Paul Krugman, Nobel Laureate and New York Times politico-economic columnist is a queer bird. He is exasperatingly polemical in his politics, which means his observations about matters economic should always be skeptically viewed. One can never know whether his observations arise out of reasoned analysis of the economy, or if he’s trying to sell a political belief he holds dear. When he’s selling his political beliefs, he’s a lousy economist, but when he’s objectively analyzing matters economic, he can be brilliant. As I noted the other day, he is one of the most vocal members of that curious cult of economists that believe government can proactively affect the economic behaviors of the individuals and households that comprise an economic system, i.e., that government can lead the individual actors in an economic system to water, and make them take a drink.
Yet in article published August 14, 2011, The Texas Unmiracle, in the New York Times, he stumbles upon a profound truth regarding matters economic in a piece intended to dispel any notion that the Texas economy fared better than others because of its lassez-faire economic infrastructure:
So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth.
For this much is true about Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.
Indeed. Aggregate economic growth is nigh well impossible without population growth. In Texas’ case, its long and porous border with Mexico means that its population is busting at the seams with vibrant, young immigrants compelled to grow in their wealth and economic well-being. If there is any real Texas miracle, there is practically no conclusive evidence that its underlying infrastructure, on the margins perhaps a bit less oppressively regulated than that of other states, is somehow better suited to nurture growth.
Krugman also makes the point that the Texas economy also benefited from its heavy reliance on energy extraction and trade, an industry that did not suffer nearly as much in the downturn as did, e.g., the housing industry. The Wall Street Journal made the same observation, if unwittingly, a few weeks back, upon which I posted an explanation.
Texas also had (and has) a highly restrictive mortgage market that makes trading home equity for cash a rather cumbersome affair, if at all possible, and this helped protect its residential real estate market from either booming too highly or busting too despairingly during the housing mania that afflicted the rest of the country. But its growing population helped immensely in this regard as well. Overbuilding, if it occurred, could be more readily soaked up by the expanding demand base a growing population provides.
Krugman also makes the point that, so far as the Texas population has grown because of in-migration from other states, the net benefit to the national economy has been nil.
In the aggregate, the American population is still growing, a little less than 1% per year, almost all of which is due to immigration. The traditional powerhouse of American economic vibrancy–whites of European descent that still comprise nearly three-fourths of the overall population–barely reproduces at a level sufficient to replace its existing population. On average, this population is growing older and dying. It can no longer be relied upon to provide sustainable economic growth in the aggregate.
Krugman’s aim was to dispel the notion that Texas economic performance had any sort of relation to its economic infrastructure, no doubt because of the recent announcement by Texas governor Rick Perry that he would enter the presidential race. And he capably did. What he didn’t also do is extend his analysis to the larger economic view, and admit that the domestic American economy, like all capitalist economies, depends for its aggregate growth on a growing population. In short, the American economy can not be expected to grow much at all, no matter what the government does in the way of fiscal or monetary stimulus, without which it continues to attract a steady stream of immigrants.