Krugman, Comfy Pillows and Rick Perry
economist polemicist extraordinaire, took out a very lightweight hammer and cushy tongs on Rick Perry’s job creation claims:
Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.
And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.
But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.
So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.
If this picture doesn’t look very much like the glowing portrait Texas boosters like to paint, there’s a reason: the glowing portrait is false.
Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.
What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is “Well, duh.” The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state.
Hidden in the translation of this tortured, meandering and hard to parse dance of words is sort of the Grand Master’s basic insight for all state economic development policymakers:
Don’t compete with other states. Competition with other states is harmful and a race to the bottom. Competition itself, it would seem, is bad because it makes people compete on wages.
Paul Krugman can now add to his titles those of Champion of the Dumb, Fat and Happy American Economy. No wonder he simply wants to inflate it with more stimulus. This sort of argument makes my face go a little like this: