On the Road Again

January 11th, 2012 at 11:16 pm

Talking about the Texas economic model, the failure of supply side economics, and fiscal policies in the states.

When Gov. Perry was heating up, there was a lot of back and forth on the validity of the so-called Texas model: allegedly low regulation, no “interference” from DC, low taxes and spending.  Now, Perry turns out to be a weak debater and you don’t hear so much about the model one way or the other.

Still, it’s an important challenge to those of us skeptical of such an approach.  The counterarguments from a few months ago were pretty persuasive: the low spending was linked to dubious distinctions, like the highest state share of adults without health insurance, the second highest for kids, the most adults without HS diplomas (obviously, immigration plays a role in these outcomes, but it’s not the whole story), a bunch of government jobs in the mix, billions in help from the Recovery Act, and particularly notable, a more tightly regulated housing finance system that helped Texas avoid a big housing bubble.   So more myth than model (visit the Texas think tank Center for Public Policy Priorities at www.cppp.org for solid analysis of these issues).

But one argument against the model always seemed a little weak to me: the idea that high population growth explained Texas’s better job creation record (the high share of gov’t jobs seemed a stronger critique).   I mean, it’s true up to a point that more people means more consumption, housing, etc. and that’s going to be associated with job growth, but supply doesn’t create demand, so I wondered what was up with that.

The question is, has TX employment grown faster than TX population (implying rising employment rates), because that would be impressive and would buck the national trend?  Well, I finally took a look at the employment rates and saw…nothing too miraculous.

Source: BLS, hat tip, PM.

The trend in TX employment rates in the 2000s looks like that of the rest of country—slowly headed in the wrong direction.  TX fared better in the Great Recession, but this was due to the “horrors” of market regulation—the states with the worst employment outcomes were the ones with the biggest housing bubbles, and regulated TX largely avoided that fate.

The comparative wage story’s worth a look too.  Here, courtesy of data produced by the Economic Policy Institute, you see the costs of the low-road policy agenda.  Over the past three decades, real wages in TX performed worse than that of the nation, with significant declines at the low end (10th percentile) and stagnation in the middle—3% in 30 years–and relatively large gains (though smaller than those of the overall nation) at the top of the pay scale (90th percentile).

Source: Economic Policy Institute, hat tip, DH.

Why is CO in there?  Because that’s where I’m going next, and I have some pretty interesting data to share on state fiscal challenges.  I’ll leak some of that tomorrow.


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One comment in reply to "On the Road Again"

  1. Jean says:

    Very interesing. Especially the part about “a more tightly regulated housing finance system that helped Texas avoid a big housing bubble”. Crazy how the spin so often misleads.