This story is from Texas Monthly’s archives. We have left it as it was originally published, without updating, to maintain a clear historical record. Read more here about our archive digitization project.
John Kenneth Galbraith
Paul M. Warburg Professor of Economics, Emeritus, Harvard University, Cambridge, Massachusetts
I should be delighted to take charge of the Texas economy. One should never be concerned with small problems. First, I would assemble senators and congressmen, however politically backward, to make clear the needed Washington action. This need proceeds from the fact that free, unrestrained markets are tolerable only in free enterprise rhetoric, not in practice. Needed for the two great Texas industries, agriculture and oil, are sensible controls on output. For farmers, the Reagan free-market farm program is an expensive disaster; it must be replaced with firm production controls on basic agricultural products and firm price supports. For oil, a radical step: we should associate ourselves with international efforts to achieve moderate and responsible control of output. Also, of course, we should fill up our petroleum reserves.
More specifically now within one’s own state power I would urge with all possible tact a look at the New England, particularly the Massachusetts, economy. Massachusetts has full employment and in metropolitan areas a labor shortage. Incomes are rising; the state budget is balanced with a big surplus, even after taxes have been reduced. The reason is that we have invested heavily in the past in education and other state services and in fairly firm environmental protection. In consequence, we have a stable, highly diversified industry, a strong service and financial sector, considerable employment in education and the arts, and, I am forced to add, a dangerously expanding real estate boom. For the best of the above we pay with both an income tax and a sales tax. Except in political rhetoric, again, people would far rather live with taxes than do without the amenities of life. New England, despite its awful climate, attracts many people who could make their livelihood elsewhere. They do not want to live in central Alabama or even, perhaps, in Midland. Especially important among those so attracted are business executives who are locating plants; businesses develop where people want to live, a most important fact. For Texas, accordingly, I would urge the strongest steps to strengthen the educational base—elementary schools, high schools, technical schools, the universities—much more along the lines of recent efforts. And I would strengthen public services of all kinds: libraries, recreational areas, the arts, on to police protection and careful environmental controls—all forms of investment in future well-being. For this investment I would then levy the required taxes. Only the congenitally myopic believe that economic development is encouraged by poor services and low taxes. Development is encouraged by the full deployment of all the resources and all the attractions of the modern civilized community.
In the present state of Texas opinion, I would gather, I might not survive my program. That is often the price for being right.
Professor of Economics, Pepperdine University, Malibu, California; Creator of the Laffer Curve
One of the dumbest things you can do in a recession is to raise taxes. If you can’t run a deficit, cut spending. Don’t raise taxes; you’ll become like Ohio and Michigan. When oil was booming, that was when you should have raised taxes if you had wanted a cushion, not now.
Texas’ performance over the last decades has been astoundingly good. You’re not genetically different from other states; you’ve just had good government policies. Remember that the price of a barrel of oil in 1972 was about $3.50. If you look at it that way, the price of oil has actually gone up fourfold in fourteen years. That’s not bad. What’s bad is that it went to $36 first, then back down to $14. If it had gone up fourfold from 1972 to today, it would have been wonderful. I expect $18- to $20-a-barrel oil in three to four years. Oil will be a major bulwark of your production base, and it should be. The state doesn’t need to concern itself with oil per se; consumers and suppliers will take care of that.
Texas has some nice harbor facilities—make sure you keep those in good shape. And if you have to make cuts in your university system, do it on things that are not critical. Don’t destroy everything for a moment’s budget.
In California we also share a border with Mexico. Those workers are very important. They provide a great deal of high-quality, low-cost labor. State efforts to stop illegal immigration are a real mistake—these workers are not the problem.
Texas will weather the storm. You’ll see some names missing from the roster of the wealthy, but that’s good. If you don’t have a chance to lose it, what’s the fun of making it?
Texas will be just fine if it doesn’t raise taxes now and doesn’t bail out the losers.
Senior Partner, Lazard Freres and Company; Chairman, Municipal Assistance Corporation for the City of New York
You can’t really compare what’s happening in Texas now with the crisis we had in New York City ten years ago. Our problems were runaway spending and borrowing superimposed on a contracting economy. Part of your problem is something over which you have no control: the price of oil, which will probably come back up at some point. But there are some general principles about what we did here that are applicable. If it is practical, you may want to look at the notion of amending your constitutional requirement to balance the state budget, because of the emergency nature of the situation. You cannot eviscerate your state services overnight, thus damaging your social and economic structure permanently, because of a temporary decline in the price of oil. The nature of any political or corporate beast is that when times are good, overhead grows. But there is a point beyond which you can’t cut without creating a downward cycle. You can’t take the short-term view and hack away at everything because of accounting requirements. You also don’t have to accept everything as being a given. For instance, we had to put a moratorium on some of our notes. You may want to look into financing on a long-term basis as we did with the Municipal Assistance Corporation. You may want your long-term debt tied to the price of oil. So you would issue long-term bonds, the terms of which may in part be tied to the price of oil. If the price comes back, bond holders get paid back more rapidly.
People also have to pay for what they get. There is no magic. We in New York pay a personal income tax because we demand a certain level of services. A progressive income tax is the most civilized way for those who can afford to pay for services to pay for them.
You learn a lot from bad times. We learned a lot here. You could argue that it was extremely beneficial. The local economy learned that business was something you should like, not treat as evil. We have got a $20 billion budget in this city, and we have had surpluses for five years. That’s pretty good for supposedly crazy liberals.
Former U.S. Secretary of the Treasury
There’s absolutely nothing wrong with Texas whatsoever. I believe Texas is probably the most dynamic state in our country—and there’s no prejudice, because I’m from New Jersey.
No one knows better than Massachusetts what happens when a state is reliant on one industry. In our case, it was shoes and textiles. When that was booming, we were booming; when that was down, we were down.
It was a long way back. States that are overdependent on any one thing, whether it be textiles, oil, mining, corn, or wheat, are in trouble. Diversity is the key. I know Mark White has been working on bringing in high-tech industries. I read that your Secretary of Agriculture, Jim Hightower, is trying to encourage cotton farmers to grow blueberries. The point is to be more market-sensitive. Massachusetts has a small agricultural sector, but it is doing very well: it is growing quality crops, and it has gotten into horticulture.
Obviously, as governor of this state, I can’t support an oil import fee; we use a lot of oil, and it would be a very heavy tax on us. On the other hand, there are things we can do to shore up the domestic industry without imposing taxes. One is to fill the strategic petroleum reserve. Another is the creation of long-term contracts between producing and consuming states. If we could have long-term contracts at a reasonable price—let’s say a little higher than the market—that would help both states. It gets you back into production, and it protects us from the kind of shock we experience when OPEC raises its prices.
Founder of Atari; Chairman of the Board and CEO, Axlon, Inc., Manufacturer of Electronic Toys and Games, Sunnyvale, California
Why isn’t Texas Hong Kong? Texas is a geographic region with people who are creative and hardworking. The same thing can be said of Hong Kong. Hong Kong right now is primarily managerial, and its labor base is highly skilled—the low-cost labor is on the Chinese mainland. Texas should be the Hong Kong of the border. There’s a lower labor rate in Mexico than there is in Hong Kong, and I would rather have the productivity here, closer to my market. Your geography gives you a tremendous advantage in shipping costs over those of the Far East.
America in the next twenty years is going to have to convert itself to a society based on construction and services, not on manufacturing. To do that, you need robotics, and not enough is being done on robotics, so there are tremendous opportunities in that area.
Also, if Texas changed its liability laws, you could get a jump on the world. If you say that companies in your state will have a limit placed on liability, you could have a tremendous advantage. The cost of products is being pushed up by insurance. You have to reintroduce the concept of self-liability. If someone screws up and gets hurt—that’s pretty much his screwup.
President and CEO, Remington Products, Inc., Manufacturer of Electric Shavers and Other Appliances, Bridgeport, Connecticut
Texas is somewhat like Australia. Australia is blessed with natural resources—in its case, minerals—and with agriculture. Now the world marketplace for both those items is in a glut, and the Australians are in shock. So they have created a program in which if an individual can raise 80 per cent of the funds needed to start a business, that person can get low-cost government loans. If you had a similar program in Texas, you would find entrepreneurs coming out of the woodwork. This thing has to be led by the private sector. You’ve got Mr. Perot and at least a few individuals like that who are still loaded. That’s what’s needed, a top-level guy. I assure you hat people in Texas with good ideas have been turned away by lenders because their ideas are mundane, not high-tech.
I would also start an advertising and publicity blitz on the advantages of holding conventions in Texas. You’re so overbuilt you can cut the prices of the rooms to the bone and make money on lunches and dinners. The hotels are just sitting there. If they can make $1 a room, at least it’s something.
Our federal government is committed now to reversing the flow of funds out of the country, and it will try to keep the dollar weak. So right now is a golden opportunity to beat the bushes and get foreign companies to build factories here; with the dollar weak, foreign companies have to come in here to compete. Texas has got ports, airports, good communications. You have to have a coordinated, planned program to decide what your state has to offer other countries and then go out and start attracting foreign manufacturing.
Don’t forget: when you have entrepreneurs, you have failures. You just have to keep going.
Edward I. Koch
Mayor, New York City
To help the Texas economy, I make the following offer: New York City will be happy to let Texas drill for oil in Central Park. All you have to do is meet the requirements listed below:
- Apply for and receive approval from all federal, state, and local environmental agencies.
- Ask permission from the New York City Board of Estimate, which consists of the mayor, the comptroller, and the council president and the borough presidents of Queens, Brooklyn, the Bronx, Staten Island, and Manhattan.
- Convince the parks commissioner that your drilling rig will be indistinguishable from an elm tree.
- Persuade the city council to pass the necessary legislation.
- Persuade the state legislature to agree with the city council.
- Make your case before the parks committees of Community Boards Seven, Eight, Ten, and Eleven.
- Go before the full membership of Community Boards Seven, Eight, Ten, and Eleven and explain why you started riots at their parks committee meetings.
- Throw a party and invite the Central Park Conservancy, the Friends of Central Park, the New York Public Interest Research Group, the Environmental Action Coalition, the Environmental Defense Fund, and Ralph Nader. A very small room will suffice for this party.
- Defend any and all legal actions that are filed at the various levels of state and federal court.
- Hold a series of warm, friendly meetings with the little old lady who lives near the corner of Sixty-eighth Street and Columbus Avenue and who walks her dog in the park.
Please let me know when you’re ready to begin drilling.