Split Deception

Despite what Democrats say, our state really is an economic powerhouse. Despite what Republicans say, it’s not for the reasons you think.
Split Deception
Illustration by David Gothard

Rick Perry’s presidential bid has given our polarized nation yet another ideological great divide: either you believe in the Texas Miracle or you don’t. On the face of it, there’s little to deny. Even Perry’s opponents acknowledge that Texas has become the nation’s roaring economic engine, a trillion-dollar-a-year dynamo that has created a million jobs over the past decade. But in an election cycle dominated by dueling job-creation schemes, the real issue is how we did it.

And in this regard, the argument over the Texas Miracle may stick around longer than Perry’s candidacy. Mitt Romney has attributed the Miracle to “four aces” (actually five): oil, zero income tax, low regulation, right-to-work laws, and a Republican legislature—none of which, he believes, owe anything to Perry’s leadership. Perry has offered his own “four core principles” the country should follow: end frivolous lawsuits; create a predictable regulatory climate; keep taxes low; and foremost, “don’t spend all the money.” Over on the left, there’s a whiff of birther-like denial: the books have been cooked; it was all population growth and rising energy prices; we did it only by denying countless Texans basic social services.

When you dig down into the data, though, it turns out that both the left and the right are wrong about the Texas Miracle. The left has yet to recognize that it really did happen, and the right has yet to accept that it didn’t happen the way they think it did. Even now, four months into Perry’s candidacy, precious little light has been thrown on the real lessons that the nation needs to learn from our experience.

Lesson #1: When biting the hand that feeds you, keep your hand out.

Deep in our hearts, we are a small-government state. Our 1876 constitution (still in effect) was designed to make both Washington and Austin as inconsequential as possible in the lives of Texans—a sentiment still popular today. Nearly as venerable, however, is our politicians’ long tradition of saying one thing and doing another. During the thirties, conservative Texas Democrats kicked and screamed about FDR’s big-spending New Deal, even as Texas power brokers like Vice President John Nance Garner and House Appropriations Committee chairman James P. Buchanan brought home plenty of the newfound federal largesse, including rural electrification and public works projects that helped modern Texas emerge from a dirt-poor agrarian economy. Given this history, we shouldn’t have been surprised when George W. Bush, a small-government-talking Texas governor, turned out to be a big-spending president, exhibiting a profligacy that prompted Perry to complain that his predecessor “was never a fiscal conservative.”

But Perry himself shares this tradition. During his first decade as governor, state, local, and federal spending in Texas grew by 68 percent (in current dollars), an even greater expansion than the stampeding 58 percent growth of our state’s gross domestic product (GDP). Those million jobs the governor claims to have created? According to the Bureau of Labor Statistics, 300,000 of them are government positions, more than half in public education. Government at all levels provides a larger share of Texas’s GDP than it does for big-government avatars like California and New York. As he stumps in Iowa for the January caucuses, Perry probably won’t be telling local voters that our government sector is larger than their entire state economy.

If Perry were still a Democrat, he might be lauded for proving that a robust public sector is conducive to private-sector job creation. Instead he credits our Miracle to low taxes and tort reform—despite the fact that even conservative think tanks don’t give Texas high marks in those areas. The 2010 ALEC-Laffer State Economic Competitiveness Index rates Texas third in “economic performance” but only nineteenth in “economic outlook” among the fifty states. Although Texas is one of nine states without an individual income tax, we’re brought low by criteria such as sales and property taxes, tort system, and number of public employees per capita (the fewer the better, of course), categories in which we rank anywhere from the bottom half to the bottom fifth of our peers.

Even more remarkable, though, is how low Texas rates in yet another category near and dear to Perry’s heart. Which brings us to our second lesson.

Lesson #2: Don’t spend all the money—spend all their money.

“Debt” has already become the four-letter word from which every presidential candidate must recoil in horror. But if you want to bring Texas-style economic expansion to the rest of the country, get over it. According to the ALEC-Laffer calculation of the interest Texas pays on its debts as a percentage of the tax revenue raised, only two states—ultra-liberal Massachusetts and ultra-conservative South Carolina—are more egregious borrowers.

Of course, Perry can claim to have signed six balanced budgets as governor. However, in Texas much of the burden of public finance is placed on local governments—again, thanks to our venerable constitution. But unlike in 1876, we’re not talking about rural counties with lovely Victorian courthouses. Today the huge economic engines of the Houston, Dallas, Austin, and San Antonio metro areas account for three quarters of Texas’s GDP and would together rank as the world’s sixteenth-largest economy.

As the population of this burgeoning “Texa-plex” ballooned over the past ten years, municipalities and regional authorities sold bonds to pay for new infrastructure such as schools, roads, and water projects—the kind of civic investment that in bygone eras gave us our two major ports of entry for global commerce: the Houston Ship Channel (the nation’s first major public work to be financed in part by local bonds) and the Dallas–Fort Worth International Airport. During the past decade, our economy has boomed not because the Legislature has kept a lid on costs, but because our cities have borrowed to pay for Texas’s future. As a consequence, during the first eight years of Perry’s tenure, state and local government debt more than doubled, an increase considerably greater than even that of big-spending California.

Local governments took on almost all of this $115 billion

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