Wednesday, August 17, 2011

Paul Krugman Is Still Wrong about Texas - By Kevin D. Williamson - Exchequer - National Review Online

Paul Krugman Is Still Wrong about Texas - By Kevin D. Williamson - Exchequer - National Review Online

Kevin D. Williamson, deputy managing editor of National Review, makes several points I have been making to individuals when they suggest that the Texas economy is either "dumb luck" or simply an illusion. Left-leaning commentators, and I include Paul Krugman in that category (he long ago surrendered his economics qualifications, as I've explained in previous posts), are avoiding serious comparisons of economic models across various states. The right is no better, but I used to expect better statistical analyses from Krugman.

What, indeed, does population growth have to do with job growth? Professor Krugman is half correct here — but intentionally only half correct: A booming population leads to growth in jobs. But there is another half to that equation: A booming economy, and the jobs that go with it, leads to population growth. Texas has added millions of people and millions of jobs in the past decade; New York, and many other struggling states, added virtually none of either. And it is not about the weather or other non-economic factors: People are not leaving California for Texas because Houston has a more pleasant climate (try it in August), or leaving New York because of the superior cultural amenities to be found in Nacogdoches and Lubbock.
I've been to Texas several times and have family there. I love Dallas and San Antonio, but I dislike Houston and Lubbock intensely. I hated my week in Lubbock — it is a lousy place, in terms of weather and location. Houston was more humid than anywhere else I've been. It made the other Gulf cities seem comfortable because Houston is not only humid, but it was unimaginably hot while I was there. Hot and humid aren't things the Chamber of Commerce would feature in a sales pitch.

Illegal immigration hasn't even dropped as much in Texas as other border states. Illegal immigration is a federal problem, costing Texas millions of dollars, but Texas is also benefiting from those new residents. Since Texas is a low-tax state, illegals contribute only a fraction less than other residents. (I'm all for immigration, since we need new people to support aging residents. More on that later in this column. Aging states decline.)

I had six interviews for jobs in Texas last year, more than any other state. These were interviews for university posts, all tenure-track and all reasonably good jobs. No other state came close to the job prospects in Texas. I ended up in another state, but Texas sure gives other places some competition. Air conditioning could make Houston tolerable, for the right job. Wages were not my primary concern because the cost of living in Texas was 20 to 35 percent lower than all but two other job markets.
…[As] Professor Krugman puts it, “low wages give corporations an incentive to move production to the Lone Star State.” Are wages low in Texas? There is one question one must always ask when dealing with Paul Krugman’s statements of fact, at least when he’s writing in the New York Times: Is this true? Since he cites New York and Massachusetts, let’s do some comparison shopping between relevant U.S. metros: Harris County (that’s Houston and environs to you), Kings County (Brooklyn), and Suffolk County (Boston).

Houston, like Brooklyn and Boston, is a mixed bag: wealthy enclaves, immigrant communities rich and poor, students, government workers — your usual big urban confluence. In Harris County, the median household income is $50,577. In Brooklyn, it is $42,932, and in Suffolk County (which includes Boston and some nearby communities) it was $53,751. So, Boston has a median household income about 6 percent higher than Houston’s, while Brooklyn’s is about 15 percent lower than Houston’s.
The place I now live was 32 percent cheaper than the highly-ranked Minneapolis I left behind. Great places aren't so great if you can't afford them. My wife and I purchased a house for under $140,000 in our new state. You simply cannot compare two places with such different basic costs.
How different? Let’s look at the data: In spite of the fact that Texas did not have a housing crash like the rest of the country, housing remains quite inexpensive there. The typical owner-occupied home in Brooklyn costs well over a half-million dollars. In Suffolk County it’s nearly $400,000. In Houston? A whopping $130,100. Put another way: In Houston, the median household income is 39 percent of the cost of a typical house. In Brooklyn, the median household income is 8 percent of the cost of the median home, and in Boston it’s only 14 percent.
What you get for your money matters, too. For our money in Minnesota, we had a tenth of an acre and a little box of a house. In our new location? Nearly a half-acre with more than 2000 square feet of living space. That matters. In NYC you get an "apartment" to call home. That's quality? Yes, I have a "cheap" house, according to Krugman. But, in our case the "cheap" house is a better house than we had.
Some 64 percent of the homes in Houston are single-family units, i.e., houses. In Brooklyn, 85 percent are multi-family units, i.e. apartments and condos.

Professor Krugman knows that these variables are significant when comparing real standards of living, but he takes scant account of them. That is misleading, and he knows it is misleading.
Texas is attracting young residents, both legal and illegal. Why? Because it is like California during the Dust Bowl: a place to find work. During both the Gold Rush and Dust Bowl, hundreds of thousands of "poor" Americans and immigrants rushed to California. The "average" wage in California plummeted, but the results long-term were beneficial to the state. Young people don't have much, but they create a lot of new businesses and opportunities. We see what happens when nations and states age when we study Europe: older populations are costly and can't produce as much.
Further, some 28 percent of Texans are 18 years old or younger, higher than either New York or Massachusetts. Younger people are more likely to work in low-wage/low-benefit jobs, less likely to have health insurance — and less likely to need it.
Young people are starting out in their careers. They earn less, as a result. In time, those average wages will rise as they did in other states during their various "boom" cycles. Eventually, those young Texans will become older Texans. The question is how well Texas handles the end of the age bubble. No state has mastered how to deal with aging populations and you cannot grow forever. For now, Texas wages and its workforce aren't that far behind other states, even though they are much younger.
The Bureau of Labor Statistics, which seems to be his source for this claim, puts the average hourly wage in Texas at 90 percent of the national average, which suggests that wages are not wildly out of line in Texas compared with other states.
During the 1930s, California trailed other states substantially. Much of the drop in wages was from families like mine: fleeing Arkansas, Michigan, and West Virginia to find new lives in the Golden State. My family went on to start over in California. But, we were poor — very poor — and had to start over in California.

The interstate migrations that have taken place every half-century or so have been self-fulfilling prophecies of a kind. New arrivals need new homes, various services, new schools, new roads, and so forth. The new jobs then attract yet more new arrivals. Growth leads to prosperity. That's not good news for states losing populations. Losing people, you need fewer schools, fewer services, and, obviously, fewer homes for residents. There are spirals up and spirals down. Texas happens to be going upward.

Part of this is undoubtedly public policy. Texas makes it easy to start businesses, build homes, and become a new resident. Other states make migration difficult. Texas has to resist becoming what Michigan and Illinois are today. When you grow, the impulse is to expand government and public sercvices. These become nearly impossible to reduce when populations stabilize or start to decline.

Texas' job growth and economic success is policy feeding migration, and migration feeding more migration. The public policies have had an effect. In some ways, Texas leaders created the environment for growth. However, that's about all a state can do. A state cannot make you move.

Once in Texas, workers end up moving from minimum wage fairly quickly, but Krugman doesn't mention that fact. According to Texas, most new workers earning minimum wage are under 25 and earn that wage for less than six months.

So why, then, do we have this "mistake" (or lie?) from Krugman:
Professor Krugman owes his readers a correction, having written: “almost 10 percent of Texan workers earn the minimum wage or less, well above the national average.” Unless I am mistaken, that is an undeniable factual error: The number of Texas workers earning minimum wage is about half that, just over 5 percent. The number of hourly workers earning minimum wage in Texas is nearly 10 percent, but hourly workers are, in Texas as everywhere, generally paid less than salaries workers. …[Hourly] workers are only about 56 percent of the Texas work force [near the national average].
You would think the above is pretty basic math for an economist. Apparently not.

Krugman has also attacked Texas' education record — again without providing important context or comparison to the quality of the Texas education. By comparing K8 scores, we learn that Texas is "above average" right until students leave school early. That's a different issue: illegal immigration plays a major role in drop-out rates.
Krugman wrote: And in low-tax, low-spending Texas, the kids are not all right. The high school graduation rate, at just 61.3 percent, puts Texas 43rd out of 50 in state rankings. Nationally, the state ranks fifth in child poverty; it leads in the percentage of children without health insurance. And only 78 percent of Texas children are in excellent or very good health, significantly below the national average.
The stats Krugman cites don't reflect the entire picture. Here is some context, since Krugman used Wisconsin as a comparison in another article. Federal policy determines immigration policy, and immigration is a huge reason for Texas' standing on poverty and health care rankings. If you compare only "native-born" residents, Texas is statistically "average." That's not great, but it also illustrates how immigration policy affects economics.

Back to education. Let us compare K8 test scores and results. Wisconsin and neighboring Minnesota aren't as diverse as a state like Texas. IowaHawk provided the following context:
2009 4th Grade Math

White students: Texas 254, Wisconsin 250 (national average 248)
Black students: Texas 231, Wisconsin 217 (national 222)
Hispanic students: Texas 233, Wisconsin 228 (national 227)

2009 8th Grade Math

White students: Texas 301, Wisconsin 294 (national 294)
Black students: Texas 272, Wisconsin 254 (national 260)
Hispanic students: Texas 277, Wisconsin 268 (national 260)

2009 4th Grade Reading

White students: Texas 232, Wisconsin 227 (national 229)
Black students: Texas 213, Wisconsin 192 (national 204)
Hispanic students: Texas 210, Wisconsin 202 (national 204)

2009 8th Grade Reading

White students: Texas 273, Wisconsin 271 (national 271)
Black students: Texas 249, Wisconsin 238 (national 245)
Hispanic students: Texas 251, Wisconsin 250 (national 248)

2009 4th Grade Science

White students: Texas 168, Wisconsin 164 (national 162)
Black students: Texas 139, Wisconsin 121 (national 127)
Hispanic students: Wisconsin 138, Texas 136 (national 130)

2009 8th Grade Science

White students: Texas 167, Wisconsin 165 (national 161)
Black students: Texas 133, Wisconsin 120 (national 125)
Hispanic students: Texas 141, Wisconsin 134 (national 131)

To recap: white students in Texas perform better than white students in Wisconsin, black students in Texas perform better than black students in Wisconsin, Hispanic students in Texas perform better than Hispanic students in Wisconsin. In 18 separate ethnicity-controlled comparisons, the only one where Wisconsin students performed better than their peers in Texas was 4th grade science for Hispanic students (statistically insignificant), and this was reversed by 8th grade.

In Education (K8 only): Longhorns 17, Badgers 1
If Krugman had presented the Texas education statistics in context, they would reflect a state that is "better than average" — and there will always be states above and below any average. Of course, Krugman wasn't interested in presenting a realistic comparison. The problem for Texas is that it does have an "above average" (not in a good way) high school drop-out rate. Many of these students are illegal residents or the children of illegal residents, according to some statistics. I'm all for legalization paths for these students. Clearly, Texas is providing a good education compared to other states, but what happens to young adults is often beyond state control. Immigration policy is broken, but that's not Texans' fault.

Posts on Krugman's political biases vs. his previous economic writings:
  1. Do Economists Change Their Tune on Budget Deficits?
  2. What’s Left of the Left: Krugman's Lonely Crusade
Since reviews of published Krugman works reveal he has shifted views depending on the affiliations of White House occupant and congressional leaders, he's reduced himself to merely another pundit, but one with a Ph.D. Pundits, left and right, should be challenged. The right is as simplistic, but Krugman is supposed to be a professor of economics first and a pundit second.

The "right" won't admit Texas is in a boom cycle. It isn't a permanent miracle. The left? They can't even admit Texas has done something to encourage business growth.