Friday, June 10, 2011

Lessons from Texas

If Rick Perry does jump in to the presidential race, it will be because he will have the record to trumpet in these days of dismal unemployment reports. How about this statistic as reported in the WSJ?
Richard Fisher, the president of the Federal Reserve Bank of Dallas, dropped by our offices this week and relayed a remarkable fact: Some 37% of all net new American jobs since the recovery began were created in Texas. Mr. Fisher's study is a lesson in what works in economic policy—and it is worth pondering in the current 1.8% growth moment.

Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs, out of the 722,200 nationwide, and by far outpaced every other state. New York was second with 98,200, Pennsylvania added 93,000, and it falls off from there. Nine states created fewer than 10,000 jobs, while Maine, Hawaii, Delaware and Wyoming created fewer than 1,000. Eighteen states have lost jobs since the recovery began.

The data are even more notable because they're calculated on a "sum of states" basis, which the BLS does not use because they can have sampling errors. Using straight nonfarm payroll employment, Texas accounts for 45% of net U.S. job creation. Modesty is not typically considered a Texas virtue, but the results speak for themselves.
Only Texas, North Dakota, Alaska, and the District of Columbia have more jobs now than they did at the onset of the recession in December 2007.

And there is strong evidence that the policies that Texas has adopted are the reason for its success and should be a model for other states to follow instead of the failed liberal model on display in California's catastrophic economy.
Capital—both human and investment—is highly mobile, and it migrates all the time to the places where the opportunities are larger and the burdens are lower. Texas has no state income tax. Its regulatory conditions are contained and flexible. It is fiscally responsible and government is small. Its right-to-work law doesn't impose unions on businesses or employees. It is open to global trade and competition: Houston, San Antonio and El Paso are entrepĂ´ts for commerce, especially in the wake of the North American Free Trade Agreement.

Based on his conversations with CEOs and other business leaders, Mr. Fisher says one of Texas's huge competitive advantages is its ongoing reform of the tort system, which has driven litigation costs to record lows. He also cited a rule in place since 1998 in the backwash of the S&L debacle that limits mortgage borrowing to 80% of the appraised value of a home. Like a minimum down payment, this reduces overleveraging and means Texas wasn't hurt as badly by the housing crash as other states....

The Texas economy has grown on average by 3.3% a year over the last two decades, compared with 2.6% for the U.S. overall. Yet the core impulse of Obamanomics is to make America less like Texas and more like California, with more government, more unions, more central planning, higher taxes. That the former added 37% of new U.S. jobs suggests what an historic mistake this has been.
And that right there would be a powerful argument for Governor Perry to make going against President Obama. He can simply give a few of these facts and then ask the voters to compare what each has done for employment.

The problem is that would be quite difficult to impose such policies nationally because the Democrats would block tort reform or loosening of regulations or any curbs on labor. But while we might not be able to get such polices on a national basis, that model is out there for other states to adopt. We're seeing right now the struggles in states like Wisconsin and Ohio to adopt a Texas model. If they can be successful, they will have the opportunity to demonstrate whether the experiment conducted in Texas can transfer to states that have had a habit of doing the opposite. Every governor should be looking at the Texas and California models of state governance and choosing accordingly.