Why the Texas economy is booming

Talmadge Heflin Director, Center for Fiscal Policy at the Texas Public Policy Foundation
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It has been nearly three years since the National Bureau of Economic Research (NBER), the official arbiter of U.S. business cycles, declared an end to the Great Recession. But in spite of the agency’s proclamation, the labor market in many states remains stalled; in some cases, the jobs picture is getting worse.

A cursory glance at the latest employment statistics reveals that between June 2009 and December 2011 — the most recent month for which there is data for all states — 13 states recorded net job losses. Twenty-one states and the District of Columbia recorded anemic levels of growth, gaining fewer than 25,000 jobs over those 30 months. Only 16 states created 25,000 or more net new jobs.

More evidence of a jobless recovery is seen through another lens, unemployment rates.

Today, despite billions in government “stimulus,” 30 states’ unemployment rates are either higher or less than 1 percent lower than they were at the end of the recession. For a majority of states, there has simply been no great improvement in this area during the past two and a half years. The remaining states’ unemployment rates, with the exception of Michigan (-4.5 percent), have decreased by between 1 percent and 2.8 percent.

Nearly everywhere you look, state economies are at a standstill, existing in a sort of job-creation limbo. But while job-creation stagnation generally plagues the U.S. as a whole, there is one large state — Texas — where vitality has returned.

Two weeks ago, Texas officials announced that the Lone Star State had crossed an important threshold. After a shorter, less severe recessionary period than the rest of the nation experienced, the state’s labor market had returned to its pre-recession employment levels, meaning that Texas’ economy has now regained every job lost during the worst parts of the recession in late 2008 and 2009.

More evidence for this idea of a resurgent Texas economy came earlier this month with the latest revelation of the state’s unemployment rate. As of December 2011, Texas’ unemployment rate has been at or below the national average for 60 consecutive months. This feat is all the more impressive given that Texas added more people than any other state between 2010 and 2011, according to the latest U.S. Census Bureau data.

Clearly, something special is happening in Texas, but what exactly is the state’s secret to success? Simply put, Texas has gotten government out of the way.

For quite some time now, but particularly over the past decade or so, Texas lawmakers, backed by voters, have cultivated an environment of low taxes and spending, a minimal and predictable regulatory climate and a sound civil justice system. And it is more than just lip-service: Texans have committed to the idea of limited government.

In the last legislative session, state lawmakers closed a $15 billion budget shortfall without raising taxes, opting instead to cut spending to match available revenue. Total state spending declined for the first time in more than 50 years, shrinking the cost of government and allowing Texas to retain its top 10 ranking for business tax climate, as assessed by the Tax Foundation.

On the regulatory front, Texas has long been a right-to-work state; it allows residents to work regardless of whether they choose to join a union. This provides employers with greater flexibility in meeting their workforce and business needs, and significantly reduces their cost of doing business.

Another example of this flexibility is in the energy sector. In the decade since Texas deregulated its electricity market, companies have invested $41 billion in new generation and transmission capacity. This has allowed Texas’ electricity supply to keep pace with our state’s rapid growth, and for retail electricity rates to be lower today than they were in the final days of Texas’ utility monopolies.

Texas’ relatively open land-use policies have allowed housing to remain well balanced between supply and demand, largely protecting our state from the booms and busts that have so dramatically affected the east and west coasts.

The Lone Star State has been a leader in lawsuit reform since the mid-1990s. Through a series of legislative proposals and constitutional amendments — including non-economic damage caps in medical malpractice lawsuits and last year’s “loser pays” legislation — Texas has acted decisively to reduce the number of frivolous lawsuits filed in the state.

In nearly every major policy area, the state is adopting a conservative stance, creating a dynamic business environment to which both businesses and entrepreneurs are flocking. This, in turn, has created a flourishing job market.

Since June 2009, Texas’ economy, now the 14th-largest in the world, has added 357,400 jobs, almost triple the number of jobs produced by California, the state that has produced the second-most jobs since June 2009. Impressively, this means that Texas is responsible for nearly one of every four jobs created in the nation since the NBER declared the recession over.

The narrative here, that government is the problem not the solution to the nation’s job market woes, isn’t one that squares with our current administration’s approach, but the point remains valid. Free markets and limited government work, and there’s walking, talking truth of that in the Lone Star State.

Talmadge Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. Heflin served 11 terms in the Texas House and chaired the Appropriations Committee in 2003, leading the Texas Legislature’s successful efforts to close a $10 billion budget deficit without a tax increase.