Texas v. California
The budget crisis that has been afflicting California for the past year has been headline news. Because of it, California should be the symbol for the failure of the welfare state and centralized planning as over-generous social programs, a bloated bureaucracy, and the disproportionate influence of public employee unions has bled the government dry and brought it to the brink. In the past year, there have been many so many extreme measures taken by the California government that it is has been hard to follow. In order to make up a budge shortfall that is predicted to reach over $40 billion by 2010, California has had to do the following from 11/08 to the present:
-Furlough of all public employees for three days every month.
-Eliminate Columbus Day and Lincoln Holidays
-Asked the Federal government to back state bank-guaranteed notes, Obama refused, thus lowering California’s credit rating, making it harder to obtain much-needed loans.
-With its credit rating lowered, California began issuing IOUs in order to meet its short-term financial obligations.
-Has promised to release 37,000 prisoners from the state’s prisons.
-Has cut thousands of jobs from education and health care.
All this has caused a massive exodus of business leaving the once mythical state of unfettered personal freedom, spiritual exploration, and endless sunshine to fall into an unemployment rate that is now at 12.3%; one of the highest in the United States.
Then there’s Texas.
As a poll in Chief Executive magazine found, Texas was the best place in the United States to do business. (Guess which one was the worst? Yep, California.) Also, amidst a national recession, with the national average rate of unemployment near 10.5%, Texas had positive job growth in October 2009 and has kept their unemployment rate below the national avg., with the highest being reported at 8.3%. Many Texas economists and businessmen believe that they have hit the bottom this year and are expecting sustained job growth for 2010.
According to two separate studies, one by the Brookings Institution and one by Forbes magazine, the 5 top job-creating cities in America are located in Texas.
And, of course,Texas had a $11 million budget surplus for fiscal 2009.
The difference in the economic trajectories for these states generally goes unreported, I believe, because they show the strength of fiscal conservatism and the utter failure of liberal economics.
This is confirmed by an article Trends Magazine and reviewed by Tony Gattis at newgeography blog. The article asks the question: What’s wronmg with California and what’s right with Texas? Gattis says, “It really comes down to four fundamental differences in the value systems embodied in these states:”
First, Texans on average believe in laissez-faire markets with an emphasis on individual responsibility. Since the ’80s, California’s policy-makers have favored central planning solutions and a reliance on a government social safety net. This unrelenting commitment to big government has led to a huge tax burden and triggered a mass exodus of jobs. The Trends Editors examined the resulting migration in “Voting with Our Feet,” in the April 2008 issue of Trends.
Second, Californians have largely treated environmentalism as a “religious sacrament” rather than as one component among many in maximizing people’s quality of life. As we explained in “The Road Ahead for Housing,” in the June 2009 issue of Trends, environmentally-based land-use restriction centered in California played a huge role in inflating the recent housing bubble. Similarly, an unwillingness to manage ecology proactively for man’s benefit has been behind the recent epidemic of wildfires.
Third, California has placed “ethnic diversity” above “assimilation,” while Texas has done the opposite. “Identity politics” has created psychological ghettos that have prevented many of California’s diverse ethnic groups and subcultures from integrating fully into the mainstream. Texas, on the other hand, has proactively encouraged all the state’s residents to join the mainstream.
Fourth, beyond taxes, diversity, and the environment, Texas has focused on streamlining the regulatory and litigation burden on its residents. Meanwhile, California’s government has attempted to use regulation and litigation to transfer wealth from its creators to various special-interest constituencies.
Gattis says the article also has six forecasts for both states:
- …expect to see California’s loss of jobs to Nevada accelerate…
- …expect to see a backlash in California and across the country against regulations, especially green initiatives that can’t clearly demonstrate a positive ROI…
- Watch for the smart money, including venture capital, to begin migrating to Texas for start-ups in many areas, including energy, info-tech, manufacturing, and biotech. Just as Delaware’s tax laws once encouraged numerous businesses to incorporate there, even when they had no connection to the state, Texas will become a magnet for new businesses by offering cheap land, a favorable regulatory environment, a business-friendly culture, and a large supply of skilled labor. Unless California revamps dramatically, expect to see its economy languish, even as the recovery takes off.
- To make its business climate even more business-friendly, Texas will invest heavily in secondary education and work hard to attract the best talent to its research universities (note the recent Tier 1 proposition and funding). Keep an eye especially on the University of Texas, which already has a first-rate campus and faculty. Within 10 years, UT, as the locals call it, may well rival Stanford or Berkeley.
- Other states will adopt tort reform measures pioneered in Texas. Unlike California and most other states, Texas has been aggressive in minimizing the enormous burden of frivolous lawsuits…
- Look to Texas to become a cutting-edge cultural mecca. Houston has always offered a vibrant cultural scene, ever since the Alley theater company was founded there in 1947 by Nina Eloise Whittington Vance. In the 1950s, John and Dominique de Menil moved to Houston with one of the most significant private collections of art in the world and began donating art and money to the Houston Museum of Fine Arts. Both institutions have grown to world-class status since then. In the coming years, this trend will spread to the major cities of Texas (take that, Dallas!), attracting the best talent and money and shifting the cultural balance of the nation away from New York and San Francisco.