This commentay originally appeared on the Austin American-Statesmen on September 1, 2016
Football season is almost here. No matter which team is your favorite, there are certain players that you root for because they are an influential part of the team’s success. If those players are injured or not playing at their full capacity, that team is unlikely to perform well. It’s one thing for a team to play well for a year or two, but it’s another thing entirely to sustain that over many years, which is often called a dynasty.
Recently, Julián Castro, the U.S. secretary of Housing and Urban Development and former mayor of San Antonio, compared two economic heavyweights: California and Texas. Specifically, he said, “California is kicking our butt, creating more jobs and more economic growth than Texas.” He claimed this means that progressive, big-government policies in California produce better results than Texas’ conservative, limited-government policies.
PolitiFact released an article in the Statesman that rated this claim as “true.” However, as in sports, one or two years of winning seasons by California doesn’t come close to the extraordinary success in Texas during the last decade of what could be considered an economic opportunity dynasty.
One of every five people live in these two states. One of every four dollars of production nationwide are produced there. Ranking each state against countries, California would rank sixth and Texas would rank 10th. The list could go on.
Given their size and importance, Americans really need both states to prosper.
After descending into a deep valley during the recession, California’s economy has recently grown at a faster rate than in Texas, where the drop in oil prices and higher value of the dollar have negatively affected the mining and manufacturing sectors. However, during the last decade, the productive, real private sector growth has increased by 13.6 percent in California compared with a robust 29.1 percent in Texas.
This growth translates into output per person in Texas increasing almost four times more than in California in that period, meaning economic output has far outpaced population growth.
Although contemporary economic growth in California has led to a higher annual job creation rate than in Texas since April 2015, this only tells part of the story.
Since December 2007 when the last national recession started, total civilian employment increased in California by 1.2 million while it increased by 1.7 million in Texas, with a labor force two-thirds the size of California’s. This increase in employment in Texas constitutes about one-third of all jobs created nationwide — truly remarkable given recent headwinds!
This phenomenal job creation contributed to Texas’ unemployment rate (4.6 percent) being at or below California’s rate (5.5 percent) for 121 straight months, or since July 2006. But the official unemployment rate only accounts for those actually looking for work, a better gauge of labor force health would be the share of the population employed, which has been higher in Texas than in California since at least 2000.
More economic output and job creation over time in Texas has contributed to less poverty. The Bureau of Labor Statistics’ supplemental poverty measure, which accounts for the local cost of living, shows that Texas’ rate matches the national average while California has the nation’s highest poverty rate
Income inequality has also been higher in California than in Texas for years. For example, the average of total income held by the top 10 percent of income earners from 2000 to 2012 was 49.9 percent in California compared with 48.8 percent in Texas.
The results are pretty clear that California’s progressive policies of having the highest marginal personal income tax rate, cumbersome regulations, huge unfunded pension obligations, an out of control lawsuit environment, and other policies reduce economic opportunity.
We need both of the key players in the U.S. to perform at their full potential, as we do the best players on our favorite football team. California and Texas need to not only win but also be dynasties with pro-growth policies that support a strong foundation for continued economic growth.
The Texas model of low taxes, no personal income tax and stable regulation would help Californians and all Americans prosper if the last decade is any indication of future activity.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.