Friday, August 19, 2011

The real problem with the Texas "Miracle"

Paul Krugman takes a look at another problem with the Perry's "Texas Miracle": its unreproducibility. First, he shows that it's not even true:
In June 2011, the Texas unemployment rate was 8.2 percent. That was less than unemployment in collapsed-bubble states like California and Florida, but it was slightly higher than the unemployment rate in New York, and significantly higher than the rate in Massachusetts. ....

So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth. ... [T]he high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.

So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.
And he then asks:
Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.
And points out the sober reason why (my emphasis):
What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is “Well, duh.” The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state.

In fact, at a national level lower wages would almost certainly lead to fewer jobs — because they would leave working Americans even less able to cope with the overhang of debt left behind by the housing bubble, an overhang that is at the heart of our economic problem.
So however enticing the picture of Governor Goodhair (as the late Molly Ivins used to call him) presiding over some sort of jobs-creating-paradise is, resist it. Partly because the jobs are, in large part, public-sector jobs to begin with, but mostly because the rest of them are stolen from the rest of the US, a trick he can't repeat on a national level.

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