The comparatively resilient Texas economy continues to draw attention. Following earlier pieces by The Economist and CNN/Fortune, the Atlantic has a new piece grappling with the economic phenomenon that is Texas. What makes this discussion really interesting is when the Texas numbers are matched up against the other big states, particularly California. And it is always interesting to see Texas compared to Michigan, which seems to be its mirror opposite on many levels. Maybe the relatively good economy in Texas explains in part the reluctance of Dallas Fed President Richard Fisher to call for more aggressive monetary policy action to counter the effective tightening of U.S. monetary policy.
Showing posts with label Regional Economic Activity. Show all posts
Showing posts with label Regional Economic Activity. Show all posts
More on the Resilient Texas Economy
Texas versus California
The regional variation in economic performance during this Great Recession has been fascinating to watch, especially here from Texas where the economic slowdown has been relatively mild. This state's economic performance has been especially remarkable compared to other big states like California. In this case, the contrast can be easily seen by comparing total employment in California and Texas. Below are the employment numbers for the two states along with some added commentary. First up is Texas:
Now California:
These striking differences naturally lead to discussions of why so much regional variation? Awhile back, The Economist magazine tackled this question for the two states of California and Texas. Now, Fortune magazine has joined the discussion. It argues that (1) Texas has a more diversified economy than California, (2) Texas has more business friendly environment, (3) Texas has done better relying on sales tax rather than on income and capital gain taxes found in California, and (4) the power of the people has backfired in California. In addition to these structural differences maybe California needs its own monetary policy.
Update: In the comments Muirego wonders if Texas is a net recipient of federal tax dollars and whether this explains the discrepancy. According to the Tax Foundation the answer is no: between 1981 and 2005 Texas on average received 90 cents of federal expenditure for every federal tax dollar paid. See here for more.
Now California:
These striking differences naturally lead to discussions of why so much regional variation? Awhile back, The Economist magazine tackled this question for the two states of California and Texas. Now, Fortune magazine has joined the discussion. It argues that (1) Texas has a more diversified economy than California, (2) Texas has more business friendly environment, (3) Texas has done better relying on sales tax rather than on income and capital gain taxes found in California, and (4) the power of the people has backfired in California. In addition to these structural differences maybe California needs its own monetary policy.
Update: In the comments Muirego wonders if Texas is a net recipient of federal tax dollars and whether this explains the discrepancy. According to the Tax Foundation the answer is no: between 1981 and 2005 Texas on average received 90 cents of federal expenditure for every federal tax dollar paid. See here for more.
There is Nothing Mild About Winters and Recessions in Michigan
Winters in Michigan are not for the light of heart. Neither are the recessions. Below is a figure showing the year-on-year % change in the coincident indicator for the United States and Michigan from January 1980 to April 2009. (Click on figure to enlarge.)
If the movement of economic activity in Michigan could be made into a roller coaster it would be one thrilling ride!
If the movement of economic activity in Michigan could be made into a roller coaster it would be one thrilling ride!
Night and Day Difference
When I first moved to Texas I was surprised at the intensity of Texan pride. I now think some of it is justified given how well the Texan economy has handled the recession. Texas was one of the last states to start shedding jobs--employment peaked in August 2008--and started adding jobs way back in October 2009 as illustrated in the figure below:
Now compare these developments in Texas to the employment carnage in my previous home state, Michigan:
What a night and day difference. Michigan has had a decade of job destruction. Micheal D. Lafaive argues these developments are due to differences in economic freedom between the two states. Maybe so, but I suspect the lack of industry diversification in Michigan compared to that in Texas plays an important role. One point Lafaive does get right is that Michigan's gift to Texas is people. I am evidence of that. I left Michigan in 2007 and have never looked back.* Apparently a net total of 68,000 Michiganders did the same thing as me between 2000 and 2008. If only the Eurozone had such labor mobility.**
*To be clear, though, I am not a true Michigander like fellow economics blogger Josh Hendrickson. Therefore, leaving Michigan was not hard for me.
**If the Eurozone did have such labor mobility, which country would be Michigan (Greece?) and which one would be Texas (???)?
Update: The Dallas Fed takes thinks it sees a recovery under way in Texas.
Update II: I inadvertently put up financial sector employment in the original post for Michigan. It is now corrected to reflect total non-farm payroll employment.
About the Texas Economy...
It has taken a beating lately from Paul Krugman. First, he says the Texas economy is not so special in terms of handling the recession. He makes this claim based on a comparison of the unemployment rate in Texas with that of New York. Second, he notes its budget problems are well, Texas-sized with a $25 billion budget hole. Thus, he concludes its conservative-based polices are not a model for other states to follow. Are his critiques valid?
On the fist point, Ryan Avent points out that Krugman's use of the unemployment rate is misleading because there has been a large migration to Texas where there has been hardly any to New York. Thus, a significant part of the unemployment rate in Texas during the recession comes from there being so many newcomers while that is not the case in New York.
Further evidence undermining Krugman's first critique can be seen in the following figure. It shows that the employment growth rate has been far stronger in Texas than New York in 2010. (Click on figure to enlarge.)
On the second point, Kevin D. Williamson notes that Krugman vastly overstates the Texas' budget problems. First, the real budget shortfall is probably going to be $11-$15 billion, not $25 billlion. Second, Texas actually has a $10 billion dollar rainy-day fund that could cover much of the budget hole if necessary. Thus, Texas is not going to have a budget shortfall.
Of course, New York is just one of 49 other states. Why not compare Texas to the California, the other big state? Oh yea, that has already been done and it makes Texas look special.
Now all of this does not mean Texas is the model for the rest of the states to follow. Some of its good fortune is idiosyncratic--oil prices and migration--as noted by Ryan Avent. Some of its success its policy driven too. It does mean, though, that this mix of indiosyncratic developments and policies works well for Texas. And for that I, a resident of Texas, am grateful.
Subscribe to:
Posts (Atom)
