Everything’s Better in Texas?
As Texan temperatures hit new heights this summer, the state’s economy have taken a turn in the opposite direction, cooling off for the first time in years. The Lone Star State has long been a hub of the North American oil and gas industry, and it was the birthplace of hydraulic fracturing or fracking, the technique that spurred a petroleum renaissance in the United States. Ironically, the fracking boom has been so successful, driving prices so low, that energy-rich states are now suffering. Texas’s economy is barely growing quickly enough to keep up with population growth. Houston, the fourth-largest city in the country and home to both petroleum extraction giants like Exxon and a forest of refineries, has been hit especially hard. Ripple effects from the energy industry’s decline have damaged the Space City’s retail, wholesale and advanced manufacturing sectors. The state as a whole has fallen off the breakneck pace of job creation and wage growth that characterized its 2000s. For lower middle-class Texans, the decline is extremely bad news. They have benefited from low costs of living and a vibrant economy. In return, they accepted what economist Tyler Cowan once referred to as “C-grade public services”, including stingy entitlement programs and little investment in public school systems. But as average wages shrink and unemployment rises across Texas, the viability of the state’s economic model, and the well-being of the people who gained the most from its success, are highly uncertain.
Texans have historically opposed “big government,” seeking to create a business-friendly climate by offering low taxes and minimal red tape. This pro-entrepreneurial spirit has served the state well in the early 21st century. Forbes magazine has long placed the state at the top of its ranking of overall business climate, and also gives it points for high labor availability and cost. Lone Star economic growth regularly outstrips all but a few states (none of which have nearly as many residents), and wages have increased sharply since 2000. Such growth was a godsend to lower middle-class Americans both in and out of Texas. The state’s allergy to regulation even extends to the local level; Texan municipalities have few zoning rules or environmental regulations, keeping the cost of housing low; Tyler Cowan explained in his 2013 book Average is Over that a real estate dollar goes nearly four times as far in Houston as in New York, giving middle-class Texans much more money (relatively) than their counterparts in New York or California. The combination of economic dynamism and a low cost of living has proved irresistible for many. Throughout the 2000s, the petroleum industry added well-paying jobs, many of which not even requiring a college degree, giving many Texans the best of both worlds. Consequentially, the Lone Star State has become an attractive destination for Americans looking to get ahead. The state became second only to California in population in the late 1990s, adding 4 million people and 4 congressional seats between 2000 and 2010. While other states often accuse Texas of conspiring to “steal” their companies, many public officials envy the Lone Star State’s breakneck growth and capitalist allure. Journalists and economists are entranced by Texas’ record. In the autumn of 2015, an enthusiastic correspondent for the Economist even asserted that North Texas, the area surrounding the “Metroplex” of Dallas-Fort Worth, had “developing world economic growth paired with developed world standards of living”.
However, Texan expansion has a dark side. Much of the state’s business-friendly reputation comes from its laissez faire approach to taxation and government, an approach enshrined into the Texan constitution. Because Austin is traditionally unwilling to create large public-sector programs, social services and the safety net remain weak. The state also has one of the least-generous Temporary Assistance to Needy Families (TANF) programs in the country. Even after a small expansion in recent years, maximum TANF benefits in Texas are worth less than 20% of the income needed to live at the federal poverty level, and this can leave recipients in deep poverty. Those who are slightly better off are largely left to fend for themselves. Many of the people who have benefited from a booming Texan economy — low-wage workers and their families — do not enjoy economic security. Despite growth throughout the early 2000s, median wages are lower in Texas than the country as a whole, and close to 70% of residents make less than a middle-class income. They receive little support from Austin. Working-class Texans would have gained immensely from Medicaid expansion, which primarily benefits people living just above the federal poverty level. Nevertheless, the state legislature declined to expand Medicaid, leaving 5 million Texans uninsured, the most in any state. The consequences of an unsupportive state government fall heaviest on children. 1 in 4 Texan children live in poverty, and the state ranks 41st for overall child wellbeing. Thanks to the almost-hedonistic policy in the present, too few of them will have a better life as adults. The Texas Department of Education gives few grants and spends relatively little money per student, allowing the disparities between school districts to persist. Despite an upward trend in the Texan economy, more and more schools are failing, not to mention using different textbooks than the rest of the nation. If the state has not used years of economic expansion to better the lives of its neediest residents, a faltering economy could presage considerable deprivation.
Texas is hardly doomed to failure. Even as the oil industry declines, the state economy remains powerful. Northern Texas in particular has emerged as a bright spot. The Metroplex has nurtured a thriving tech industry, earning the nickname “Silicon Prairie”, and emerged largely unscathed from Texas’ recent downturn. Even in hard-hit Houston, sectors like healthcare, hospitality and dining resisted the downward pull of the petroleum industry’s decline. But the far future is uncertain. Because of its low investment in education, Texas has a serious deficit of highly educated workers, making it difficult for the rest of the state to emulate Dallas. Without such a transition, the petroleum industry’s ups and downs will continue to weigh on the state’s economy for years to come. Poor Texans are unlikely to see their lot improve any time soon. Without growth in low-skill jobs in the oil industry, they have little job security in a state hostile to unions. And without a strong safety net, they have little to fall back on in case of unemployment. Income and standards of living may have grown across Texas, but the state’s failure to invest in its neediest residents mean that they will be heavily burdened by a weakening economy.
Thanks to Trent Kannegieter