Bear Market

With the federal government in knots, Texas and California—the two most powerful megastates—are fighting to lead the country forward. Guess who’s winning.
Illustration by Carl DeTorres

It is a clash of civilizations that had festered for decades before it erupted just months after President George W. Bush was inaugurated, seven years ago. Though not a war in the conventional sense, it is a generational struggle that is likely to determine the future of American democracy. And it isn’t the war on terror. It’s the historic showdown between California and Texas.

Call it the War Between the Megastates. This conflict burst into the national headlines on May 17, 2001, when then-governor Gray Davis told reporters that California, reeling from chronic blackouts and the bankruptcy of his state’s largest power company, was “literally in a war” with “price gouging” Texas energy producers. The dustup was soon portrayed by both the media and the principal antagonists as a battle between two great stereotypes: California liberals who had preferred flower power to new power plants suddenly finding themselves under the boot of the J. R. Ewings at Houston energy trader Enron. Davis received no sympathy from the former Texas oilmen at the top of a Republican ticket that had recently lost California by more than a million votes. Vice President Dick Cheney, who had earned his private-sector spurs and eight-figure stock options at Texas oil field giant Halliburton, dismissed the governor’s allegations (which ultimately proved to be correct) as “goofy” and described his plan to contain the crisis as “harebrained.”

For the most part, however, Texas versus California has been a cold war, a simmering ideological feud between two great powers. And we’re talking about real global power, not the quaint, old-fashioned states’ bragging rights that used to be framed by football rivalries and wagers of Texas barbecue against California oranges. Of our past eight presidents, five of them forged their political careers in California or Texas. Today America’s two most-populous states— California is number one, Texas number two—boast world-beating economies: Individually, either one’s gross domestic product is bigger than Russia’s or India’s; combined, the states’ GDP is greater than that of every nation except Germany, Japan, and, of course, the United States.

But evolving most rapidly, and most portentously, is the role megastates like ours play in this federation we call the United States. We’re now seeing the fruition of the “federalism” that conservatives have touted for decades as the antidote to the smothering nanny state of the New Deal and the Great Society. The irony, however, is that the notion of states’ rights has undergone a radical twenty-first-century evolution. The erstwhile battle cry of knuckle-dragging Jim Crow segregationists has become the anthem of progressives of all stripes, from alternative energy entrepreneurs to gay rights advocates. Where once the federal government took an enlightened stand against prejudice and poverty and dragged the South kicking and screaming into the civil rights era, today Washington stands in the schoolhouse door while forward-looking states invoke their right to solve problems like global warming and spiraling health-care costs.

To an extent, this is what Supreme Court justice Louis Brandeis was talking about in his famous 1932 opinion: “It is one of the happy incidents of the federal system that a single courageous state may ... serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” But the “laboratories of democracy” Brandeis envisioned have clout he couldn’t have foreseen back when the entire national economy was considerably smaller, even in inflation-adjusted dollars, than that of either California or Texas today. The challenges the two megastates face are commensurate in scale: California and Texas boast the nation’s largest undocumented populations, the most polluted skies, the most residents lacking health insurance, and the most pressing water and energy demands. Despite the theme of change in the 2008 election, the days of Washington getting the lab results and formulating national panaceas are probably over; paralyzed by red-state-blue-state gridlock, the federal government gives every appearance that it no longer has the agility to get the big things done in a rapidly changing world. So even when we’re not firing political potshots at each other, California and Texas are already in an existential race to arrive at creative solutions to our nation’s most intractable problems. The loser will end up buried beneath those problems. The winner will own the future.

In many respects, Texas comes into this competition as the clear underdog. Aside from our smaller population and GDP, the average California family makes about 20 percent more than the average Texas family. But even more fundamentally, California gets its muscular new nation-state status in a way that Texas, despite its unique history as an independent republic, just doesn’t. California’s first leading-man-cum-governor, Ronald Reagan, transformed American politics by declaring big government the problem and “devolving” power back to the states; now Arnold Schwarzenegger is using his star power to promote the idea that the states can, in effect, do big government better than Washington.

The Governator, who said on a trade mission to Canada that California has a “power of influence ... equivalent of a nation, or even a continent,” is trying to outflank the feds on multiple fronts: insuring the uninsured, researching embryonic stem cells, reducing greenhouse gases, and producing renewable energy. “The federal government is standing in our way and ignoring the will of tens of millions of people across the nation,” Schwarzenegger said late last year when the Bush administration’s Environmental Protection Agency rejected California’s plan to reduce carbon emissions from new cars. “We will continue to fight this battle.”

Texas governor Rick Perry presented a distinctly different worldview when he addressed the California Republican Party’s convention last September. Schwarzenegger keynoted the event by appealing to a state party “dying at the box office” to reclaim the “abandoned middle political ground.” Voters, Schwarzenegger said, “want this party to do something more about climate change than simply doubt it. If it is the policy of the Republican party to ignore the great majority of the world’s scientists . . . then that is a party at odds with

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