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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 27, 2011 at 10:30 AM

What Washington state can learn from Texas (not what you think)

Texas’ economy is doing better than most places. According to the president of the Dallas Fed, the state has accounted for 37 percent of all net new jobs created since the recovery began. Not surprisingly, the editorial page of the Wall Street Journal stated this was because of its “free market and business-friendly climate.” This has become a meme.

The reality is more complicated. Texas remains a petroleum superstate even 40 years after the continental United States entered peak, as well as the entry point for much imported oil and a powerhouse of refining and chemicals. It’s an urbanized state with three of the nation’s largest cities, two of which, Dallas and Houston, have numerous corporate headquarters. Austin is a high-tech mecca and Houston is one of the world’s top medical centers. Texas has benefited most among the states from NAFTA and trade with Mexico.

Government plays a big role, too. The state’s powerful congressional delegation sends home the money, whether dominated by Democrats or Republicans. Houston’s status as a major city was in no small part because of the decades of federal funding steered its way by every Texas leader from LBJ to the Bushes (e.g., the Houston Ship Channel, federal grants for research, the headquarters of NASA). San Antonio’s economy enjoys a stable foundation of big military installations. The state’s universities, especially UT-Austin and Texas A&M, receive huge federal support, as well as consistent state backing even in bad times. The state used tax increases to take UT-Austin from a football mill to a world-class university. Dallas has built one of the nation’s most popular light-rail systems thanks in part to Uncle Sam. Texas’ oil and agriculture sectors enjoy big tax breaks and subsidies.

At the same time, Texas consistently scores low on most measures of social well-being. It ranks 36th nationally in high-school graduation and in the low 40s on SAT scores. The poverty rate is 17.1 percent, vs. 14.3 percent nationally. The state also faces a serious fiscal crisis, with the third highest budget gap in the nation for fiscal 2012. It is implementing draconian cuts. We shall see what effect these have on its competitiveness in one and two decades. Also interesting will be when Texas becomes Hispanic majority.

Low taxes and light regulation undoubtedly play a role, but much depends on the more complex assets of a particular state. Thus, low-tax/light-reg Arizona, Mississippi, Nevada, South Carolina, etc., continue to suffer. “Socialist” New York, Massachusetts and Connecticut are performing well. The social and moral values of a state matter, as well.

So Washington state can’t strike oil or elect presidents. The best lesson from Texas: Don’t mess with excellent universities — and keep those federal installations and grants.

Today’s Econ Haiku:

Euro debt breather

More hyperventilation

May blow this way soon

Comments | More in Energy, Natural resources, State fiscal conditions, Tax policy

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