Breaking down Rick Perry’s ‘Texas miracle’

at 01:12 PM ET, 08/15/2011


(PAUL MOSELEY/STAR-TELEGRAM)
At the heart of Rick Perry’s presidential pitch is a simple, seductive statistic. Since 2009, 37 percent of all new jobs in the United States have been created in Texas — even as the rest of the country has been limping through a weak recovery. Richard Fisher, president of the Federal Reserve Bank of Dallas, has credited Texas’ success to its conservative policies: no income tax, loose regulations, tort reform. And Perry hasn’t been shy about seizing credit, dubbing it a “Texas miracle.”

Granted, the numbers don’t look quite as miraculous on closer inspection. In June, Texas’ unemployment rate was sitting at 8.2 percent, better than the national average, yes, but worse than in blue states like New York and Massachusetts. And Texas’ job surge hasn’t necessarily led to high-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.

Even so, Perry has a point: Since the crash, Texas hasbeen adding many more jobs than any other state in the country. So why, exactly, has that happened? Here’s a rundown of the prevailing theories:

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 high birthrates among 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, sunny 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 hassles. The results? In 2009, Texas ranked 40th in the country in median home prices. Laissez-faire housing policies deserve a hat tip here.

That said, it’s hard to see how Perry could scale up these successes nationwide. It’s one thing for a single state’s population to grow at a faster-than-average rate by siphoning people from elsewhere, but how do you do that for the United States as a whole? Open the borders and allow more immigrants in? Convince parents to have more children?

Lax business regulations. It’s also possible that some of Texas’ job gains are due to relatively light business regulations—outlets like CNBC regularly rank Texas the top state for businesses. 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 claim 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.

Tort reform. On the other hand, Perry can claim credit for a 2003 law that caps malpractice awards. “We’ve had the most sweeping tort reform in the nation,” Perry said Sunday, observing that Texas has added some 20,000 physicians since the law was passed. Technically, he’s right, though critics of the law, like the American Association for Justice, which represents trial lawyers, counter that the number of doctors in the state has simply been growing at the same rate it always has. (On a separate note, Texas’ tort reform doesn’t seem to have helped control health care costs — since 2003, Texas’ Medicare reimbursements have actually been rising faster than in the rest of the country.)

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 to begin with, thanks to relatively high property taxes (which discouraged speculation) and fewer constraints on new housing supply (which prevented prices from ballooning). 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 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 tick up 10 percent, Texas gets a 0.5 percent GDP boost. As Erica Grieder points out, between June 2010 and June 2011, the oil and gas industries added 28,600 jobs in Texas, or roughly 13 percent of the state’s total. It’s not the whole story, but it’s a hefty 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 coming to a close: After facing a projected $27 billion deficit for 2012-2013, and with no further stimulus in sight, Perry and Republicans in Austin resorted to 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.

All in all, the Texas miracle is a complicated story. Some of the state’s successes — in attracting low-wage workers and businesses from other states — could prove difficult or impossible to replicate on a national level. On the other hand, Perry could credibly speak out on housing policy and the need to rethink local zoning restrictions. Or he could always propose a massive new federal stimulus program, of the sort that has kept Texas afloat over the last two years — though, for some reason, that idea hasn’t made its way into his stump speech yet.

 
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