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.

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.

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About David Beckworth 240 Articles

Affiliation: Texas State University

David Beckworth is an assistant professor of economics at Texas State University in San Marcos, Texas.

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