Miraculum Texanum

What the federal government should (or should not) do to stimulate job growth is shaping up to be the major political issue of the 2012 presidential election. Given the stakes we need to examine critically all claims from candidates that he or she knows how to do it. Governor Perry proposes that the nation model itself after Texas. This is my "take" on his proposal

With much fanfare Governor Rick Perry announced for the 2012 presidential race in mid-August. Along with his announcement came much commentary about the wonders of Texas, and, notably, its economic success since June 2009.

What’s special about June 2009? Officially that’s the month the Great Recession ended, i.e., the economy registered a statistical uptick. This is mostly of academic interest. With persistent 9% national unemployment most Americans believe we are still in the recession that started in December 2007.

Assuming there’s some validity to June 2009 as a starting point, Texas leads all states in the post-recession jobs race. According to U.S. Bureau of Labor Statistics Texas added 262,700 non-farm jobs from the end of the recession through April 2011. This works out to about 55% of the nation’s job growth. Pretty impressive.

Naturally Governor Perry takes credit for this (I would in his shoes). Among the factors Perry and his supporters cite: low state taxes, tort reform (under Perry’s watch), no housing bust (due to regulations put into effect after the 1980’s S & L crisis), right-to-work laws, pro-business regulatory environment (except possibly the aforementioned mortgage regulations), and a commitment to small government.

Here’s a sampler from Governor Perry on this subject…

“The fact is government doesn’t create jobs, otherwise the last 2½ years of stimulus would have worked.”

“My message Mr. President (a rhetorical device, President Obama was not in the room), set the people free, set the people free to get back to work, set the people free from these regulations.”

Few things in life are black & white, and the same can be said about economics. Yes, Texas created jobs, but its unemployment stood at 8.5% this past August: not much better than the national average of 9.2%, slightly worse than 8.2% in Pennsylvania (my home state), and significantly worse than the 7.4% rate in ex-Governor Mitt Romney’s Massachusetts.

Pennsylvania, in fact, was the #3 job creator since the recession’s end. Its 93,200 new jobs is well behind Texas, but its population is roughly half of Texas. Correct for population difference and Pennsylvania theoretically would have produced 184,500 jobs to Texas’s 262,700—not too shabby.

Pennsylvania is no one’s first choice for small government. The Pennsylvania governor’s office changes from Democrat to Republican every eight years like clockwork. So what gives? Thanks to the much-ballyhooed Marcellus Shale formation and the new hydraulic fracturing techniques, Pennsylvania is now an energy producer. The Harrisburg Patriot News reported in May 2011 that Marcellus Shale accounted for 48,000 new hires in the year prior, which pretty much explains where the growth has come from.

Subsequently there has been much quibbling in the press over the "real" contribution of Marcellus Shale on Pennsylvania's economy. This is a separate discussion. Suffice it to say most Pennsylvanians see plenty of signs that Marcellus Shale has created a boom in the mostly rural areas where the drilling takes place.

Back to Texas…it has long been an oil producer, until recently in decline; now, like Pennsylvania, it’s enjoying a re-birth thanks in large part to drilling in its Barnett and Eagle Ford shale formations. With robust prices, the oil & gas industry is once again bery, bery good for the state of Texas (West Texas Intermediate crude is  currently $83.5 per barrel, down from $114 in May, but up from $25 when Perry first took office). Jobs in the oil & gas industry are growing 16%-18% annually. The NY Times reports that tax receipts from oil & gas alone run about $13 billion per year or 20% of the state budget. Considering this sector comprises only about 3% of the Texas workforce this is a remarkable number. Undoubtedly the prosperity of the oil & gas industry spills over into other sectors of the Texas economy.

Interestingly government employment grew by 35,800 during the post-recession period or 14% of total jobs created, second only behind oil & gas (mining). In itself not particularly remarkable but remember Governor Perry is head cheerleader for small government, which ultimately translates into how many people depend on government for their paycheck. Public employees constitute nearly 18% of the non-farm workforce in Texas, whereas they are only 13% in Pennsylvania.

Outside of the energy sector Texas job growth seems directly tied to population growth. Texas grew 20.6% in the first decade of this century, whereas Pennsylvania grew a mere 3.4%. Population growth goes hand-in-hand with economic growth. This raises a chicken or egg question: in the case of Texas, did population growth create new jobs or did new jobs bring population growth?

Texas vs US Unemployment From Start of the Great Recession

The short answer is population growth has driven job growth. There are two parts to the supporting argument.

Part I…Texas’s unemployment rate has closely tracked the national unemployment rate both before and after the recession (see chart). This suggests that the fortunes of its economy are still largely subject to the same macroeconomic forces buffeting the whole country. Yes, Texas is creating new jobs during the post recession but not fast enough to sop up the influx of new workers, hence persistently high unemployment. In short there’s not much evidence that “small government” politics in & of itself has created an economic miracle in Texas: a lot of Texans are still out of work.

Part II…While Texas has experienced rapid population growth, over half of this growth is natural, i.e., more births than deaths. Turns out Texas’s birth rate (number of births per 1000) is significantly higher than the U.S. as a whole and most of this can be attributed to Texas’s Hispanic population for whom large families are the norm. According to the Texas Department of Health Services the 2006 Hispanic birth rate of 23.3 was almost twice the "white" birth rate of 12.7. International immigration, mostly from Mexico and Central America, makes up another quarter of the population growth. The remainder is due to migration from other parts of the U.S. This last number is significant—by itself it represents more growth than my state of Pennsylvania sees from all sources—on the other hand it doesn’t suggest that the rest of the U.S. is rushing pell-mell to work in Texas.

Sources of Texas Population Growth 2000-2010
 (from presentation by The Office of the State (Texas) Demographer)

As the NY Times reported in February 2011, the real story here is the rise of the Hispanic population, which comprised roughly two-thirds of Texas’s growth during the last decade. Hispanics continue to cross the border in large numbers (I must presume mostly illegally) and have more kids than “whites.” Texas is now 38% Hispanic, which some say is a tipping point both culturally and politically.

Texas has taken a relatively accommodating stand towards illegal immigration (witness the heat Perry has taken on this subject in the recent GOP debates). In combination with the critical mass of Hispanic people already in the state, it creates a powerful dynamic that draws people, especially Hispanics, to the state. In short, Texas is a “happening place.”

Those that want to see a miracle in the performance of the Texas economy will likely find it. To my mind it’s much more complicated. Texas likely is more overtly business friendly in terms of tax policy and regulations than many other states, but it’s also blessed with natural resources and a unique set of circumstances that has created a Hispanic population boom. Without energy and population boom it’s not clear that Texas as an economic model has anything to offer the rest of the country.

Notes: 

• The source of the jobs and population data is either the Bureau of Labor Statistics or the U.S. Census; in some cases my figures came from a secondary source, such as the NY Times, that referenced the primary source.
• There has been much commentary on jobs growth and the so-called Texas miracle. I note that different reporters used different time periods for counting post-recession job growth. Unless otherwise noted I used June 2009 to April 2011.
• I used non-farm employment figures and so has most everyone who has reported on this issue. I'm not expert enough on employment statistics to explain why. Here I'm just following the crowd.
• Finally there are two ways reporters have "measured" Texas job growth. They reported the jobs increase in Texas as a percentage of a) the net jobs increase for the entire nation, or b) the sum of the  jobs figures only for those states which registered positive job growth. I used a) and frankly don't understand the significance of b). In both cases Texas comes out smelling like the proverbial rose.

The Sword of Injustice

As reported by this morning's Wall Street Journal, an Indonesian maid working in Saudi Arabia was executed for murdering her employer with a kitchen knife. There aren't many details available. In a separate article the BBC News mentions the woman committed the purported crime "after suffering abuse," suggesting that the trial  uncovered mitigating circumstances (I assume there was a trial of some kind...am I being naive?).

The woman's name was Ruyati binti Sapubi. Apparently the court gave little weight to the abuse the woman likely had suffered or the possibility that she was defending herself from further abuse. The Saudi authorities determined that justice would be served and the world made safer with this woman's execution. She was beheaded with a sword in the city of Mecca. It is not known whether her head was then put on a pike and paraded through the city as a warning to other foreign domestics. We can only hope that her executioner was more skilled than the murderer of Daniel Pearl in 2002.

This morning I learned that there are upwards of 1.5 million Indonesians working in Saudi Arabia, the majority of whom are women working as maids. On the face of it their condition of employment seems hardly better than indentured servitude. Given Saudi Arabia's patriarchal state and creepy brand of puritanical Islam, this situation seems ripe for the exploitation of women.

Indonesia is complicit in this unseemly arrangement as it enjoys the money this army of maids sends home to bolster its economy. The Wiki entry also suggests that Indonesia was hesitant to demand greater accountability from the Saudis for fear they might restrict the number of Indonesians it allows to make the hajj, the annual pilgrammage to Mecca. However, the public dismemberment of Ruyati binti Sapubi appears to have crossed a line and Indonesia has now announced a moratorium on sending more of its women to cook the Saudis' meals starting August 1st.

The Saudis for their part have apologized profusely and promised not to behead any more maids for awhile.