​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