Friday, January 7, 2011

Krugman Messes with Texas

Paul Krugman's piece on the state of the economy and budget in Texas hits the Lone Star State over the head for having an unremarkable unemployment rate and a sizeable budget deficit to fill.  He infers from these two pieces of information that claims of a boom economy are overblown and that the state's conservative policies are a failure.  I'm sure that folks out there have overstated the Texas case.  The recession hit Texas, too, costing the state jobs and tax revenue over the last two years.  Having said that, though, Krugman overstates his countercase as well.

On jobs, Krugman is correct that unemployment in Texas is better than average, but not substantially so:
And when you look at unemployment, Texas doesn’t seem particularly special: its unemployment rate is below the national average, thanks in part to high oil prices, but it’s about the same as the unemployment rate in New York or Massachusetts.
But that's only half the story.  Texas's population has boomed in recent years, a trend that may have accelerated in the last two years.  As R.A., blogging at The Economist, points out, Texas has added roughly 650,000 people to its labor force since December of 2007.  Since the bottom of the recession last year, Texas has added 200,000 jobs.  To put that in perspective, R.A. notes, "About 20% of the jobs created in America last year, 200,000 or so, were created in Texas."  So, Texas is rebounding faster and bigger from the recession than the economy as a whole and certainly more so than, say, New York, which Krugman sets up as a point of comparison, which has added something like 60,000 jobs during the recovery, less than a third produced in Texas.

Krugman is also right about the deficit in Texas.  It's there and its big, around $25 billion.  The deficit emerged for the same political reason that it did in other states.  The legislature added a lot of new spending during the last expansion that can't be supported by the recession-savaged tax base.  Krugman seems doom in the process:
Given the complete dominance of conservative ideology in Texas politics, tax increases are out of the question. So it has to be spending cuts.

Yet Mr. Perry wasn’t lying about those “tough conservative decisions”: Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance. It’s hard to imagine what will happen if the state tries to eliminate its huge deficit purely through further cuts.
I don’t know how the mess in Texas will end up being resolved. But the signs don’t look good, either for the state or for the nation.
Texas operates under a constitutional requirement of a balanced budget, so money in will be made to equal money out through some combination of tax increases and spending cuts.  I agree that Texas is likely to rely more heavily on the latter than the former.  That's about where the agreement ends, though.  Krugman seems only doom and despair and a state economy that isn't adding jobs fast enough to keep up with its growing population.  I see a state drawing hundreds of thousands of people in who are smart enough to know that they are much more likely to find and keep a job here in Texas over the foreseeable future than they are in Michigan, New York, California, or most of the rest of the country.  As the national and world-wide economy gradually and fitfully continues its recovery, I think I can lay my hands on a crisp one dollar bill to bet Professor Krugman that Texas's economy grows more and adds more jobs proportional to its population over the next five years than the American economy as a whole.

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