. The influx of people means higher demand for services, which naturally creates more jobs. It also pushes down wages, which attracts companies from elsewhere.
But why are people flocking to Texas? It could be the state’s low tax rates—according to the Tax Foundation, the average Texan spends just 7.9 percent of his income on state and local taxes, compared with 9.8 percent nationally. It could be the warm weather. Or it could be Texas’ remarkably low housing costs. As Harvard economist Edward Glaeser has found, Texas’s biggest cities are some of the easiest places in America to build, with relatively few land-use and zoning headaches. The results? In 2009, Texas ranked 40th in the country in median home prices.
Lax business regulations. It’s also possible that some of Texas’ success comes from relatively loose business regulations—outlets like CNBCregularly rank Texas the top state for business. On the other hand, Texas has been a low-tax, loose-regulation state long before Rick Perry ever came along, so it’s hard for him to take too much credit. What’s more, that combination hasn’t always been a stunning success. Between 2008 and 2010, after the U.S. economy collapsed, Texas’ unemployment rate actually rose faster than in that famed liberal haven, Massachusetts.
A less-severe housing bubble. As Alyssa Katz detailed last year, Texas weathered the housing collapse much better than nearby Arizona and Nevada. In part, that was because Texas had a much smaller bubble in the first place, thanks to relatively high property taxes (which discouraged speculation) and fewer supply constraints (which prevented prices from rising too high). But Texas also benefited from stringent regulations that limited home-equity lending and restricted “cash-out” refinancing — a common practice in hard-hit states like Florida and California. As a result, Texas didn’t fare as badly when the housing market tanked: Only 6 percent of Texas borrowers were in or near foreclosure, versus a national average of nearly 10 percent.
Oil and gas industry. Other aspects of Texas’s success come down to plain old geological good fortune. The state is home to large oil and gas reserves. As oil prices have climbed over the past decade, new rigs have been springing up everywhere, while the revival of shale gas has led to economic booms in north Texas and the Eagle Ford Shale near San Antonio. The Dallas Fed has found that, every time oil prices rise 10 percent, Texas gets a 0.5 percent GDP boost. As Erica Grieder points out, between June 2010 and June 2011, oil and gas added 28,600 jobs, or roughly 13 percent of Texas’s total. It’s not the whole story, but it’s a sizeable chapter.
Stimulus. In the past two years, according to the Austin American-Statesman, almost half of the state’s job growth came in the education, health care, and government sectors. Notice a pattern? These are all sectors that depend, at least in part, on government support. And Perry has taken full advantage of public spending—he managed to fill in Texas’ previous budget shortfall by taking $6.4 billion in Obama stimulus money, more than all but two governors. But that’s all about to change: After facing a projceted $27 billion deficit for 2012-2013, and with no further stimulus in sight, Perry and Republicans in Austin pushed through sweeping cuts to Medicaid and education in their most recent budget. Not only could that hurt a state where one-quarter of residents are uninsured; it also doesn’t bode well for jobs.
NeilS – Of course the economic picture in Texas is a very complicated one, but seeing all the pieces of the puzzle in one place makes the picture much more clear. Regardless of what Rick Perry wants to claim credit for, we can at least see what underlies the statistics we have all been hearing.