On the campaign trail, Texas governor and Republican presidential hopeful Rick Perry has repeatedly boasted about the so-called “Texas miracle,” the state’s impressive economic performance in the last five years. This has set the chattering classes off, debating both whether the miracle is real and, if it is, whether the awesomely coiffed politico should be taking credit for it.
The data under contention are these: Texas has created 40 percent of the nation’s new jobs since the recession ended, far more than any other state. It entered the recession later than other states and got out of it faster. Its economy is growing twice as fast as the country’s as a whole. Its unemployment rate is high, at 8.2 percent, but lower than it is in the nearby “ sand states,” like Nevada (12.4 percent) and Arizona (9.3 percent). Judging by those statistics, it is fair to call it a lone star in a fairly depressed region, if not an outright miracle.
It seems silly for Perry to take credit for the state’s performance, one way or another. Economies are complicated. Trends take years and even decades to come into effect. Governors are not omnipotent. But aside from the nearly 11-year Perry reign, there are plenty of other reasons that Texas’ economy has looked so vibrant. And those reasons might serve as lessons for other states.
First, Texas has lots of oil and gas. Spiking gas prices helped tip the country into a deep recession in 2008, as they raised costs for businesses and cut into families’ spending on other goods. But pain at the pump helped the few states with lots of fuel to sell and commodity-related jobs. Oil-rich North Dakota, most notably, barely noticed the downturn. And Texas felt it less than most other states.
The decade of rising gas prices just happens to coincide with Perry’s tenure as governor: In December 2000, when he took office, the price of a barrel of oil was about $30, adjusted for inflation. Today, it is about $82. At its height, it was nearly $150. High oil prices mean high revenues for Texan oil companies. Moreover, in the last few years, fracking and other extraction technologies have helped Texas access new oil and natural-gas reserves, boosting sales and adding thousands of jobs. All in all, oil and gas currently contributes about $325 billion a year to Texas’ economy.
The knock-on benefits of those rising gas prices are also considerable. Growing commodity businesses helped flush more money into the Texas government’s coffers, just as the slowing economy started to chip away at other tax revenue. (Oil and gas finances up to 20 percent of Texas’ state budget.) That meant that Texas had to lay off fewer government workers than other states; in fact, it has added positions.
Second, Texas kept its housing-finance regulations tight. As Alyssa Katz noted last year in The Big Money, Texas has had a longtime commitment to ensuring that homeowners make significant down payments and do not use their houses like piggy banks. The rules bar Texans from taking out home-equity lines of credit worth more than 80 percent of their mortgage. They also ban “cash-out refinancings,” which add to homeowners’ debt.
As a result, Texas never had a housing bubble. Real estate prices appreciated much more steadily and slowly than in states like Nevada and Florida and never really turned down. That means relatively few foreclosures, healthier local banks, and a steadier construction sector. Moreover, it means that Texans never got as indebted as citizens in other states.
It is that latter point that explains so much about Texas’ economic vibrancy today. During the bubble, Californians and Nevadans and Floridians bought McMansions they couldn’t afford, took out home-equity loans on those McMansions, and charged billions more to their credit cards. They are still focusing on paying down those debts years later—a process economists call “deleveraging”—suppressing their consumer spending and adding to their states’ economic malaise. Texans built up less debt, and therefore have had a whole lot less deleveraging to do, as this great chart by finance blogger Mike Konczal shows. That means smoother consumer spending. It means a more stable economy. And it means a lower unemployment rate.
Finally, Texas has benefited from immigration. Put simply, Texas’ economy is growing because Texas is growing. Indeed, the state’s population has swelled more than 20 percent in the last decade, by 4.2 million people. And it has added residents faster than any other state since the recession started. In this case, supply creates its own demand. All those folks buy food, pay rent, and drive cars, helping to support local businesses and create jobs. Those immigration trends undercut some of the “Texas miracle” story: The state’s job growth is not extraordinary in the context of its population growth. Indeed, the state’s employment-to-population ratio, Felix Salmon points out, has followed national trends. Nevertheless, more people in Texas means more customers for Texan businesses, which means a more vibrant economy.
So what does it all mean for other states? Well, they cannot produce oil out of thin air. They cannot snap their fingers and conjure up the growing economy, nice weather, great barbecue, and cheap real estate that draw all those new people to Texas. But they can keep their consumer-protection and housing-finance rules strict—and take comfort, at least, in the fact that the Texas miracle does not have much to do with Rick Perry.