I knew where this article was heading just from reading the leader, “The Lone Star Jobs Surge”.  I was sure that the Wall Street Journal’s Review and Outlook would make the argument that Texas, because it purportedly follows a more laissez-faire economic model preferred by the Journal, has enjoyed economic success, while other places that don’t follow so closely their model, have not.  But the second paragraph threw me:

Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs, out of the 722,200 nationwide, and by far outpaced every other state. New York was second with 98,200, Pennsylvania added 93,000, and it falls off from there. Nine states created fewer than 10,000 jobs, while Maine, Hawaii, Delaware and Wyoming created fewer than 1,000. Eighteen states have lost jobs since the recovery began.

Did they just say that New York and Pennsylvania were second and third in job creation?  New York and Pennsylvania, with heavily unionized and regulated and taxed economies–just the sort loathed by the Wall Street Journal–still managed to eke out second and third place for adding jobs?  The Journal ignores the fallacy of their argument, while fortifying the counter-argument.  It goes on:

Texas is also among the few states that are home to more jobs than when the recession began in December 2007. The others are North Dakota, Alaska and the District of Columbia.

Hmm.  Throw out the District of Columbia–we know why it added jobs–as a result of the Federal government’s rapid power accumulation over the last several years.  What do the other three states have in common?  Could it be their heavy involvement in the minerals and energy extraction markets?  Remember the old joke back in the mid-eighties, after oil had plummeted from its previous record high–that the only ones making deposits on BMW’s in Houston anymore were sea gulls?  Might the commodity spike of 2007/2008, followed by a brief collapse in 2009, followed by a retracing of its old trajectory in 2010 and 2011, have had something to do with the relative success of these states, and for that matter, with the success of New York and Pennsylvania, both of which are enjoying a mining boomlet (upstate in New York) from the new methods (“fracking”) developed for extracting natural gas.  Not according to the Journal:

Mr. Fisher notes that all states labor under the same Fed monetary policy and interest rates and federal regulation, but all states have not preformed equally well. Texas stands out for its free market and business-friendly climate.

Capital—both human and investment—is highly mobile, and it migrates all the time to the places where the opportunities are larger and the burdens are lower. Texas has no state income tax. Its regulatory conditions are contained and flexible. It is fiscally responsible and government is small. Its right-to-work law doesn’t impose unions on businesses or employees. It is open to global trade and competition: Houston, San Antonio and El Paso are entrepôts for commerce, especially in the wake of the North American Free Trade Agreement.

The Mr. Fisher referred to in the article is Dallas Federal Reserve Bank President, Richard Fisher, who, according to the article, had dropped by the Journal’s offices to let them in on what he’d discovered about the Texas miracle.  How quaint that he would just drop by. 

Indeed, while capital is highly mobile, minerals are not.  They stay put until someone moves them.

But where is the empirical evidence that “Texas stands out for its free market and business-friendly climate”.  Having no income tax is often cited as a boon for business, but an income tax is just a means of raising revenue that is tied to income instead of being tied to wealth, such as are property taxes, generally.  Maybe there’s some correlative evidence that states with low or no income taxes enjoy more economic activity than states that have them.  But perhaps claiming that not having an income tax fosters economic development puts  the cart before the horse.  It may be that states require some minimal level of funding to meet their citizen’s needs, and states without strong economies that can be taxed in other ways, have to impose an income tax in order to meet their funding needs. 

The very same Bureau of Labor Statistics from which Mr. Fisher derived his employment gain numbers provides an alternative explanation for why states heavily dependent on oil and mineral extraction may have performed better than their peers over the course of the last few years, including those during and after the recession:

Employment within the mining industry 1 followed a different pattern than that of most other industries during the 2007–09 recession. 2 Indicators such as commodity prices, global demand for mining output, and industrial production help tell the story of how job growth within mining continued through the first 10 months of the recession while total nonfarm employment was falling.

Increasing energy and commodity prices and industrial production fueled job growth in mining, leading to an employment peak of 728,000 in the sector in September 2008, the highest level since June 1986. Employment then fell over the next 13 months before reaching a trough in October 2009, 4 months after the recession had ended. In the decade or so leading up to the recession, employment among the subsectors within mining followed similar long-term growth trends, while support activities for mining was the primary source of employment gains in the sector.

1.  In this article, the term “mining industry” is used to denote the industry known as the “mining division” under the Standard Industrial Classification (SIC) system or the “mining, quarrying, and oil and gas extraction sector” in the North American Industry Classification System (NAICS).

Perhaps Texas, and these other states, have simply enjoyed riding a secular trend of expanding demand for oil, minerals and natural gas that has accompanied China, India, etc’s, growth and modernization.

I understand that Review and Outlook is intended to reflect the opinion of the Wall Street Journal itself, i.e., it is intended to be partisan, so I can lodge no complaint that their opinion differs with mine.  However, it hardly helps further the cause of enlightenment that a newspaper might be expected to hold dear when its partisan hacks don’t even bother considering alternatives to their narratives.

Federal Reserve Bank Presidents are a different matter.  They have no business drawing inferences animated by political biases.  Objectivity should be the coin of the realm for Federal Reserve officials, and there is nothing at all objective about concluding that the Texas economy grew because the Texas political system is great unless it is done after a) ruling out all other possible reasons for growth in the Texas economy, and b) detailing the specific differences in political infrastructure that make Texas great, and the impact each has on growth. 

Studying job creation alone, and concluding that differences among varying states are solely attributable to the underlying political infrastructure of each, reveals a common bias of political economists like Mr. Fisher–that all economic performance turns on how well or poorly is the economic system in question designed and administered.  The economic infrastructure matters, but so too does simple things like whether or not valuable stuff is buried underground that can be profitably retrieved and sold.  Without markets for the goods it produces, no design fetish can save an economy.

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