Is Texas Special?

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In the summer of 2010, the recovery was cooling and Texas appeared, comparatively, on fire. Its major metro areas claimed four of the top five spots in the Milken Institute's Best Performing Cities Index, four of the top ten of Forbes' "Cities Where the Recession is Easing," and another four spots in last year's Top Ten in Homebuilding. Its state debt ranked fourth best in the country. CNBC had recently named Texas the Top State for Business for the second time in three years.

Now what? Texas suddenly faces a deficit of $25 billion over the next two years -- arguably worse than New York. The state unemployment rate has stubbornly latched to 8.2 percent, also tied with New York. Paul Krugman seem pretty sure of it: The "Texas miracle" was a mirage.

Not to take anything away from state governance (which can and does make a difference) but Texas' success in the Great Recession, like its devastation in the S&L Crisis, has a great deal to do with fundamentals.

Whether or not Texas has cultivated a uniquely successful business environment at the state level, it's pretty clear that many of Texas' largest cities are uniquely positioned to withstand the recession. As a general rule, the cities that survived the recession avoided the housing boom and clung to strong government-backed sectors, like health care, higher education, and military.

Now look at these six Texas cities, which are among the 20 strongest in the country according to the Brookings Metropolitan Policy Program: Austin, Dallas, El Paso, Houston, McAllen and San Antonio. Austin is a state capital with a powerful university system that fuels its high-tech sector; El Paso's largest employers are the health sector, school district, military fort and local government; McAllen is the nation's most infamous health care hub; and San Antonio is a military-health care town. Add the high cost of oil, which fuels the energy industry in Houston and the transportation industry in Dallas, and you begin to see how Texas' largest cities side-stepped the tsunami.

The upshot: Stable industries and high oil prices have buffeted the recession in Texas' major metro areas.

Now, let's talk state government. Texas is renowned for its low-tax/low-service/low-regulation environment. Its zoning laws keep land cheap. Over the last three years, this has been good news. Lower homes prices had less room to fall. Low cost-of-living throughout the state attracted penny-pinching families on the move.

But that doesn't make Texas policies right for every three-year period. Now that more Americans are moving to Texas than any state, its flooding the Lone Star with more workers than jobs. That means even better-than-average job creation is producing only an average unemployment rate. With below-average investment in education and social services, Texas' risks both hurting the long-term economic prospects of its own people and stiff-arming highly educated upper middle class families who are more likely to take their kids to the northeast.

This is not to discount the Texas model of government. It's to say: Texas' largest cities survived 2008, 2009 and 2010, in part thanks to Texas state government policies. But does that make the Texas model right for 2011? Or 2021? Ultimately, I think Ryan Avent strikes the right note: "Texas is different from other states, but the policy implications of that difference are far muddier than many writers would have you believe."