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Perry’s Economic Texas Two-Step: Impressive Jobs Growth, Aided by Government

Since Texas Governor Rick Perry parachuted into the presidential race, the performance of the Texas economy has become a major topic of discussion. Claims (The Lone Star Jobs Surge, says the Wall Street Journal editorial page) and counterclaims (it's the Texas Unmiracle, says Paul Krugman) are flying fast and furiously.

To help sort them out, we delved into some of the data with the help of Ross Ramsey, managing editor of the Texas Tribune, which has the best coverage of Texas's politics and economy.

Texas had a state unemployment rate of 8.2 percent in June. That's good, and significantly better than the national average, but higher than that of New York (8 percent) and Massachusetts (7.6 percent). Perry partisans note that Texas has enjoyed excellent jobs growth in recent years. As the Journal noted, since June 2009, "Texas added 265,300 net jobs, out of the 722,000 nationwide." That's the most of any state; using straight nonfarm payroll employment, Texas accounts for 45% of net U.S. job creation. As Ramsey notes, Texas "went into the economic slump a little more slowly than other states," and has come out stronger.

What accounts for this growth? Several factors. First, as I discovered on a visit to Houston in 2008, the state has morphed into a global capital for energy services, equipment and expertise. The global energy and commodities boom has thus been very good news for the Texas economy. Second, the state has a growing population, fueled by immigration (from abroad and from within the U.S.). Third, Texas is very hospitable to business. "The job climate here has always been good," says Ramsey. "We have no income tax, it's a right-to-work state, and Texas has a cheap and large labor pool." Part of a governor's job is not to mess up the pre-existing conditions that help create growth. Perry has succeeded on that measure.

But a deeper dive into the jobs data suggests that there's less than meets the eye to the Texas miracle. When a state's population grows, it has to add more public employees to provide services — more cops, more teachers, more DMV clerks. This chart posted by Ryan Avent of the Economist shows that Texas's jobs growth in recent years has come mostly from the oil and gas industry, and from things funded by the government: education, healthcare, and federal and state employment. This chart posted by blogger Matt Yglesias shows that Texas's government payroll has been in a huge, long-term uptrend. Jared Bernstein, former economic aide to Vice President Joe Biden, notes that Rick Perry's Texas has been the capital of government job creation. From 2007 through 2010, Texas lost 53,000 jobs on net, not a bad performance in an era when the U.S. economy shed several million. But that's because it lost 178,000 private sector jobs while adding 125,000 public sector ones. Notes Bernstein: "47% of all government jobs added in the US between 2007 and 2010 were added in Texas."

My Yahoo! colleague Zachary Roth provides a deeper dive into the Texas job picture here.

Again, a governor shouldn't get demerits simply because the state's population grows. But Perry lacks the conviction to tax his citizens adequately to pay for all of these services. In the last few years, Texas, like every other state, has faced yawning budget deficits. And Texas, like every other state, relied heavily on the federal government to help balance its books. On the stimulus, Perry performed a two-step. In 2009, "they were talking about cutting this and that, and this leprechaun showed up with $17.4 billion," said Ramsey. (Here's a good Texas Tribune article on Texas and the stimulus).

Texas took $17.4 billion in stimulus funds, of which $8 billion was used to pay for ongoing expenditures and $9 billion was plowed into projects. But then Perry loudly refused about $555 million in unemployment insurance funds. "The noise he made over that was sufficient to make people think that Texas didn't take any at all," says Ramsey. To sum up: Perry took well over 90 percent of the stimulus money offered him, and spent a lot of it immediately, much of it on salaries and benefits for public sector workers. So Perry is either a stimulus hypocrite — opposing its passage, and then eagerly taking what is offered — or simply an advocate trying to ensure that his state receives its fair share of stuff that is going to be paid for in time by his state's taxpayers. I report, you decide.

Even with all the federal assistance, Texas has still been forced to make deep cuts in the services it provides. Ramsey notes that the recently concluded budget cut spending on Medicaid, and on education spending, even though the state adds about 80,000 new public school students each year. These cuts come at a time when the state's performance on several pretty basic measures of social and economic well-being is poor, bordering on pathetic. When it comes to health insurance, Ramsey notes, "we're one of the bottom states." According to the Kaiser Family Foundation, fully 26 percent of the state's population lacks insurance, compared with 17 percent nationwide; 18 percent of children in Texas don't have health insurance, compared with 10 percent nationwide. (By comparison, only five percent of people in Massachusetts don't have health insurance which is something Mitt Romney should be proud of, but apparently isn't). As the poster Invictus notes at The Big Picture, on a host of social metrics, including teen birth rates, property crime, the percentage of children and elderly living in poverty, high-growth Texas ranks at or near the bottom.

There's a final contradiction in the record. Perry is running as a freedom-loving libertarian who doesn't view government activity as a means to boost the economy. Yet he promoted an extremely ambitious infrastructure program, the Trans-Texas Corridor, a system of roads connecting some of the main points in the state with highways for cars and trucks, freight and passenger trains, pipelines, etc. "On paper it was an interesting idea," said Ramsey. "It would have been visible from Mars." The Trans-Texas Corridor would also have required massive, quarter-mile-wide rights of way. And that aroused the ire of property owners, who fought against it as a big-government property grab. The plan was ultimately spiked.

Daniel Gross is economics editor at Yahoo! Finance.

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm