Tuesday, January 11, 2011

Krugman's muddled argument against Texas

Last week NYT columnist and economist Paul Krugman wrote a very popular column pointing to Texas' revenue shortfall and declaring it an example of the failure of conservative government.  I found the whole piece a muddled mess and dismissed it, but you can't believe the notes I've gotten from people requesting a response.

The thing is, I don't really get his point. The bad national economy was going to cut state revenues no matter what. Is he saying we'd be better off if we had a fat government with easy cuts, instead of a lean government with tough cuts?  How much sense does that make?

The nice thing about delaying my response is that others have already made great cases against the column (saving me the work).  Kevin Williams at the National Review is a bit sarcastic for my tastes, but makes several great points - the main ones being:
  • there's no such thing as a shortfall in Texas, since we use zero-based budgeting (i.e. we start from nothing building every budget with no assumptions from prior years), and
  • our unemployment rate, which is better than the national average, is even more impressive when you consider our huge population gains and the jobs we've had to provide just to keep up with it.
Bill Watkins at New Geography also lays into Krugman's fuzzy thinking:
"People are not as stupid as many Nobel Prize winners might think; they move for opportunity, not just for cheap houses or low-paid work."
Then he comes up with a great new acronym:
"A business moves to or expands in a region based on a whole host of reasons. These include available infrastructure, resource availability, market size and location, labor supply and costs, worker productivity, facilities costs, transportation costs, and other costs. Those other costs include what I call DURT (Delay, Uncertainty, Regulation, and Taxes)."
Conveniently, the Wall Street Journal made the case for Texas' growth and opportunity the next day:
WSJ.com - Opinion: The Great Lone Star Migration
Today one out of 12 Americans lives in Texas—the same proportion that lived in New York City in 1930.
...Finally there is Texas. In 1930 there were (rounded off) six million people in the Lone Star State versus 13 million in New York. In 1970 there were 11 million in Texas and 18 million in New York: Each had grown by about five million. But in 2010 there were 25 million in Texas and 19 million in New York.
Back in the 1930-70 period, liberal political scientists hoped and expected that America would become less like Texas and more like New York, with bigger government, higher taxes and more unions. In one important respect—the abolition of legally enforced racial segregation—that has happened. But otherwise Americans have been voting with their feet for the Texas model, with its low tax rates, light regulation and openness to new businesses and enterprises.
Today one out of 12 Americans lives in Texas—the same proportion that lived in New York City in 1930. Metropolitan Dallas and metropolitan Houston, with about six million people each, threaten to overtake our fourth largest metro area, San Francisco Bay (population about seven million), in the next decade.
That doesn't seem to be much of an indictment of Texas' approach to governance...

That's not to say the next budget is going to be easy.  A lot of hard tradeoffs will have to be made.  But it's pretty clear Texas is a very far cry from being a failed state.

Update: another rebuttal against Krugman from a UH professor.  Hat tip to Big T.
Update 2: Richard Florida and Derek Thompson responses supporting Texas.

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15 Comments:

At 6:13 AM, January 12, 2011, Blogger Alon Levy said...

Krugman isn't saying Texas is a failed state - just not a spectacular success in the present recession. The argument he's seeking to rebut is that Texas's conservatism made it less vulnerable to the recession.

 
At 8:30 AM, January 12, 2011, Blogger Tory Gattis said...

Looked at purely through the lens Krugman chooses - state govt "shortfall" - he might be right. But as soon as you look at a more well-rounded picture - unemployment, job creation, population migration, stability in home values - you have to admit TX has held up better than almost any other state - and certainly better than any other high-population state (i.e. not the farm belt).

 
At 8:47 AM, January 12, 2011, Blogger Big T said...

Tory, Craig Pirrong has the best rebuttal that I've seen to Krugman's Texas column: http://streetwiseprofessor.com/?p=4672

 
At 9:00 AM, January 12, 2011, Blogger Tory Gattis said...

Thanks. I've updated the post at the bottom with the link.

 
At 1:30 PM, January 12, 2011, Anonymous Neal Meyer said...

Tory,

I'll let you in on something about Paul Krugman. Some months back while out and about, I stopped by the UH bookstore to pick up an updated hard copy of the Texas Local Government Code. While at the store, I browsed around the economics department to see what books professors at the school were assigning their students as a part of course work.

When I was doing my undergraduate economics work years ago, Paul Krugman's books were a staple at the UH, beginning with his justifiably well received Peddling Prosperity. This was the case for quite some time. However, when I was at the bookstore this past time around, I could not see where a single professor had assigned any books written, or co-written by Krugman for any course. The fact that that happened could be read as a not so subtle slap in the face at Krugman by his fellow academics, many of whom probably are not too happy at the fact that Krugman has, over time, degenerated from being a very respectable economist with a mildly liberal conscience and into a political hack.

 
At 2:19 PM, January 12, 2011, Blogger Michael said...

What is the UH professor's rebuttal exactly?

1) We're not quite as screwed as NY and CA. OK - maybe. But we're still in a mess. Hence Krugman's points still stand - Texas is not a model state.
2) The state bears *no responsibility whatsoever* for the failings in education and healthcare, to say nothing of environmental protection or our inadequate transportation system. In education, the professor argues this is because there is no correlation between our woeful spending and our woeful achievement. Presumably, we can even cut funding further for things like schools because of this lack of correlation between spending and achievement. At some level, maybe this makes sense. But most Texans don't want cuts to school spending or higher education, and most would probably accept that there must be SOME correlation between spending and achievement - ie you cannot spend $0 and get a better outcome than spending something - maybe we need to understand these correlation levels more clearly but to me it is patently obvious that there must be some correlation. Furthermore, I'm no expert on the culpability of the state in things like our lack of health insurance, but I do believe at some point we cut things like CHIP / children's health insurance for hundreds of thousands if not millions of our state's children, and again - I think this is the wrong approach for Texas to take.

 
At 5:13 PM, January 12, 2011, Anonymous kjb434 said...

Let's see, anybody that has commented and defending Krugman has the same disdain for how things are done in Texas and Krugman does.

Since you mentioned National Review, years ago, they had a running piece on their website written by Donald Luskin who tore apart Krugman's columns and often forced the NYTimes to print corrections or have Krugman do it himself in his next column.

Neal is right that Krugman has pretty much drift as far away as possible as a credible opinion on pretty much anything since he skews things so much to fall in in line with his political views. It's one thing to have a political view, but it's a completely different thing to have that view blind you to reality.

Oh, and Michal, for Texas to fix education and healthcare, there is a sensitive topic that has to be included......illegal immigrants. If this component was removed from our healthcare and pretty much any government funded social programs, we would be in better shape than we are now. If the influx of children of illegal immigrants didn't weigh down our public schools, we would have more money to go around especially in inner city school districts.

 
At 6:35 PM, January 12, 2011, Blogger Alon Levy said...

Krugman does look at unemployment - see his original blog post. He acknowledges that Texas has had net immigration; his argument is that it doesn't mean Texas has less unemployment. See explanation here.

I don't know what textbooks UH professors use nowadays, but Krugman's Macroeconomics textbook is quite successful - maybe not as much as Mankiw's, but still one of the top sellers in the US. His citation index has held up well, too - he ranks around 10th. There are nowadays two sources of attacks on Krugman's expertise, rather than his politics or his arguments: one from Freshwater economists, who attack every Saltwater person, and another from hacks with no or very few peer-reviewed economics publications.

 
At 8:52 AM, January 13, 2011, Blogger Mike said...

"Krugman isn't saying Texas is a failed state - just not a spectacular success in the present recession. The argument he's seeking to rebut is that Texas's conservatism made it less vulnerable to the recession." - Alon Levy

Kruman's argument deiberately ignores the primary factor in determining the truth of his assertion. Employment in the face of a GROWING population is far better than ALL of the big government states, none of which is growing in population. Budget issues in a poor economy are being faced by every state, Texas isn't doing badly at all there either.

 
At 8:53 AM, January 13, 2011, Blogger Mike said...

"Krugman isn't saying Texas is a failed state - just not a spectacular success in the present recession. The argument he's seeking to rebut is that Texas's conservatism made it less vulnerable to the recession." - Alon Levy

Kruman's argument deiberately ignores the primary factor in determining the truth of his assertion. Employment in the face of a GROWING population is far better than ALL of the big government states, none of which is growing in population. Budget issues in a poor economy are being faced by every state, Texas isn't doing badly at all there either.

 
At 8:55 AM, January 13, 2011, Anonymous Anonymous said...

>>Krugman's Macroeconomics textbook is quite successful.

Gee, leftwing ideologues at colleges and universities make their students read Krugman's claptrap.

Yes, that must prove his economics are sound.

 
At 11:47 AM, January 13, 2011, Blogger tescon said...

It would be even better off without the high number of illegal aliens using up the state's resources.

 
At 5:06 PM, January 13, 2011, Blogger Alon Levy said...

@Mike: first, the argument for Texas that people made before the budget crisis was that it was unique in having no budget crisis. Krugman is specifically busting that one argument.

Second, a growing population will lead to growing employment to serve that population's consumption, except in genuine resource states like Saudi Arabia or Alberta. It's how industrialized countries maintain their GDP per capita growth regardless of how fast their natural population growth is.

 
At 12:00 AM, February 08, 2011, Anonymous Bobby Hadley said...

Fact check:

"Metropolitan Dallas and metropolitan Houston, with about six million people each, threaten to overtake our fourth largest metro area, San Francisco Bay (population about seven million), in the next decade."

Was this a quote from the article? Because Tory certainly knows better...

DFW and Houston-Sugar Land-Baytown MSAs (metros) are already much larger than SFO...

 
At 7:59 AM, February 08, 2011, Blogger Tory Gattis said...

It's technically correct if you merge the San Francisco and San Jose (i.e. Silicon Valley) metro areas into a single one of 7 million. But the census splits them into two MSAs, which drops them both significantly in metro rankings. So, bottom line, we beat the separate MSAs, but not the combined CSA - at least not yet.

See http://en.wikipedia.org/wiki/San_Jose-San_Francisco-Oakland,_CA_CSA and http://en.wikipedia.org/wiki/Table_of_United_States_Metropolitan_Statistical_Areas

 

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