Krugman on Rick Perry: Good Government Doesn’t Matter

Posted: Jun 13, 2015 12:01 AM

Rick Perry’s entry into the presidential race draws natural attention to the Texas economy. While Perry was governor, Texas created more than three of every ten new jobs in the entire country. And even though a decline in energy prices has slowed things a bit, over the last four years Texas was the third among the 50 states in job creation.

Perry and others credit low taxes and sensible regulation for Texas’ economic success. The Wall Street Journal editorial board agrees. Last week they wrote:

The Tax Foundation ranks Texas’s business climate tenth best, and the state’s growth spurt vindicates the Perry formula of low taxes and a light regulatory touch. Between 2000 and 2010, Texas gained a net 781,542 domestic migrants—second only to Florida—while California lost 1.9 million, according to the Manhattan Institute. Last year Texas boasted the three fastest-growing counties with populations above 250,000 (Fort Bend, Montgomery and Williamson).

However, New York Times columnist Paul Krugman (who has apparently never seen a tax increase he doesn’t like) argues that government policies have nothing to do with the Texas economic boom. Texas created a lot of jobs, says Krugman for three reasons: a gift from Mother Nature (oil and gas), temperature (mild winters and air conditioning) and cheap housing.

As for California, Krugman says the state raised taxes and now it has a budget surplus – apparent proof that high taxes are not a barrier to economic recovery.

It’s true that Texas has benefited from the fracking boom. But as the Wall Street Journal points out, oil and gas is a small part of the Texas economy and job creation in the state has been industry wide:

the oil and gas industry constitutes only 13% of the state’s economic output and 2.5% of its employment. Even amid the fracking bust over the last year, employment has grown in every industry save mining and manufacturing, according to Texas A&M University’s Real Estate Center.

Further, a lot of energy firms could easily locate across the border to Oklahoma. Do you think that state’s 6% personal income tax is a reason why they don’t?

As for climate, I’d take California over Texas any day of the week. I know. I spent a year at Stanford and I’ve lived in Dallas for 35 years.

One thing Krugman gets right, however, is housing. As I wrote in “How Liberals Live,” wherever leftwing politics dominates, the middle class is getting squeezed. According to one estimate, you need to earn $60,603 to buy an average priced home in Portland, $72,844 in Seattle and $87,536 in New York City. California, though, is way out front. In Los Angeles you need to earn $89,665. In San Francisco you need a whopping $142,448 – about three times the median family income nationwide.

California is a state that attract millionaires and poor people. The millionaires can afford its high taxes and for some reason they are willing to endure huge unfunded public pension liabilities and other acts of government irresponsibility. Although California has 12% of the US population, it is home to one-third of all the people in the country who are on welfare. More than one in ten Californians are on food stamps and more than 20% are eligible. Almost one in three Californians is enrolled in Medicaid.

But California is not a state that is hospitable to the middle class. With increasing frequency those folks are moving to Texas.