Comparisons of standards of living among the largest states and their fiscal approaches provide insight into which approach best supports prosperity. Research comparing key economic data finds that states following the principles of limited government are a blueprint for prosperity.

The Fraser Institute in Canada recently published a report that highlights this debate. The authors compare different measures of standards of living of two large oil-producing jurisdictions in North America (see Figure 1) along with their fiscal approaches: Texas with limited government in the U.S. and Alberta with excessive government in Canada.

The oil and gas boom from 2004 to 2014 led to relatively strong economic performances in both jurisdictions, beating their national averages by substantial margins. Alberta even outperformed Texas in terms of private sector job creation and lower unemployment rates during much of the period, albeit roughly seven times more people reside in Texas.

However, the two jurisdictions diverged in how they conducted fiscal policy. Figure 2 shows that per capita government spending in Alberta was well above that in Texas. Alberta’s per capita government spending was 68.4 percent more than Texas in 2004-05 and increased to 82.8 percent in 2013-14.

The rapid rise of Alberta’s government expenditures, which outpaced the key economic measure of population growth plus inflation, contributed to large budget deficits. These deficits eroded the value of Alberta’s net financial assets to gross domestic product (GDP) from 7.8 percent in 2004-05 to 2.9 percent in 2013-14, jeopardizing their economic condition. Meanwhile, Texas was able to better manage their fiscal situation as the value of the state’s net debt to GDP increased 0.9 percent to 1.9 percent.

Economic diversification helped Texas withstand the steep drop in oil prices since mid-2014. For example, Texas’ real economy expanded by 3.8 percent in 2015 while Alberta’s economy tanked by 4 percent—increasing the cost of fiscal ineptitude in prior years. With a balanced budget not expected until 2024, Alberta’s net financial asset position is expected to flip to a net debt position of 6.7 percent of GDP by 2017-18, substantially above that in Texas.

While Texas was not immune to the drop in oil prices, Figure 3 illustrates that the Lone Star State weathered a potential crisis relatively well from a much better fiscal position and a more diversified economy, ultimately emerging with a brighter fiscal outlook.

The authors of the report concluded that the difference in fiscal policies from both jurisdictions has put Texas in a relatively stronger financial position compared to Alberta. Although Texas has done relatively well versus Alberta for years, there’s much more that needs to be done to limit the state’s size and scope of government.

Bottom line: It’s essential for governments to restrain spending to limit excessive tax burdens on individuals so they have the best opportunity to prosper.

http://www.texaspolicy.com/blog/detail/texas-weathers-the-oil-price-volatility-better-than-alberta

​This commentary was originally published in The Monitor on November 28, 2016.

Voters in Hidalgo County now have twice rejected adding another administrative special taxing district. Both rejections were in health care. In 2014, voters rejected a proposal to create a Hidalgo County Hospital District by a 2,508-vote margin. And on Nov. 8, Proposition 1 to create a Hidalgo County Healthcare District was voted down by a wide margin of 72 percent to 28 percent.

Hidalgo County voters were wise to do so. Adding new districts simply adds more layers of bureaucracy and increases costs, while redistributing more money from taxpayers and away from needed services, instead of focusing on the intended beneficiaries — patients, in this case.

Apparently, the citizens of Hidalgo County have their own version of the Obamacare mantra to “repeal and replace,” their South Texas mantra apparently is “reject and redirect.”

The first half has been accomplished. However, the second half is missing. Hidalgo still faces the problem of providing timely, as well as quality, medical care for the uncompensated care group.

So what should Hidalgo County voters do to improve access to needed medical care services for the poor yet not break the bank?

Fifteen years ago, a colleague testified before the New Mexico Legislature that: “Healthcare doesn’t need more money. It just needs to be distributed properly.” That sentiment is equally true today. Hidalgo County officials need to be more dollar-efficient with money used in the current budget, instead of simply raising taxes and spending more money.

Dollar efficiency in health care is surprisingly easy to define. Dollars that help people get care are “dollar efficient.” Dollars that do not provide care in any form are “dollar inefficient” — these are dollars that go to bureaucracy, administration, rules, regulation and compliance (BARRC).

Hidalgo County Commissioners budgeted $5.5 million for indigent care for the past two fiscal years. This money gets sent to the state, which returns $13 million to fund indigent health care.

But how many of your tax dollars goes to hospitals, providers of care and nursing homes? How much of the $13 million is consumed by BARRC? We don’t know the answer. Apparently neither does anyone else.

Don’t you want to know what you’re getting for all of the money you’re giving the government? We do, too.

A certain amount of BARRC is necessary to coordinate and facilitate healthcare activities. How much healthcare spending should go to BARRC and thus become unavailable to pay for care? Should it be 5 percent or 10 percent or event 25 percent?

If Hidalgo County is anything like the rest of the nation, more than 40 percent of spending on so-called health care goes to

BARRC and is unavailable to pay your doctor, nurse practitioner or hospital. The reason payment schedules to doctors are being reduced is the money that BARRC is directing to itself. If so, that would be $5.2 million of the $13 million in available funds.

Ask your physician or local hospital administrator if it would help if the county redirected $5.2 million to care services, thus nearly doubling the money available to pay doctors and hospitals. After they emphatically scream “Yes!” then demand that the county precisely account for how much healthcare spending goes to care and how much goes elsewhere. Then demand that the dollars that go elsewhere be redirected to care.

Of course, the best longterm solution to the cost of indigent care is more jobs — thus reducing the number of indigents. Officials throughout the county should focus on limiting the footprint of government to assure a strong foundation for job opportunities to get people out of poverty so they can afford their own health care.

When the amount of money wasted on unnecessary BARRC is known, that amount can be redirected to the people who care for the poor while at the same time leaving more money in taxpayers’ pockets. That is the moral as well as dollar efficient way to achieve reject and redirect.

Dr. Deane Waldman is director of the Center for Health Care Policy at the Texas Public Policy Foundation, a nonprofit research institute based in Austin. He also is author of “The Cancer in the American Healthcare System.”

Dr. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.

http://www.texaspolicy.com/blog/detail/hidalgo-county-voters-reject-and-redirect-prop-1-taxes

​This commentary originally appeared in the San Antonio Express-News on November 27, 2016.

Texas is often referred to as a poverty-ridden state due to its reliance on a model of limited government. More prosperity is preferred, and the evidence is clear that standards of living are substantially higher in Texas than in California, which has a model of excessive government.

These two states provide a nice comparison because they are similar in terms of their economies and populations while radically different in their policy choices.

Together they contribute to $1 out of $4 in economic output nationwide, 1 of every 5 Americans resides there, and both have abundant natural resources. However, the Texas model is based on low taxes, no personal income tax, and sensible regulation whereas California’s model is high taxes, highest marginal income tax rate nationwide, and burdensome regulation.

These policy differences are reflected in measures of government intervention. Texas ranks third best in terms of economic freedom while California ranks second worst. Texas has the 14th best business tax climate while California ranks third worst.

These rankings matter because research surrounding them finds that states with more economic freedom and lower tax burdens support higher standards of living.

Poverty averages over the 2013 to 2015 period for the official measure were 15 percent in California and 16.1 percent in Texas. Although these data support critics’ claims of the failure of the Texas model, the official measure doesn’t include regional differences in housing costs or noncash government assistance like Section 8 housing. The supplemental poverty rate does account for these factors and finds that Texas’ rate is 14.9 percent and California’s is the nation’s highest at 20.6 percent during the same period.

Nominal median household income for the 2010 to 2014 period in California ($61,489) is 17 percent higher than in Texas ($52,576). However, real income after adjusting for regional price parities, otherwise known as costs of living, is the same in the two states, meaning that $1 in Texas goes just as far and even further when accounting for less after-tax income in California.

Income inequality as measured by the share of a state’s total income held by the top 10 percent of income earners has also been higher in California. From 2000 to 2013, the average of this measure was 46.8 percent in Texas and 49.7 percent in California. The redistributionary policies in the Golden State haven’t been as fruitful in equalizing incomes as the free market policies in the Lone Star State.

Texas shines when it comes to raising standards of living. It’s not just in less poverty, more income and less income inequality, but it’s also in more economic opportunities.

During the last decade, economic growth in the real private sector has increased by 29 percent in Texas compared with only 14 percent in California. Job creation increased by 1.2 million in California compared with 1.7 million in Texas, which has a labor force two-thirds of that in California. Remarkably, Texas’ job creation was roughly one-third of total civilian employment increases nationwide.

It boils down to basic economics: The more you tax and regulate something, the less you get of it. This is why it’s important for the 2017 Texas Legislature to give Texans the best opportunity to get themselves out of poverty by getting a well-paid job from passing conservative budgets, putting the business franchise tax on a path to elimination, and reducing unnecessary regulation.

Achieving these goals will avoid the Californiazation of Texas so that higher standards of living in San Antonio and elsewhere result and people can live a more fulfilled life.

http://www.texaspolicy.com/blog/detail/keep-texas-limited-government-model

​This commentary originally appeared in Investor's Business Daily on November 18, 2016.

Voters chose a different direction this election. The new administration and lawmakers nationwide must determine how to get the economy on track. The historical evidence is clear that free market capitalism best provides prosperity.

Economic growth continues to muddle along at the slowest pace since World War II. The labor force suffers from 40-year lows in major indicators. The national debt is $20 trillion and exceeds economic output. More of the same failed Keynesian policies, named after the economist John Maynard Keynes, that assume spending drives economic growth aren't an option.

Data show better economic outcomes in places with less government and more economic freedom.

The Economic Freedom of the World (EFW) report ranks countries level of economic freedom based on government intervention in an economy. The U.S. ranking declined from second most free in 2000 to 16th today after excessive government expansion. Research finds that less economic freedom contributes to lower standards of living; no wonder many Americans are struggling seven years after the Great Recession.

Keynesian policies fail for at least four reasons.

First, individuals cannot consume without first sacrificing time and effort to produce something to
exchange. Production, not spending, drives economic growth.

Second, for the government to give a dollar to Jack, it must be taken from Jill. While the federal government can issue debt, that's just future taxation.

Third, taxing work and other so-called "economic bads," such as carbon and alcohol, is social engineering instead of the intended purpose of taxation to efficiently fund basic government provisions.

Fourth, government spending fails from the "knowledge problem" as articulated by the Austrian economist Friedrich Hayek, noting how budget writers have insufficient information from a lack of market prices to efficiently allocate resources.

Instead of continuing these failed policies, lawmakers should look to the two largest states for solutions: Texas and California.

These states contribute 25% of U.S. economic output, have similar abundances of natural resources, and are where 20% of Americans reside. However, Texas has low taxes, no personal income tax, and less regulation, versus California's high taxes, highest marginal personal income tax rate nationwide, and burdensome regulations.

The Economic Freedom of North America report, which is similar to the EFW, ranks Texas as the third most free state and California as second worst. The Tax Foundation ranks Texas as having the 14th best business tax climate while California ranks third worst. Meanwhile, critics of Texas claim it's a poverty-ridden state from the model of limited government.

While more needs to be done to eliminate poverty in Texas, such as cutting excessive government spending by passing conservative budgets and eliminating the business franchise tax, standard of living measures are better for most Texans.

What about poverty? Taking the average over the 2013 to 2015 period, the Census Bureauprovides the official poverty rate of 16.1% in Texas and 15% in California, which suggests that the critics are right. However, that rate doesn't account for regional differences in housing costs or noncash government assistance. The supplemental poverty rate includes these factors and instead finds a rate of 14.9% in Texas while California has the highest rate nationwide at 20.6%.

What about real income? Average nominal median household income from 2010 to 2014 (in 2014 dollars) in California ($61,489) is 17% higher and nationwide ($53,482) is 1.7% higher than in Texas ($52,576). But, the Bureau of Economic Analysis' regional price parities data for 2014 show that the cost of living for California is 17% higher and the U.S. average is 3.5% higher than in Texas. Therefore, real income in Texas purchases as much as in California and even more when you consider that Texas doesn't have a personal income tax.

What about inequality? Income inequality has been higher in California than in Texas as the average of total income held by the top 10% of income earners from 2000 to 2013 was 49.7% in California versus 46.8% in Texas.

In the last decade, Texas has been the economic and job creation engine as the real private sector expanded 29% in Texas compared with only 14% in California. Moreover, total civilian employment increased 1.2 million in California but 1.7 million in Texas, with a labor force two-thirds the size of California's. This increase in Texas' employment accounts for nearly one-third of all jobs created nationwide.

The more you tax and regulate something, the less you get of it. Clearly, less government contributes to higher standards of living in Texas.

Keynes recommended government intervention to stabilize an economy because "in the long run we're all dead." However, we may feel dead in the short run given the lower standards of living from those policies.

As the new administration and policymakers nationwide reassess which direction to take, it's important to remember that spending is the disease and taxes are a function of that disease. Restraining spending growth while following the Texas model of free market capitalism would be an excellent way to get the economy, and personal finances, back on track.

http://www.texaspolicy.com/blog/detail/blueprint-for-prosperity-end-keynesian-policies

​The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement on the labor market information in Texas for October 2016 released today by the Texas Workforce Commission:

“With Thanksgiving just around the corner, today’s jobs report for Texas gives another reason along with spending time with loved ones and delicious food to be thankful,” said Dr. Ginn. “Relatively strong job growth continued in Texas as employers created 13,700 net nonfarm jobs last month. This brings total nonfarm job creation to 207,500 in the last 12 months and makes it positive job creation in a remarkable 71 of the last 73 months. The success of the Texas model is clear when you consider that the state’s 4.7 percent unemployment rate has bested the U.S. average for 119 consecutive months and 30 percent of all jobs created nationwide since December 2007 was here. Let us count our blessings during this time of thanksgiving while continuing to advocate for more individual liberty and economic freedom that are the pillars of higher standards of living for all.”

​http://www.texaspolicy.com/blog/detail/texas-economic-labor-market-and-fiscal-situation

​This commentary was originally published in TribTalk on November 17th2016 

You open a savings account to save for a rainy day so that you can cover unexpected income losses and unforeseen expenses. Similarly, the Texas Legislature insured itself from unforeseeable budget situations when they created the Economic Stabilization Fund (ESF).

Battered from nearly five years of oil-driven economic malaise and tax hikes to deal with budget shortfalls, Texans went to ballot booths in November 1988 to vote on the validity of the ESF. They overwhelmingly passed the ballot language that said the ESF would "be used to offset unforeseen shortfalls in revenue" caused by the relentless fluctuations of the oil market and unpredictable Texas weather.

However, since its inception in 1989, legislators have used less than one-third of the $10.7 billion spent from the ESF to fund budget shortfalls or natural disaster relief. With legislators already suggesting that the ESF should be used to fund their favorite program in what appears to be a tight budget session in 2017, reforms to restrict frivolous short-term expenditures and reduce idle taxpayer dollars in the fund are critical.

Although the Texas economy is much more diversified today than 30 years ago, economic and budget uncertainty remain from volatility in oil and natural gas markets. The ESF helps protect both individuals and businesses from widespread tax hikes or deep spending cuts in downturns.
Considering that oil and natural gas production taxes, known as severance taxes, primarily fund the ESF, it's not designed to be a source of consistent revenue. Therefore, the fund has a constitutional limit of 10 percent of biennial general revenue-related funds to restrict unnecessary legislative dependence on the ESF.

During the previous decade, the fracking revolution led to a huge expansion in oil and natural gas production that substantially increased the amount in the ESF. This helped to cushion the drop in tax revenue in 2011 from the Great Recession. However, the 2013 Legislature then backfilled the underfunded programs of 2011, which is not what voters approved on the ballot in 1988.
In other words, the ESF has too often become a tool for political gain instead of a rainy day fund.

Comparably, it would be fiscally irresponsible to pay a car note with savings. Instead, it would be better to cut expenses and find a way to live within the means of a steady paycheck.

To mitigate the risks of ESF abuses, the Legislature should consider the following key reforms:

• The threshold to approve using the fund at any time and for any purpose should be increased from a two-thirds vote of members present to a four-fifths vote of all members of both chambers. Requiring near consensus will help to stem unnecessary use of the fund beyond covering natural disasters and a portion of budget shortfalls along with spending cuts.
• The 10 percent biennial ESF limit should be reduced. Research shows that the state can cover the vast majority of its budget shortfalls with a 7 percent two-year limit on the ESF. This lower limit would reduce excess taxpayer dollars in the fund that historically has enticed legislators to inappropriately spend it or sit idly by instead of in taxpayer pockets.
• Legislators should be prepared for the day when transfers of severance taxes from general revenue to the fund exceed the cap, whether at 7 percent or 10 percent. The fund is expected to reach $10.4 billion, 6.5 percent of general revenue-related funds, at the end of the current fiscal year. Instead of using those excess dollars to increase the bottom line of the budget, they should be returned to taxpayers by reducing taxes or used to make payments on state liabilities in addition to those already scheduled.

Just like your savings account helps cushion your rainy days, the ESF must be preserved to do the same. Legislators will likely try to tap it next session, but they should be cautious when using the fund. They should prioritize expenditures within general revenue first — and they should be sure to pass a conservative budget.

​We must remember that government spending is the disease, and taxes are just a symptom. If we want to cure the disease and keep taxes low, we must be vigilant in keeping spending constrained, no matter the source.

Are you interested in book recommendations and reviews? Check out my page on Goodreads and add me as a friend.

​https://www.goodreads.com/review/list/6763806-vance?shelf=read

​Here's my review of the book. 

The Tyranny of Experts by William Easterly highlights the failure of "experts" to improve economic development such that poverty is reduced and prosperity takes hold. It is a nice complement to the book Why Nation's Fail by Acemoglu and Robinson that discusses the importance of economic and political institutions for economic development, especially inclusive versus extractive institutions.

The underlying theme of Easterly's book, and Acemoglu and Robinson, in my opinion, is Hayek's "knowledge problem" whereby a select group of people do not have all available information nor efficient price signals no matter how many experts. Too often, these experts call for more government intervention (extractive institutions) that further distorts market activity and leads to distorted prices that lead to worse outcomes, or at least no better outcomes.

Instead, economic development should be driven by market-related factors that starts with private property rights and the rule of law (inclusive institutions) that provide the necessary conditions for economic prosperity and freedom to thrive. Easterly does a great job of explaining this with multiple historical examples.

Ultimately, ending the practices of technocrats and autocracies, and the like, will go a long way towards improving the lives of everyone, especially the poor.Here's my review of the book.

https://www.goodreads.com/review/show/1164115885?book_show_action=false&from_review_page=1