Why Texas is doing so much better economically than the rest of the nation | Hacker News Reader

Why Texas is doing so much better economically than the rest of the nation

slate.com

81 pointsjfornear66 comments

Just celebrated my 1-year anniversary here in Austin, Texas. Took 8 years to convince wife to make the move. Been fantastic so far. Article is right-on in many regards:

Business/startup/tech climate is strong. (btw: norm is mucho less of the douche than SXSW crowd)

Housing: we moved from Seattle. Home prices roughly half (in 'burbs, near exceptional schools). Taxes are roughly double -- a big reason for low home prices, besides all the cheap land.

Lifestyle: Austin's very similar in people-climate to Seattle. Active, outdoor-loving, low-key, friendly folks.

Climate: summer unbelievably hot, rest of the year, pretty fantastic (for a Seattle boy).

While I've seen a bit of the Red-State stereotype, personal freedom and a live and let live attitude (personally, in government, and business) is much more the norm -- and perhaps much of the reason for riding the recession a bit smoother.

The first time I flew into Austin, I hopped into a cab at the airport. On the way to the hotel, the cabbie asked if I had ever been to Austin before, to which I responded that I had never been to Texas.

He turned around, looked directly at me, and said "Austin ain't Texas son."

I've lived in Texas for most of my life, imoving between Dallas and Austin, and I can attest to the spirit of what the cab driver told you; Austin is radically different from the rest of the state. Austin is a staunchly liberal college town while the rest of the state is extremely right-wing.

I love it, the heat keeps it real. Less clothes is the solution.

See http://www.nytimes.com/2010/04/12/opinion/12krugman.html where Krugman compares Georgia and Texas.

The two states have a lot in common, but Texas has strong consumer-protection regulation, Georgia lacked these government regulations.

Krugman points out that the absence of these regulations landed Georgia in their current disastrous situation.

For many people, comparing Georgia and Texas and highlighting the strong consumer-protection regulations in Texas may not be as much fun as bashing California, but this is worth a read

Agreed. It seems too simplistic to chalk thus up to just the energy sector alone.

A good quote from the Krugman piece:

Why didn’t the same thing happen in Texas? The most likely answer, surprisingly, is that Texas had strong consumer-protection regulation. In particular, Texas law made it difficult for homeowners to treat their homes as piggybanks, extracting cash by increasing the size of their mortgages. Georgia lacked any similar protections (and the Bush administration blocked the state’s efforts to restrict subprime lending directly). And Georgia suffered from the difference.

It wasn't just Bush people weakening the traditional "20% equity" threshold. Lots of political and government efforts, including the government-sponsored mortgage subsidizers Fannie and Freddie (deeply linked with Dem party leadership), were bending longstanding practice to promote home ownership by all and loans to previously "underserved" borrowers.

Like Texas, Canada also held fast to the traditional 20% homeowner equity requirement and was similarly spared the same extreme housing bubble and crash.

(Now, if some buckaroo lenders want to make risky no-money-down loans, that'd be OK -- as long as public policy wasn't cheering them on, fraud on both sides of the table was vigorously prosecuted, and the public treasury wasn't insuring the transactions. When government and big business are all pulling in the same feel-good, don't-ask-uncomfortable-questions direction, there's danger.)

What the article doesn't explain is why Texas is able to sustain 700,000 jobs geared toward export manufacturing, or why Texas continues to attract engineering talent.

At least part of it is Texas' business-friendly and employee-friendly tax climate.

To most employees, Texas's much lower property values and more stable property market (as this article analyzes) have a lot bigger impact on the economics than the taxes, which are only marginally lower than California's when you add all the different taxes up (TX collects about $8k per resident in state&local, while CA collects about $9.5k).

Employee-friendliness overall varies. I'd say the employment laws are generally worse for employee freedom than California's, mainly because TX courts are more willing to enforce noncompete clauses (though they aren't as willing to as some states).

Speaking of employment laws, I'm curious how common "at-will employment" is in the US? (http://en.wikipedia.org/wiki/At-will_employment) I've recently been hired by a US company on at-will terms, and I understand it's much more common in the US than in New Zealand where I'm from -- things are much softer on employees in NZ.

'At-will' employment is the norm in the US for non-unionized jobs. The Wikipedia article describes the exceptions fairly well.

One additional wrinkle is that customary practices at large firms are a bit different. Because they're worried about unlawful-termination suits (even if they'd end up winning them), large companies rarely fire specific people, except for really egregious things (like embezzlement), even though in theory at-will employment means they could fire anyone for any reason. Instead they only get rid of people in general downsizing/layoff rounds, like closing a whole division, or doing a blanket 10% reduction in staff--- and even then they often offer severance packages for long-term staff, to make it a mutually agreed upon parting.

Where are you getting your state & local tax numbers?

The numbers I found show total state & local tax collected per capita for Texas is $3,580 vs. $5,028 for California. That's a 40% increase over Texas. Nothing to sneeze at.

Texas: http://www.taxfoundation.org/taxdata/show/482.html

Cali: http://www.taxfoundation.org/taxdata/show/443.html

Even your numbers show a 20% penalty for living in Cali.

I was going by total state+local govt revenues divided by population, which ends up allocating as taxes things like vehicle registration fees, excise taxes, alcohol taxes, corporate taxes, etc., probably even lottery revenues. The Tax Foundation's method might be more meaningful, depending on what you're comparing.

But either way it's not all that much of a difference in absolute terms, even if it is in percentage terms. I mean, $1500 on average. Even if you make a lot over the average, it still seems like Texas's biggest win will be the $300,000 difference in the price of a house, or $1000/mo difference in rent, not a few $k savings in taxes.

That's $1500 PER CAPITA (every man, woman & child). All things being equal - $6K a year for a family of 4 is consequential.

Lower property prices are due to lower restrictions on building/zoning in Texas (compared to California).

Building a new house in Texas is easy and cheap; in California it is nearly impossible, and very expensive.

Sure, but that's pretty much what this whole article is about. (It also points out that another factor is Texas having more stringent mortgage regulation, which makes double-mortgage-fuelled property speculation harder.)

Texas's per capita income is 20% lower than California's

It would be interesting to perform a purchasing-power-parity comparison here.

Houses seem to be 1/2 to 1/4 the California price in similarly nice (but not as wealthy on an absolute scale) neighborhoods. When I stroll the aisles of a grocery store in the Austin area, many staples are 1/2 the cost of bay area supermarkets.

Edit: upped low-end of house ratio to more realistic 1/4 from 1/6

cost of living has nothing to do with attracting manufacturing jobs. The lower the labor costs the more jobs you get. Same reason China has more manufacturing that California

Labor costs are a function of cost of living.

Are they? Any data to back up your claim?

(As an equally plausible hypothesis I'd guess that outside of extreme regions like Antarctica, higher wages are a prime reason for real estate values, and thus contribute to higher costs of living.)

Chicken meet egg. Egg meet chicken.

Labor costs and the cost of living both affect the other. Arguing which came first is pointless since neither exists in a vacuum.

I don't know. The primary cause of high wages seems to be high productivity.

Not so! During the current recession wages have gone down while productivity has gone up.

Furthermore even people in marginal jobs will make more if they live in a high cost area. For instance a gardener can charge more per hour in Los Angeles than in Ohio, even though the productivity of the two are identical.

Wages are fundamentally set by supply and demand. Productivity affects demand, and hence affects wages. But a high cost of living changes the supply curve, and also affects wages.

I do not disagree completely.

> For instance a gardener can charge more per hour in Los Angeles than in Ohio, even though the productivity of the two are identical.

Yes, that's because gardening isn't traded.

Lower cost of living means lower labor costs: people aren't really working for abstract dollars, but for what those dollars can buy.

BTW, to be having this conversation makes me feel like I'm trapped in Chapter 33 of 'A Connecticut Yankee in King Arthur's Court' (Mark Twain, 1889):

http://www.archive.org/stream/connecticutyanke00twai#page/32...

Though, Twain first lays it out on p. 304 of the same edition:

http://www.archive.org/stream/connecticutyanke00twai#page/30...

A man who hasn't had much experience, and doesn't think, is apt to measure a nation's prosperity or lack of prosperity by the mere size of the prevailing wages; if the wages be high, the nation is prosperous; if low, it isn't. Which is an error. It isn't what sum you get, it's how much you can buy with it, that's the important thing; and it's that that tells whether your wages are high in fact or only high in name.

I suppose it depends on what you do for entertainment, but I found my cost of living about the same when I lived in Texas overall as in California. Housing was cheaper, but entertainment cost a lot more. Most of my entertainment in CA is free or cheap---lots of nice coastline, state parks, etc.---but in TX I spent a lot of money at bars, movie theatres, etc., because the weather makes outdoors activities less appealing, and there wasn't much within driving distance of Houston anyway. I also flew places more for short-ish trips, while in CA I can drive all up and down the coast.

It might have made a bigger difference if more of the rest of my spending was on stuff that actually varied in price geographically. But computer stuff and books cost the same everywhere; sadly TX's better purchasing power per dollar doesn't actually get you a $1000 laptop for $800, or a $50 book for $40!

That number is meaningless without the context of cost of living. According to cityrating.com, you need a 45% increase in income to move from Houston to San Francisco.

General cost of living is lower in Texas, too. Some of that may be location, some of that to relatively abundant land for housing.

Texas really did behave entirely differently during the recession (employment-wise) than the rest of the country. Not only did the state start adding jobs in the middle of last year, there are now more jobs today than before the recession:

http://www.deptofnumbers.com/unemployment/texas/#employment

(Note: link is to a site I maintain)

If independence and economic autonomy work well at the state level, I wonder what it could do at the local level in resilient communities.

Or at the federal level.

Unlike many of its neighbors, Texas has state laws that prohibited consumers from using home-equity lines of credit to increase borrowing to more than 80 percent of the value of their homes

This certainly would fight inflationary/bubbly pressures. Forced financial responsibility. Nice. I wonder how many other states follow this model.

For a long time, Texas prohibited second mortgages against a residence -- so even this allowance was a liberalization.

I've also seen mentioned elsewhere that state banking regulation and monitoring was tightened after the S&L crisis of the 80's, which helped discourage the fast-and-loose real-estate loanmaking that drove the latest bubble elsewhere.

Even where states don't have such laws, responsible lending standards used to serve the same purpose. The traditional debt/equity ratio and payment/income ratios that were part of a mortgage loan qualification were relaxed or nearly eliminated in recent years, allowing many people to take on debt that in the past would have been seen as too risky.

Another point that could have been mentioned: the Texas legislature is part-time, and only meets every other year(!). They're not the professional busybodies of California's legislature, thinking up new "juice bills" year-round.

Texas 2009: "The governor signed 1,656 bills and resolutions, vetoed 38 and allowed 12 to become law without his signature " http://www.txddc.state.tx.us/public_policy/txlegis.asp

California 2009: 675 signed, 257 vetoes http://gov.ca.gov/bills/#all

That's like saying Amy's software project is better because it has fewer files than Bob's. Bob may just be better at keeping code in separate, logical units than Amy, who just crams everything into several large bills... I mean, files.

Anybody want to run a diff on the California and Texas legislation?

Tried but files were corrupted.

California's or Texas's?

This isn't a good metric for measuring government "productivity" at all. More information is needed like the size and scope of these particular bills, for just one example.

The parent wasn't talking about productivity, I was trying to rebut his claim of California's busybody-ness compared to Texas'. 1700 bills seems pretty busy to me.

Right, but we can't compare them to each other without more information, so I don't think your rebuttal works. Given the political differences between California and Texas, there is the possible scenario that these ~1700 bills in Texas were very small, relatively pointless pieces of legislation, while California's ~700 were enormous and relatively overbearing.

In case we're just debating the meaning of "busy"... Texans want their politicians to be busy doing relatively nothing, for the most part, and I think this is the general attitude expressed in the parent comment.

Exactly. Most of the Texan bills were probably along the lines of "This House believes that cattle-rustlers are no-good varmints". Whereas every Californian bill is manifesto of social engineering.

I mentioned "juice bills". These don't even have to pass; they exist just to shake the money tree of interests that want to stop them.

Remember the talking points:

If conservatives are running government and spendly recklessly on big projects "we can't afford" then government is GOOD (ex: military, tax cuts for rich, etc.). Also, laws regulating or limiting sexual activity or expression are GOOD.

If liberals do it then government is BAD (health care, social security, education, etc.). Laws regulating or limiting financial, banking, large/offshore corporate, military or oil company activity or expression are BAD.

-- this message brought to you by the Repub--oops, I mean--The Tea Party

oh the karma police, here we come. folks it's humor mixed with political insight. i was riffing on the recognition of the pattern of comparing a big Liberal state government's activity with a big Conservative state. Nobody in the thread seems to know exactly what bills the respective states passed. I was just riffing on a pattern I see in the messages that come from so-called conservatives when they argue their case. Humor + insight = good thing, just relax, it's ok really :)

I love how sibling posts by jfornear and nathanieljones take the raw data and apply opposite opinions: more is better vs more is worse :-)

Without delving into the details -- how many were minutiae or symbolic resolutions? -- the numbers aren't directly comparable. Also, since Texas only meets every other year, you'd have to include two years' of California's bills in any comparative analysis.

Some other Texas totals for the 2008-2009 two-year period:

Late budgets: 0

Debts paid with ad-hoc IOUs: 0

Credit rating downgrades: 0

State worker involuntary furloughs: 0

Oh I see, you're turning this into some kind of pride thing. How about these Texas stats

Children without health insurance rank: 1

Air pollution rank: 1

Teen pregnancy rank: 1

Adults without a High School diploma rank: 1

Innocent people executed: 1 (that we know of)

Radical religious boards designing curriculums: 1

Citations needed -- the sources I find don't match all your rankings.

Also, I live in California, and used to live in Houston and Austin. I admire Texas in many but not all dimensions. My criticism of California's budget and economic mismanagement is driven by the hope the legislature can be shamed into improving -- or that a consensus for more radical structural reform can arise. Otherwise in another 20 years Texas will pass California, even by your chosen measures.

I live in Austin and don't agree with the bulk of the modern 'conservative' movement but living here I see stark differences in the way business is conducted compared with California. First, the local banks are /far/ more conservative with loans. There is no rush to jump on the next big thing and they do not hand out loans, sometimes even when thy are well deserved. It is pretty old school. You have to really prove what you say, and if they don't understand it, no way in hell are they loaning any money to it. Frustrating at times and in some ways short sighted, but you don't have everyone scrambling to make a quick buck (and the banks financing it all) either. IOW, the position Texas enjoys is only tangentially affected by the state gov't. 2nd -- I personally don't like Rick Perry and I was foaming at the mouth when he cut education funding but, tough as the cuts were there and in other places, Texas has a surplus. There is wiggle room. I have to grudgingly admire that kind of discipline. It is not like the Governor or Legislators did not catch a lot of flak for their policies the last 10 years.

Contrast that with California where my brother in law got to take 8 weeks paid paternity leave at least partly on the State's dime and you begin to see the difference.

So does Oregon's but our economy isn't doing so well.

They're actually pretty bad, but at least they only meet half as often.

One reason Texas avoided the housing bubble is the property taxes are very high here. The tax rate is 4.5-5% of value. In California its 1%. Also, interest rates are lower in California, a foreclosure can happen in as little as 120 days which reduces the lenders risk and your interest rate. The result is a lot of carrying costs for investing in residential real estate.

> The tax rate is 4.5-5% of value. In California its 1%.

Oh really? Then Santa Clara county owes me a bunch of money. (And no, this isn't a "my house lost value" issue. My property taxes went up last year, just like they did the year before, and the year before that.)

CA does have "non recourse" purchase mortgages. That means that the bank that loaned you the money that you use to buy a house can't come after you after foreclosure if they can't recover what you owe.

Note that I wrote "the money that you use to buy" - if you refinance, that bank can come after you for any money that they can't recover in foreclosure.

yes really, its set by a 1979 amendment.

I'm looking at a "County of Santa Clara (CA) Secured Property Tax Bill." (I'm putting it away with other 2009 records.)

Right under the line that says "1% Maximum Tax Levy" in the "Taxing Agency Tax Rate" table, tha bill lists the percentages for several additional levies. The subtotal labelled "Tot Assessed Val Rate" is more than 1% and there are additional percentages below that, which aren't included in said "Tot". And then there are several other "Special Assessments" which are listed by dollar figure, not percentage.

In the "Tax Rate Per $100" column, it has both the >1% "Tot Assessed Val Rate" figure and the total of the percentages listed below it in the "Agency/Rate" table mentioned above. Both numbers are multiplied by corresponding numbers in the "Assessed Value" column. The total of the special assessments in dollars is added to those products.

I'm paying more than 1%. They may not call the amounts over 1% "property tax", but Santa Clara County is collecting them on the "Secured Property Tax Bill", just like the amount that they call property tax.

In the section

Summary:

Energy is driving Texas economy. Suprisingly not from oil, but from natural gas and wind power. Texas has has its own electricity grid which has allowed it to embrace alternative energy technology with minimal hurdles. In addition, exports are rising - almost 25% in Q1 vs 2009.

Are undocumented workers even counted in the unemployment rate? What percentage of Texas' workers are undocumented?

Just moved my web development business to Texas from Los Angeles, no regrets.

Oil at $80+ a barrel?

Why does that surprise you? Your $1-2k laptop was built and shipped from China thanks to it. The world depends on oil and gas, sorry to disappoint but won't be moving away from our dependance anytime soon -- not in my lifetime.

There can be gradual shifts in either direction. Complete independence from oil won't come anytime soon, though.

tl;dr: oil is trading at $80 a barrel.

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