Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.
And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.
But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.
So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.
If this picture doesn’t look very much like the glowing portrait Texas boosters like to paint, there’s a reason: the glowing portrait is false.
Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.
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.
Hidden in the translation of this tortured, meandering and hard to parse dance of words is sort of the Grand Master’s basic insight for all state economic development policymakers:
Don’t compete with other states. Competition with other states is harmful and a race to the bottom. Competition itself, it would seem, is bad because it makes people compete on wages.
Paul Krugman can now add to his titles those of Champion of the Dumb, Fat and Happy American Economy. No wonder he simply wants to inflate it with more stimulus. This sort of argument makes my face go a little like this:
With the next fiscal year now the current fiscal year, it’s good of the Legislature finally to have approved a state budget – unless Gov. Deval Patrick, who has 10 days to review it, refuses to sign it.
It is another reminder that those who make the rules don’t abide by the rules. If we miss a deadline to pay our taxes, we get penalized with interest charges. If we don’t get our car inspected on time, we can get fined and towed. If they’re late approving a budget, they spend the next several days congratulating themselves on all the hard work and tough decisions they made.
The congratulations, besides being unseemly, are also premature – as Joshua Archambault notes in his excellent post below, the budget is balanced on “unrealistic assumptions,” which are the expectation of unprecedented savings in Medicaid. Archambault correctly calls that a “mirage.” Or, in the grand tradition of politics, I’d call it “smoke and mirrors.”
A few other things are worth noting.
According to the Boston Globe, the governor and legislators,
have described the entire state budget as among the most difficult in decades, because the state has been forced to close a $1.9 billion deficit that is mostly the result of the loss of $1.5 billion in federal stimulus money.
The loss of stimulus money? This was not a loss – it was a $1.5 billion gain that the state shouldn’t have had in the first place, since supposedly those funds were meant to stimulate the private, not the public, sector. Remember the promise that it would keep unemployment under 8 percent?
They knew, from the start, that the stimulus was a one-time injection of money to give them time to get their act together. But instead of doing that, they just used it as an excuse to continue business as usual, to delay dealing with budget problems they should have confronted last year.
Then there is the watered-down version of the House plan that would finally have given municipal officials a real tool to control local health care costs.
This tap dance has been going on for years: Gov. Patrick claimed in 2007 that he’d given cities and towns the ability to control their health costs by moving their employees into the less-expensive state Group Insurance Commission, which still offers a better health plan at a better price for the workers than just about any in the private sector.
But, as a favor to his “partners” in labor, he included a poison pill that allowed the unions to veto any such attempt. With that hurdle in place, only about two dozen of 351 municipalities were able to join the GIC.
This budget makes it a bit tougher – unions have lost their automatic veto. Municipal officials can raise deductibles and copayments outside of collective bargaining.
Still, if that produces an impasse, the matter will go before a review panel with one member from labor, one from management and one appointed by the governor’s budget chief.
The lack of a clear time table and resolution process from that panel could lead to something that looks a lot like binding arbitration.
Finally, it is worth noting that even this was too draconian forSens. Kenneth Donnelly, Marc Pacheco, and Steven Tolman, who claimed this would unfairly diminish the voice of labor unions.
Pacheco, who has been wholly owned by the unions for his entire legislative career, hilariously claimed that this was “a direct attack on the middle class.”
Obviously, the only middle class he knows or cares about is the one on the government payroll. It is Pacheco who has, for decades, been attacking the struggling private-sector middle and lower-middle class workers who get stuck with the bill for benefits for government union workers that are vastly better than their own.
It is sad that the voters in his district keep returning him to office, when he has made it clear he has no interest in representing them if they are on a private payroll.
Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan. The estimates, along with real unemployment rates, are posted below:
In May 2011, using the latest figures available from the BLS, the unemployment rate reached 9.1%. In contrast, the Romer and Bernstein projections estimated that the unemployment rate would be around 8.1% for this month without a recovery plan, or 6.8% with a stimulus plan (which was ultimately passed). The actual unemployment rate has been consistently below Romer and Bernstein’s worse case scenario for the economy – and by a considerable margin. They projected that the unemployment rate would never climb above 9%. As time has passed, it turns out that only two months out of the last two years have seen an unemployment rate lower than 9%.
And the unemployment trajectory appears to be getting worse, not better. The last two months have seen unemployment grow; again, against projections that unemployment would decline every single month after August 2009 with a stimulus in place.
Bigger (and what in the short-term may be less “gotcha”-style) questions are:
- What will the long-term impact of the stimulus be on growth? Will it cost the country long-term growth because of the added drag of future deficits on the economy?
- And, even in the short-term, has it proven to be more of a drag than a stimulus?
Back to the Economics21 team:
there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.
Perhaps the assumption by Romer & Company that the impact of a dollar of government spending would increase GDP by $1.55 (which struck many as inflated) was inflated…
After the April jobs report which showed an increase of around 250,000 jobs, and expectations that the non-farm payroll would increase around 150-175,000 jobs, the creation of only 54,000 jobs in May is a huge disappointment — especially coming a full year after the Summer of Recovery.
Of course, there are snarky responses, and lots of people I’ve spoken to this morning have focused on the fact that the hiring announcement from McDonald’s nominally constituted May’s entire job growth number.
The more meaningful response is what we gave to Mark Mardell of BBC TV: There is just a ton of uncertainty out there. The economy’s growth rate is slowing, and we know that “qualitative easing I” and QEII are not the way to grow jobs. Everyone thinks that the party has to end, that further QE actions are not sustainable.
Then there are worries about the impact of high energy prices on business and job growth. Add to those worries, the continued slide in housing prices.
Usually, we deal with one of these big uncertainties. But to add them all up, and further to tie a tightly knotted bow of new uncertainty about 17% of the marketplace (health care) because of a gigantic new law, well, that’s something altogether new.
I’ve been pretty focused on manufacturing and construction industries in my conversations this week in the run-up to this report, and what I have found is pretty simple. It’s a question of confidence. Lots of manufacturers and builders could use the additional help, but they don’t know if they can carry new employees into the winter. So, especially in this state, with its unemployment insurance costs, you don’t want to hire now just to let go of folks in the late fall, when the construction season on its own already cools off, even in normal times. So you do more with less. You don’t hire.
Of course, the calculus is different for other high-tech, highly technical sectors, where the weaker dollar makes our products more attractive, but where the companies often cannot find the qualified employees they need.
Finally, it’ll be interesting to watch world markets today and Monday. In the current climate, when markets are a tad emotional (beyond the usual “animal spirits”), these numbers will generate angst amongst the traders.
Texas has enjoyed an unequaled economic boom the past 10 years.
The inventory of private-sector jobs in Texas increased by 732,800 between April 2001 and the same month this year, according to an On Numbers analysis of new federal employment data.
Meanwhile, Massachusetts is 42nd in the nation for job creation oops, 8th in the nation for job loss since 2001.
In the past year (April 2010 to April 2011), the state of TX has added 250,000 jobs. In the past year, MA has added 34,000 jobs. Are you happy with those outcomes?
The timing was lousy. Gov. Deval Patrick was on his big “trade mission” to Israel and England when the giant sucking sound came from Marlborough – Fidelity announced it was essentially shuttering its operation there, moving 1,100 jobs to Merrimack, N.H. and Rhode Island.
It tended to take the wind out of the governor’s announcement that this 10-day junket might bring all of 50 jobs to Massachusetts.
Patrick didn’t help his cause much, declaring from London that he was “deeply frustrated” that the company had blindsided him, and later demanding that they “tell me to my face” that the decision is final. What does he expect – that CEOs are going to check with him first, or ask his permission before they make major strategic decisions? Do legislators or the governor check with Fidelity honchos before they raise taxes or hike the premiums on unemployment insurance?
Legislators don’t help themselves much either, suddenly complaining about “sweetheart” tax breaks for the company, and vowing to hold hearings on whether they might “claw back” some of the money the state had “given” to the company.
It is important, before a debate or a hearing even starts, to get the terms right. State government has not “given” Fidelity anything. It has just been taking less. Government does not create money. It takes it, and redistributes it.
And if this was a sweetheart deal, the state was a willing partner to it. The deal goes back to 1996, and Fidelity complied with its commitments. The feigned Statehouse outrage is nothing more than grandstanding. Reps and senators know they are not going to change the terms of a legal contract after the fact.
But all of this is a diversion anyway. The timing may have been bad, but the problem is not that the governor was out of the country. The problem is that Massachusetts is a relatively hostile place to do business, compared with some of its neighbors. Elected officials spend too much of their time finding new ways to wring the neck of the golden goose, and then wonder why there aren’t so many golden eggs around to be tapped for taxes.
Legislators are half right – they should not be making sweetheart deals with favored companies. When government gets into picking winners and losers, it rarely works out well. Can we all say “Evergreen Solar”?
They should be focused instead on making Massachusetts a good place to do business for everybody, not just biotech and alternative energy, for all the reasons Jim Stergios cites in his post below. The way it is now, they are inviting business owners in general – not just Fidelity – to look longingly over the borders.
Fidelity management isn’t transferring jobs out of state because it wants to stick it to Massachusetts. They’re doing it because Massachusetts has been sticking it to them.
An illustrative piece in the Boston Globe today by Megan Woolhouse about the high cost of running a small business in Massachusetts. This is an issue that Pioneer has been researching for years.
From my perspective, one of the most expensive costs was only mentioned in passing in the article.
Struggling to survive in 2008 and faced with rising health care costs, the Olsons eliminated health care coverage, offering employees a one-time payment of up to $5,000.
The reform passed in 2006 promised to help small companies afford health insurance. During implementation, policy decisions were made that have harmed small businesses. I fear the example set here by Marathon Tool is just the tip of the iceberg for small companies facing annual increases of 20% in their health premiums.
The Mayor of New Bedford– one of Pioneer’s Middle Cities– wrote an interesting op-ed that ran in the Boston Globe. He calls for a statewide task force to develop a new framework for public union contracts in the future.
He outlines the fiscal mess that many local communities face, and advocates for immediate action to re-imagine how local governments are run. I wrote an op-ed giving some suggestions from the state level a few weeks ago.
However, Mayor Lang’s strongest argument to support his call for action is that:
“We cannot have a strong state unless we have strong municipalities. It is imperative that we find systemic and equitable solutions that will allow our cities to strengthen public safety, revitalize their neighborhoods, and improve their schools.”
In today’s Boston Herald Jay Fitzgerald penned a tough article on the remarks Eric Rosengren (President/CEO of the Boston Fed made at a meeting of the Fed’s Board of Governors in DC on REO and Vacant Property Strategies for Neighborhood Stabilization. (REOs are properties that a lender takes back because of a foreclosure, where no one bought the property at a foreclosure sale process.)
There are many problems with the case Eric is making, not least of which is that it entirely ignores the generous state commitment to education which pores $4.5 billion into our cities and towns, with a disproportionate amount going to our cities. Some communities, like Lawrence get more or less their entire school budget from the state. Then there are leafy suburbs that get next to nothing.
Then there’s the fact that Eric’s take seems to suggest that cities can do nothing about their cost base and their revenue base. Are they really that helpless that they can’t increase revenues and can’t control costs?
Here are some thoughts from some mayors that seem pretty practical to me.
