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It’s The Growth, Stupid

Monday, August 22, 2011


So as not to make the same mistake as my brethren in the press, let me say up front here that there is no "jobs boom" in Texas. It is nothing but an illusion, created by some misleading statistics and pushed by a well-financed press operation and reporters willing to use parts of a press release even while they do a poor job of critiquing it.

That is, I see from the press that Texas is home to more than a third of the jobs created in the entire nation since the recession ended. I read this in the New York Times, the AP reported a similar article (they said "four out of ten"), a Providence Journal editorial repeated it, too (they said, "almost half"). Way down at the bottom of the Times article, it did add the context that the unemployment rate in Texas is 8.4%. Likewise, the Journal editorial and the AP wonder whether the Texas "jobs engine" is worth emulating because of factors like the low level of health insurance coverage, but they both use the phrase.

But let's add some more context to this, shall we? There are 26 states where the unemployment rate is lower than that in Texas. Of the neighboring states, including most of the South, there are four states with higher unemployment rates, and seven with lower. Of the 25 Texas metro areas tracked by the BLS, ten of them have higher unemployment rates than the national average, including a couple south of Corpus Christi where unemployment is worse than anywhere in Michigan. Ranked by unemployment rate, Texas is ninth out of the ten top oil-producing states, behind Oklahoma, North Dakota, and even Louisiana. In other words, there is no Texas "jobs boom" and the state is hardly a "jobs engine." Uncritically repeating these phrases is only doing a service for the Rick Perry campaign for President.

Lots of births, cheap housing

What Texas does have is a population boom, and the employment statistics have risen with the number of people who live there. And why is there a population increase? One reason is that housing is cheap there. Texas, ground zero for the banking crisis of the late 1980s, came out of that episode with fairly strict regulation of the mortgage industry, so they have half the foreclosure rate of Rhode Island and one-seventh the rate of high-flying Florida. The foreclosure rate wouldn't normally be a good measure of housing prices, but it is a good measure of how out-of-control prices got before the crash. Since prices haven't given up all the gains of the last decade, it's not a bad proxy at present. Texas also has very little land-use regulation, which makes the purchase of housing cheap, even if it makes the management of services for the people who live in those houses expensive.

What else does Texas have? Lots of immigration, legal and illegal, and very high birth rates (45% higher than Rhode Island, tied with Alaska, exceeded only by Utah). When population rises, jobs rise, too. But so does population density, demand for services, road congestion and more. So long as the Texas population continues to rise as it has, these added expenses can be paid for with the added tax revenues that will come next year, through the sales tax and property taxes. But when the growth slows, watch out. Florida enjoyed the benefits of explosive growth for decades, but it slowed after the disastrous hurricane season of 2005. They were in the process of discovering that their traditional growth-financed low-tax regime could not be sustained with lower growth when the foreclosure crisis hit them hard, and now they're looking at huge cutbacks at the state level and at every county and city, too. California hit the same thing a generation earlier, where slowing growth rates do more to explain the tax revolt of the late 1970s than any other factor I'm aware of.

Smugness: another risk of growth

Here in Rhode Island, you can see exactly the same dynamic at work. For decades, we have built roads out to the suburbs and subsidized the construction of roads within those suburbs, too. The roads and other subsidies, implicit and explicit, fueled explosive growth in the suburbs. The high growth rates created prosperity there, but it also created a certain smugness about government. Portsmouth and Lincoln residents could feel content that their town governments were being run more efficiently than Providence or Pawtucket. To a small extent, perhaps this actually was true, but to a much larger extent, this was just an artifact of the growth rates.

Expenses grow every year with inflation. But when your revenue is growing every year at 4%, it's pretty easy to balance a budget, even with inflation. But when expenses are going up at 3% and revenues are going down even as slowly as 2%, the gap becomes much harder to fill.

Our state is filled with suburban municipal officials who, like the Governor of Texas, are perfectly willing to take credit for good government when in reality they are little more than the happy beneficiaries of circumstances far beyond their control. If we continue to credit Rick Perry with his state's good fortune, we might make the mistake of giving ourselves another president like George W. Bush, a disaster for our country. If we continue to credit the managers and officials of our suburbs with their good fortune (and blaming the urban leaders for their misfortune) we will never understand why our cities can't seem to make ends meet, a disaster for our state. Me, I worry about both.

Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].


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