How Texas Proves Conservative Economics Are Nonsense

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Texas, Paul Krugman explains in a New York Times column, was long held up by conservatives as a kind of laboratory for the economic theories they espoused--"the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies."

Now, Krugman says, the Lone Star State--which has a Republican governor and both houses of the state legislature controlled by Republicans--has a deficit that may run as high as $25 billion over the next two years. This has national implications, he adds:

Triumphant conservatives in Washington are declaring that they can cut taxes and still balance the budget by slashing spending. Yet they haven’t been able to do that even in Texas, which is willing both to impose great pain (by its stinginess on health care) and to shortchange the future (by neglecting education). How are they supposed to pull it off nationally, especially when the incoming Republicans have declared Medicare, Social Security and defense off limits?

Not everyone agrees with Krugman's analysis:

  • Texas's Hypocrisy Goes Further, claims Blue Texan at FireDogLake: Krugman doesn't mention that Texas Governor Rick Perry "balanced the budget in 2009 with $12 billion dollars of the Obama's stimulus bill--while bragging about how awesome the state economy was and threatening to secede from the Union."
  • Texas Is Not Broke, says Kevin D. Williamson at National Review. Money is always tight in Texas, he says, because the state does not levy an income tax, assesses property taxes at the local level, and has few other sources of revenue--and "lots of Texans kind of like it like that." Williamson estimates Texas's budget shortfall at closer to $11 billion to $15 billion over two years, and adds that if anything threatens to bankrupt the state, it's reforms associated with "Obamacare" that "will add about 71 percent to Texas's Medicaid expenses over the first ten years of implementation."
  • You Can't Say Texas's Approach Was Wrong, argues The Economist's Democracy in America blog:

Three years of economic indicators showing Texas out well ahead in lots of measures (unemployment, foreclosure rates, job creation) translates into a tremendous amount of foregone suffering and distress. That's one of the reasons Texas has seen significant population growth over those years--a kind of economic osmosis as people came here to work--and, in fact, the more recent rise in unemployment is partly because the rate of job creation hasn't quite kept up with population growth. At the moment, the state's economic performance is still better than that of the nation as a whole, although the gap has narrowed on measures such as unemployment.

  • And There's Conflicting Data on Texas's Predicament, adds Ira Stoll at Future of Capitalism. He notes that while Krugman cites Center on Budget and Policy Priorities data indicating that Texas's budget gap is worse than New York's but not as bad as New Jersey's, a National Affairs chart with the same data shows Texas's revenue shortfall as a percentage of 2010 budget "at a mere 10%, which is much better shape than fiscal disaster states such as California and Illinois, where the shortfalls are in the 40% or 50% range." 

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