Split Deception

December 2011By Comments

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 in new obligations. The distinction between state debt and local government debt has enabled Perry to claim, as he did in a recent debate, that “Texas has the second-lowest debt per capita in the United States”—a claim taken at face value by his opponents and the New York Times. But any Texan who lives or does business in our metro areas is paying off—by way of higher property taxes, tolls, and prices—the public investment that has stoked our Miracle.

The bottom line: the state that created the most jobs over the past decade ranks little better as a paragon of conservative economics than it does on the social welfare indexes so often cited by liberals. The only difference is that the right, largely ignorant of the truth, still claims us, while the equally clueless left reflexively regards “Texas” as a pejorative. Nevertheless, the roots of our “you’re both wrong” success story lie in a brief, shining moment when both parties got it right.

Lesson #3: When Dumb and Dumber work together, they get a lot smarter.

The late nineties was a particularly propitious time for a state historically plagued by corrupt one-party rule: a Democratic legislature in the sunset of a 120-year power monopoly forged a partnership with upwardly mobile Republican governor George W. Bush, who was eager to burnish his credentials as a uniter. This bipartisan sweet spot produced some legislation so reasonable and thoughtfully crafted that one particular piece became a cornerstone of the past decade’s growth, while another had a singular role in sparing us the worst ravages of the Great Recession.

The first of these was a 1999 bill deregulating our electrical power market, passed with broad bipartisan consensus. Roughly contemporaneous with California’s botched effort to do the same, the Texas bill turned out to be a marvel of thoroughness and caution, phasing in the new retail market over several years, providing new consumer protections, and even mandating that the state’s electricity providers install thousands of megawatts of renewable energy capacity, such as wind and solar. California’s pell-mell process resulted in crippling statewide blackouts (with an assist from a little energy company named Enron), while the reliability and stable costs of Texas’s power supply have been instrumental to the boom in Texas manufacturing and have ensured that our metro areas have access to the power needed to continue their rapid growth.

A similarly deft bipartisan approach helped spare us the worst of the housing market meltdown. When voters approved a 1997 constitutional amendment allowing Texans to take out second mortgages on their homes (prohibited by our 1876 constitution), the Legislature made sure there were limits on the equity we could borrow against: no more than 80 percent of the value of a property. We saw few of the “cash-out” mortgages that left homeowners in California and Florida owing more than the value of their homes, and our foreclosure rate during the Great Recession was lower than the national average—one reason Texas weathered the downturn better than any other major state.

Of course, we entered the recession with more momentum than any other major state, much of it due to rising oil prices. But our economic ace in the hole has placed both Perry and Texas in stark contrast to the 2012 GOP narrative, and that brings us to the final and most important lesson we can teach the rest of the country.

Lesson #4: Fences are for losers.

The 2001 bill that recently got Perry in so much trouble with the tea party—Texas’s version of the DREAM Act, which allows undocumented children who complete high school in Texas to pay in-state tuition at our public universities—was introduced by a Democrat, passed with only a handful of nays, and quickly garnered the governor’s signature. In other words, this source of today’s flaming controversy was greeted with a big “Duh!” by Texas’s bipartisan leadership a decade ago. Back then both parties understood that our border with Mexico wasn’t a thousand-mile-long security breach, but rather an asset on the same scale as the oil buried beneath us.

A 2006 study by the state comptroller’s office concluded that our 1.4 million undocumented immigrants boosted our state economy by almost $18 billion annually, but that figure may be low. The Perryman Group, a Waco economic analysis firm, calculated that Texas’s undocumented workers produce approximately $80 billion in output. If Texas’s undocumented workforce were suddenly deported, the net long-term job loss, even after vacancies were filled and the market adjusted, would be 400,000 jobs—almost half the Texas Miracle.

But the value of immigrant labor—and immigrant consumers—is only one component of our bordernomics. Of the $207 billion worth of goods Texas exported in 2010, more than a third were sold to Mexico, which adds up to an amount three times greater than those of our fellow border states (California, Arizona, and New Mexico) combined. While the rest of the country has been busy railing against undocumented immigrants, and a border fence has become an article of faith in the GOP, Texas has reaped unprecedented profits from the traffic going both ways across its wide-open border.

That’s why Texas Republicans have traditionally gone their own way—to the left—on immigration policy. When tea party legislators tried during this summer’s special session to require so-called sanctuary cities—such as Houston—to enforce federal immigration law, Texas’s most powerful Republican donors squashed the bill even as Perry, in full pander mode prior to announcing his run, supported it. To his credit, candidate Perry has defended the principle of giving undocumented children better access to higher education—and has taken his lumps for it.

But this very public dustup is about as close as the nation will ever come to noticing the complexities of the Texas Miracle. Perry’s recently announced “Cut, Balance, and Grow” plan perpetuates the myth of how Texas grew, while his new focus on energy production only reinforces the claims of his foes on the left and the right that the Texas economy is a one-trick pony. The debate will move even further from the truth, which is that Texas has succeeded by using every tool in the shed: we’ve contained costs and expanded government, borrowed to build our future, globalized our trade, and welcomed a diverse immigrant population—and not too long ago we expected our political parties to work together toward non-ideological solutions.

Today we’re a two-party state again: the tea party and the Republican Party. Under pressure from the former, we’ve started dismantling the Texas Miracle by embracing a one-size-fits-all (Perry’s definition of socialism) national formula for cutting government, closing the border, and never, ever using the d-word (debt). Even as Perry tries to sell the Texas economy to the entire nation, the biggest threat to our state’s unique prosperity is that we won’t learn how it came about until it goes away.

Related Content