Why Texas works

It’s time to ‘lure’ the Left back to basic economic principles

By Andy Matthews
  • Thursday, August 18, 2011

Rick Perry's "jobs record" is generating much discussion these days, as the Texas governor has officially jumped into the race for the Republican presidential nomination and has already assumed frontrunner status.

The chief driver of this issue has been the Perry campaign itself — and for good reason. Against the backdrop of a persistent national unemployment crisis, the Lone Star State stands out as a rare success story. Its unemployment rate sits a point below the national average, and it stacks up even better in that regard when compared to other high-population states. Most impressively, as the Texas Public Policy Foundation has noted, Texans created more jobs between January 2006 and January 2011 than all other states combined.

Perry's approach to and record on job creation stand in stark contrast to President Barack Obama's policies and results. While Perry has let entrepreneurs flourish in a state with low taxes — though not a perfect tax structure — and minimal regulation, Obama spent $787 billion on a stimulus that failed so badly that the country's unemployment rate is still over 9 percent.

Sensing the credible threat that Perry, should he win the nomination, would pose to Obama's reelection chances, the national left-wing pundit class has wasted no time in dutifully trying to discredit the governor on the jobs front and to downplay what has been widely dubbed the "Texas Miracle." For reasons we'll get into in a moment, these pundits are dead wrong.

But first, here's Paul Krugman, writing in Sunday's New York Times, in a column titled ... wait for it ... "The Texas Unmiracle":

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.

Echoing Krugman's conclusion was the Washington Post's Richard Cohen, who on Tuesday wrote:

Perry has characterized Texas as one huge job-creating machine, but what lured jobs from other states cannot work on a national level — unless we drain Canada.

Though he's being facetious, Cohen is actually half right here. Taking the best and brightest individuals and companies from Canada and other countries has helped the U.S. economy enormously and has helped to make up for the terrible job the U.S. education system does, especially in science.

A more competitive national business climate vis-à-vis other countries would lead to greater employment in the United States, because it would attract more foreign companies here while also cutting down on the number of American companies that ship jobs overseas. Business migration can occur between nations, not just between states.

But the core problem with the Krugman-Cohen argument — that the Texas approach can't work on a national scale because having some states "lure" jobs away from others doesn't increase the number of jobs nationally — is even more basic than that.

In assuming that the only way to create new jobs is to "lure" them away from somewhere else, Krugman and Cohen ignore a fundamental economic fact: Job creation is not a zero-sum game.

To create a new job, you don't have to lure one away from someplace else. If you live in Nevada and you want to open a new tire store, you can simply open one — provided you have the necessary start-up capital, sufficient consumer demand exists for your products, and the government hasn't blocked your way with too many onerous fees and regulations. You don't have to convince an already-existent tire store to relocate from, say, South Dakota. And your new business will create new jobs without having to eliminate jobs elsewhere. That's why they call it job creation and not job displacement.

California, which has lost so many businesses in recent years — many of them to, yes, Texas — and today has an unemployment rate of 11.8 percent, could instead be enjoying its very own economic boom had it not adopted policies hostile to job creation. And it wouldn't have had to rely on some other state screwing up to do it.

Like many liberals, Krugman and Cohen either ignore or are ignorant of this rudimentary economic principle.

The truth is, what has worked in Texas can and would work nationally. Fifty states with 50 business-friendly environments would result in 50 booming economies, because the creative-destruction process, uninhibited by excessive government interference, would lead to new wealth, new businesses and, yes, new jobs.

So even if California and other states were to stop driving so many entrepreneurs away, Texas, thanks to its pro-growth policies, would still enjoy a booming economy. The only difference would be that a larger proportion of those jobs would likely be created by aspiring entrepreneurs already living in Texas.

In a way, Krugman and Cohen are right: There's nothing really miraculous about what Perry did in Texas. All he did was take the basic economic principles — like getting government out of the way of entrepreneurs — that have worked for centuries and apply them to his state.

As Paul Krugman would say: Well, duh.

Andy Matthews is vice president for operations at the Nevada Policy Research Institute. For more, visit http://npri.org.

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