Krugman's blog published this St Louis Fed graph:
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The New York Times
January 6, 2011
The Texas Omen
By PAUL KRUGMAN
These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas.
Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.
And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any cir stances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.
How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.
The point, however, is that just the other day Texas was being touted as a role model (and still is by commentators who haven’t been keeping up with the news). It was the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies. Its governor boasted that its budget was in good shape thanks to his “tough conservative decisions.”
Oh, and at a time when there’s a full-court press on to demonize public-sector unions as the source of all our woes, Texas is nearly demon-free: less than 20 percent of public-sector workers there are covered by union contracts, compared with almost 75 percent in New York.
So what happened to the “Texas miracle” many people were talking about even a few months ago?
Part of the answer is that reports of a recession-proof state were greatly exaggerated. It’s true that Texas job losses haven’t been as severe as those in the nation as a whole since the recession began in 2007. But Texas has a rapidly growing population — largely, suggests Harvard’s Edward Glaeser, because its liberal land-use and zoning policies have kept housing cheap. There’s nothing wrong with that; but given that rising population, Texas needs to create jobs more rapidly than the rest of the country just to keep up with a growing work force.
And when you look at unemployment, Texas doesn’t seem particularly special: its unemployment rate is below the national average, thanks in part to high oil prices, but it’s about the same as the unemployment rate in New York or Massachusetts.
What about the budget? The truth is that the Texas state government has relied for years on smoke and mirrors to create the illusion of sound finances in the face of a serious “structural” budget deficit — that is, a deficit that persists even when the economy is doing well. When the recession struck, hitting revenue in Texas just as it did everywhere else, that illusion was bound to collapse.
The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill. Now what?
Given the complete dominance of conservative ideology in Texas politics, tax increases are out of the question. So it has to be spending cuts.
Yet Mr. Perry wasn’t lying about those “tough conservative decisions”: Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance. It’s hard to imagine what will happen if the state tries to eliminate its huge deficit purely through further cuts.
I don’t know how the mess in Texas will end up being resolved. But the signs don’t look good, either for the state or for the nation.
Right now, triumphant conservatives in Washington are declaring that they can cut taxes and still balance the budget by slashing spending. Yet they haven’t been able to do that even in Texas, which is willing both to impose great pain (by its stinginess on health care) and to shortchange the future (by neglecting education). How are they supposed to pull it off nationally, especially when the incoming Republicans have declared Medicare, Social Security and defense off limits?
People used to say that the future happens first in California, but these days what happens in Texas is probably a better omen. And what we’re seeing right now is a future that doesn’t work.
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Postcards From The Texas Miracle
It looks like the secret behind Texas’ ability to avoid the kind of budget woes that afflicted so many states last year was two-year budgeting rather than the miracle of low-tax, low-service, lax-regulation policies:
This month the state’s part-time legislature goes back into session, and the state is starting at potentially a $25 billion deficit on a two-year budget of around $95 billion. That’s enormous. And there’s not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn’t do the trick. And though raising this kind of money would be easy on an economy of $1.2 trillion, the new GOP mega-majority in Congress is firmly against raising any revenue.
The good news is that I think the $95 billion figure may actually be a one-year number so the picture’s not quite as bleak. At any rate, keeping taxes low by simply not having taxes be high enough to pay the bills is in the best Texas conservative tradition of George W Bush but it doesn’t work for state government during a recession.
http://yglesias.thinkprogress.org/20...texas-miracle/
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January 6, 2011, 10:36 am
Trend Versus Cycle, Texas Edition
I see that various people, including Ryan Avent, are going on about how Texas is a great success story of this recession despite an unemployment rate about the same as New York’s. I think what’s going on is a misunderstanding of the difference between trends and cycles.
Obviously Texas has had faster-growing employment and population than the Northeast for a long time. Ed Glaeser explains why: it’s not so much the weather (Houston, yuk), nor low taxes creating opportunity (per capita income and wages are not so hot), it’s land-use policies that have kept housing cheap. I’m all for changes in the land-use regime in the Northeast, especially to make denser housing possible.
But long-run trends and business-cycle performance aren’t the same thing; to assess how durable Texas has been in the slump, you need to measure what happened relative to that underlying trend. That’s why the unemployment comparison is relevant. In terms of personal hardship, in terms of people looking for jobs but not finding them, Texas has done essentially no better than New York.
Yes, it has done better than the national average, after doing worse in the last recession. What’s that about? A lot of the answer is probably O-I-L, which was cheap last time but stayed very high this time.
And we need to see all of this in terms of the claims Texas politicians have been making, about having gotten through the crisis virtually unharmed. Didn’t happen.
http://krugman.blogs.nytimes.com/201...q=texas&st=cse
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Last edited by boutons_deux; 01-08-2011 at 04:52 AM.
Her estimate puts the shortfall in the amount needed to continue the current level of services — taking into account such items as population growth — at least at $27 billion, according to figures from the Center for Public Policy Priorities, which focuses on low- and moderate-income Texans.
Virtually every program is expected to be on the chopping block, since state leaders have said they'll close a budget gap without new taxes.
http://www.mysanantonio.com/news/pol...ion-948178.php
After Lecturing D.C. On His ‘Prudent Fiscal Decisions,’ Perry’s Deficit More Than Twice What He Thought
Back in September, Gov. Rick Perry (R-TX) guessed that his state was facing a $10-11 billion budget shortfall for its fiscal 2012-2013 budget, and refused to entertain reports that his budget gap might be larger until he received the state Comptroller’s official report. He even poo-pooed pronouncements from his 2010 election opponent, Houston Mayor Bill White, that Texas’ deficit may be twice what he was estimating. “If [White] wants to be the budget forecaster for the state of Texas, that’s a different job,” Perry said. “It’s called the comptroller.”
Well, the Comptroller released its report today, and Perry had it wrong:
Texas is expected to collect $72.2 billion in taxes, fees and other general revenue during the 2012-13 budget, down from the $87 billion used in the current two-year budget, Comptroller Susan Combs announced Monday. That puts the shortfall at $27 billion given that maintaining services would run $99 billion for biennium.
http://thinkprogress.org/2011/01/10/perry-lectures/
Cute little hit piece.
Meh, Krugman hits some and misses some. This one's kind of a pop fly to short stop.
Another look at this:
http://frontburner.dmagazine.com/201...texas-deficit/
to be fair, i don't recall any of you cheering for perry.
lol...you got that right.
Krugman really doesn't get anything wrong factually. The blog post you linked seems to have problems with his comparisons to California (he just said it was half of California's) and his characterization of Texas spending on education and health insurance which were both factual.
I don't understand the argument he makes that the economy is so robust that Texas has to invest to keep up with it. I can't wrap that around my head in any sense at all. If he means that in order to keep the economy going, there has to be investment made by the government then thats a ing DUH right there and that is something that Krugman has continuously supported.
there's got to be investment by the government...supported by voluntary savings...not deficit spending
Larger population = more schools, jails, roads, airports, etc. etc.
The thing is that new infrastructure has no vocal con uency that really pushes for it, so it is one of those things that makes for easy cuts, i.e. don't build/replace the bridge, school, etc.
The problem with that is that leads to chronic under-investment.
If you don't start the school/jail etc BEFORE you need it, your growth will rapidly overtake you, in increasing class size, prison overcrowding, traffic problems, etc.In that, Krugman’s larger point is right, although it is a bit more ironic than he lets on. Texas has a problem paying for its prosperity. Its economy is so robust that its government needs to invest to keep up with it. California, New York, and New Jersey should be so lucky.
I think it will be next to impossible to fill the budget gap by cuts alone, and that is the most important point. By impossible, I mean politically impossible.
Sure it is technically impossible to fire half the teachers in the state, and as a Democrat, I would LOVE to see them try, but we all know that won't happen.
Unable to make the shortfall by cuts alone, they will resort to all sorts of parlor tricks to raise taxes without seeming to.
Yeah, I said it. Republicans are going to raise your taxes. Somewhere, somehow, the lie will be put to the absolutist rhetoric, and reality will rear it's ugly head.
The recent development of the Eagle Ford oil and gas may be one of the saving graces of state finances. We can all hope that pans out well. I think it will mitigate some of the worst policies that will probably come out of the next legislative session.
For good or ill, with the Republican supermajority in state government, we will all get to see how their theory of government pans out.
Either way they are going to piss off their cons uency with the stealth tax increases, and Democrats for the cuts they will be making.
Deficit spending isn't all bad.
State borrowing creates bonds that make for fairly safe investments, and if the economy grows faster than the overall debt, then such borrowing is generally a good investment, since it lets you build things before the need is overwhelming.
On the other hand, it can be said that offering investors a government bond soaks up investment capital that might otherwise go to a company, this "crowds out" private borrowers. This sounds plausible, but no one has really quantified or proven this happens.
Bingo. The gossip I'm hearing is that they're going to stay clear of income and property taxes and will instead use the nickel and dime approach by increasing virtually every state imposed fee that there is. So "technically", your taxes won't be going up, but it will just cost you a few bucks more to do everything from changing your oil (Texas motor oil disposal fee), to renewing your drivers license online (online service fee), to getting something notarized (Texas notary fees).
The gas tax might be the one exception where something that's actually called a "tax" instead of a "fee" might go up. But we'll see.
TX Repugs have the opportunity they always wanted to destroy TX govt, St Ronnie's dream, to shrink govt down to bathtub-drowning size.
But, like with impeaching Clinton, they talk big, but go flaccid when it's time to do the deed.
Just think of all the black and brown people they can let rot away and die for want of health care!
Come on, Repugs, you can do it. St Ronnie is watching!
I must say that I agree with this. No 'taxes' will be raised however we will be fee'd to death.. all the while the GOP will be patting themselves on the back and taking full credit for closing the gap without tax increases..of course they won't publicly acknowledge the fee increases..
Heard an interview on the radio this morning where some top republican already ruled out gas tax increases. Don't remember exactly who it was.
Nickel and dime it is. The most regressive form of taxation possible.
I find it astonishing they haven't raised gasoline taxes in what? over a decade?
So Texas is sort of ed and California is sort of ed right?
One is far right, one is far left.
Seems to me that leaning too far one way or the other is a bad idea then.
I hate American Politics.
Also, boutons is a .
I don't. I think they know people would get waaaaayyyy to emotional if they did that.
I for one relish the chance to ask this question of my Republican representative at some town-hall meeting:
You say you didn't raise taxes, but here is the laundy list of fees you voted for:
X
Y
Z
... doesn't that amount to raising taxes?
(eagerly rubs hands together) BUWAHAHAHAHAHA....
Oh, the chance to make a Republican squirm, oh frabjous day!
Five dollars says you never do any of that.
However, this wouldn't make him squirm because he'd answer with a, "no, it doesn't, these were fees that were raised, not taxes".
We should blame republicans and sarah palin for the fact that pizza places have delivery fees.
Yeah, you are right about that much.
It isn't all *that* astonishing, I shouldn't be too surprised, given the state's utter dependence on cars, and vanishingly small public transportation.
Cell phone fees: Republicans fault.
And boutons is still a .
"Oh. Then sir, can you tell me what the difference is?"
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