Wednesday, December 28, 2016

The "Texas Economic Miracle", Nuclear Tests, and California

I totally forgot another fairy tale I heard from my Republican friend which needs correcting, that of the "Texas Economic Miracle" that allegedly occurred under Rick Perry.  I thought this myth died awhile ago, but I suppose it needs addressing.

The claim of the Texas Economic Miracle under Rick Perry is that Texas, with its combination of low taxes and few regulations, outstripped national economic growth, including job creation.  This was true for awhile!  However:
  • The jobs created were almost entirely created in the energy sector or linked directly to the energy sector.  When oil prices were high, employment rose; when oil prices crashed, jobs left the state in large numbers.
  • As the economy recovered under the Obama administration, slowly but surely, national job creation growth began to outstrip Texas' job creation growth.
  • The jobs created in Texas tended to be low-wage - although, in fairness, this is true nationally as well.
  • Texas isn't as famously low tax as you might think:
Taxes, though, are mixed a mixed bag. Employees enjoy the absence of a personal income tax, but the effective tax rate on businesses is above the national average at 5.3 percent. Complying with the franchise tax is expensive, even if a company doesn't have to pay it, and property taxes are punishing.

"We have very high property taxes, and we also are one of only seven states that include business inventories as part of the property tax," Craymer said.

To make up for that, Texas must offer property and sales tax abatements, he added.

"The simple truth is we're not going to be able to compete for those major investment projects if we don't offer some kind of temporary safe harbor from our incredibly high property taxes," Craymer said.

(emphases added mine throughout.)
  • Texas is "big, hot and cheap" and has long outperformed other states economically, since 1939 at least (mostly since folks who have air conditioners like to move to big, hot, cheap places).  In other words, there isn't anything all that special per se about what Rick Perry did. 
  • Texas has more minimum-wage workers with no health insurance than any other state.
The bĂȘte noire of conservatives is, of course, California, famously laden with regulations of all sorts, and a state which is whupping all kinds of ass in comparison with Texas economically.

Both states have diverse economies and despite this fact, both states rely heavily on factors beyond their control (the price of oil and gas in Texas, the price of real estate in California).  But it seems that when California creates jobs, they're high-wage jobs, tied predominantly to Silicon Valley, and when Texas creates jobs, they're low-wage jobs.

Gov. Perry deserves credit for diversifying Texas' economy.  That's no mean feat.  He doesn't, however, deserve credit for a "miracle" driven by high oil prices - a miracle now on the retreat due to low oil prices.

(For more on this issue, read here and here.  Oh, and by the way, whenever the name of famed malarkey-peddler Arthur Laffer pops up, just bear in mind that if your dentist told you you could eat as much candy as you want and it would actually make your teeth stronger, you would get a new dentist, yet for some reason the idea that massive tax reduction will lead to deficit reduction, popularized by Arthur Laffer, is still taken seriously.  His claims that tax reductions are responsible for economic growth are largely bunkum.)

Now how about ol' Rick, incoming Secretary of Energy?  What's new with him?  He may be pressed to resume nuclear tests.  Mr. Perry may not be as dumb as he appears to be at first glance, but if Donald Trump decides he wants nuclear tests, will Rick Perry stand up to him?  And what would be the consequence of nuclear tests?

Since 1998, when India and Pakistan conducted nuclear tests, provoking global condemnation, only North Korea is known to have undertaken tests. Some experts fear that if the United States began testing again, it would risk a new arms race by opening the door to testing for many other countries that want to improve or develop nuclear arsenals.

Maybe those experts' fears are overblown.  Call me naive, but I defer to "experts" on nuclear management issues.  Whatever happens, I'm certainly glad the man who presided over the Texas Economic Miracle is at the helm!

So that's Rick Perry.  How's California doing?  Well, for one thing, it's considering telling the Trump administration to shove it when it comes to environmental issues.  California can arguably afford to do so - it has a GDP of $2.5 trillion and is one of the 10 largest economies in the world (Texas is also on that list, behind California).  

Business leaders - well, some of them - predictably whine that excessive regulation vis-a-vis other states will kill California's growth, but as the above makes clear, that's mostly hot air.  Of course, if the Trump administration wants to make life hard on California, it can do so:

The clean-air initiatives here have become an intricate part of the economy and a source of growth and jobs. Federal cutbacks would no doubt hurt the state to some extent, but analysts say the very energy-efficiency policies that may soon come under attack by the new administration have been a significant factor in California’s economic reversal.

“If the president-elect and his administration work to undermine our climate leadership, they will hurt our economy,” Mr. de Leon said. “They will kill jobs. And ultimately, they will hurt the economy of the United States. We are 13 percent of the overall G.D.P.”

We'll see how California does, but if the past is any indication, California's going to be just fine and might well lead the nation in a cap-and-trade or similar policy.  Even the new host of Celebrity Apprentice is an aggressive environmentalist; it's hard to keep California back in this regard.  (Yes, Schwarzenegger is far from perfect, but neither is Jerry Brown, and has any other Republican in our lifetimes spoken like this?)

There's so much more I wanted to get to today - hospitals bracing for Obamacare repeal and saber-rattling in the South China Sea in particular - but this post is already too long, so that'll have to wait until tomorrow. 

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