Monday, August 1, 2011

California versus Texas: Part 7: Conclusions

So what is Texas doing right? The first thing to say is that, like California, it is a heavily urbanized state. Over the past decade, rural areas everywhere shed jobs. Higher food prices may be changing that picture, and I will address that in a future post.

The next thing to point out is that Texas receives a big boost from being a right-to-work state. Educational levels and wages are average, but low housing prices keep standards of living high.

I think that California's big mistake is letting housing prices get too high.  This drives people out of the state and drives up labor costs. For a while a house worked as a third source of income for Californian families, but this is no longer happening. Despite better wages, Californians aren't doing any better than Texans once housing costs are paid for. High labor costs drive employers away. 

California's costs will never be as low as Texas, but Texas really isn't our natural competitor. We need to compete with the East Coast. If California could lower our housing costs and raise the number of college graduates in our workforce, then sunshine and scenery would do the rest.

Exploding the Rick Perry myth

We are told that Texas Governor Perry has a great jobs story to tell. Texas has done well, but I don't think Perry had much to do with it. The Texas economy was doing great before Rick Perry showed up as governor. Below I have charted the job creating performance of several states during the 1990s. I use March 1991 to January 2002 to try to match the lows of the economic cycle. Right-to-work states are in red.

Once again Texas is a top performer. The best way to have a great jobs story is to inherit one.

California did much better in the 90s than it did in the 00s. The state's economic performance has now deteriorated to New York levels.

The Washington state anomaly

One reason I worked out some numbers for the 90s is that I wanted to see if Washington state did as well in the 90s as it did in the 00s. While not matching the performance of job creation superstars like Utah and Arizona, Washington state finished just behind Texas. That is a very good performance for a moderately high wage, union friendly state. I don't know if this is just the influence of Boeing and Microsoft, or if something else is going on.

Things that don't seem matter much

I thought that the amount of federal spending per dollar collected in taxes would have a strong economic impact. It seemed reasonable that places that have a net inflow of money from the government would have more jobs. I looked for this effect and didn't find it. Great economies are not built on government pork.

I wondered if the size of state government would have an impact. Nevada and Florida have an exceptionally low state tax burden. Their economic performance is good but not exceptional. I don't think that the level of state taxes matters as much as Republicans think. Education, on the other hand, is very definitely important.
I also looked to see if having very large cities or having hub airports mattered. I didn't see any evidence of that, although I will have to do an Metropolitan Statistical Area based analysis before I can say that these things don't matter at all.

In my next post I will write about where jobs are being created in 2011.

(1991 Population data from:


  1. Even if Texas had started doing well under Rick Perry, it wouldn't necessarily be a good idea to attribute that to his governorship. The Texas state government is weird, with most of the gubernatorial power in the hands of the Lt. Governor instead of the Governor.

  2. I guess it is the Rick Perry for President campaign which is putting this stuff out.