Wednesday, July 6, 2011

Texas, the jobs engine? Or Texas, the jobs-laundering engine?

An op-ed piece last weekend in the LA Times, called “Texas, the jobs engine?”, by Rick Wartzman, executive director of the Drucker Institute at Claremont Graduate University, begins:

For the last few weeks, I've been unable to get a startling statistic out of my head: Since the recession officially ended, Texas has created more than 4 of every 10 new jobs in America.

That's right, Texas: the reddest of red states, home to gun lovers and school textbooks that openly question whether the Founding Fathers intended for the separation of church and state. I am no ideologue. Still, whenever I get political, I tend to tilt reflexively to the left, making the jobs figure a bit disconcerting at first.

But there's no escaping it. The number is real. Which means that if you care about putting people back to work at a time when nearly 14 million in this country are unemployed, maybe Texas has something to teach us.

Wartzman goes on to say that according to the Dallas Fed, Texas, which he says accounts for about 8% of the nation’s economy, generated 43% of the net new jobs in the U.S. from June 2009 through May 2011. He then notes that aspects of Texas’s boom cannot be optionally replicated in other states. The booming energy industry and the high export demand for commodities such as beef and cotton.

He then cites some longstanding government policies—both conservative and liberal ones. Conservative: Low tax rates, the downside of which, he notes, is a smaller safety net, and “right-to-work” laws, resulting in Texas’s tying Mississippi as the states with the biggest percentage of workers paid at or below the minimum wage. Liberal: Strict lending guidelines enacted in the wake of the S&L crisis of the 1980s that require Texas financial institutions “to keep larger capital reserves and take on fewer problem mortgages than were seen elsewhere in the country,” and which spared the state from the real estate boom and bust that hit most of the rest of the country. And beginning 25 years ago, the state began significantly increasing its education funding and therefore the quality of its workforce.

Then the pay-off paragraph, so to speak:

At the same time — and this, of course, is the tough part for those on the left to swallow — it is clear that the state's limits on taxes, regulations and lawsuits are contributing to the job machine. "The most important thing I think that's happened to us is tort reform," Fisher, the Dallas Fed president, has said. He added that when John Deere and other companies have decided to hire in Texas, they've been largely driven by steps the state has taken to cap non-economic damages in medical malpractice suits and to make it harder to bring product liability and class-action cases.

Okay. Are these folks claiming that the companies that are hiring in Texas decided to hire because of Texas’s low tax rates and its “tort reform” law? Or are they saying that these companies needed to hire more workers, and chose to expand in Texas rather than in, say, California or Michigan or Ohio, because of Texas’s low taxes and tort reform?

Setting aside for a moment the fact that Texas’s tort laws have no effect on lawsuits for injuries from their products in other states—injured plaintiffs can sue in the state where they purchased and used the product and were injured by it, and it’s that state’s tort laws that apply—and that physicians apparently aren’t flooding the Texas landscape by moving there from other states, what these people actually are saying is that Texas , as the lowest-common-denominator state for pro-business laws, is attracting businesses from other states and is spurring hiring there that otherwise would occur in another state.

Fine. But if the issue regarding job losses and job growth is an aggregate one for the country as a whole, rather than which states lost the most jobs to lower-common-denominator states, then why praise Texas as a national jobs creator? It’s not, at least not as a result of its government policies. The claim to the contrary is like saying that South Dakota and North Carolina “created” all those credit-card-company jobs in recent decades, as if those jobs wouldn’t have been created, albeit disbursed more throughout the country, if those two states hadn’t enacted such credit-card-company-friendly laws.

So when Rick Perry rolls out his presidential primary campaign and starts lauding all those Texas job gains, remember to ask what states those jobs otherwise would be in were it not for Texas’s chamber-of-commerce legislature’s largesse of recent years. I’m sure y’all will.


UPDATE- July 9: Merrill Goozner has a terrific in-depth deconstruction of the so-called Texas Miracle at TheFiscalTimes, at It was posted yesterday.

Saturday, July 2, 2011

I Beg to Differ (in Part), Mr. Will

In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.
—“Burning Down the House,” George F. Will, Washington Post, today

Will’s column discusses a new book by Getchen Morgenson and housing-finance expert Joshua Rosner that Will says “will introduce you to James A. Johnson, an emblem of the administrative state that liberals admire.” Johnson, for those of you who (like me) don’t instantly recognize the name, headed Fannie Mae during (I guess; Will doesn’t specify the dates) the 1990s and early 2000s. He says the book details how Johnson and a few others, acting under the guise of compassion, used the government’s backing of Fannie and Freddie loans and the public policy of encouraging homeownership, to hugely enrich themselves.

Will writes:

Morgenson and Rosner report that in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. That year Johnson’s $1.9 million bonus brought his compensation to $21 million. In nine years, Johnson received $100 million.

Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.

But he also suggests, if I understand correctly, that it was Johnson and the other Fannie and Freddie folks,rather than the Wall Street crowd, who instituted the concept of securitized mortgages in their recent, destructive form,* and credit default swaps—and (inferentially) then caused European banks to spur, say, the Irish housing bubble, which, last I heard, was not funded in any part by Fannie and Freddie. And he wrote the quote that opens this post, in which he claims that the government’s bailout—loans, most of which have been repaid—to GM and Chrysler have resulted in merely private profits. Unlike, y’know, the very substantial tax breaks given to oil companies.

The estimates about the number of jobs saved by those bailouts ranges from about 500,000 to (ultimately; i.e., indirectly) 1.5 million. Will is saying, in other words, that the federal government has no legitimate business involving itself so directly in the preservation of, or for that matter, the creation of jobs, because, after all, job preservation and job creation are private, not public, financial gains. The proposition is preposterous and relies upon the sleight of hand that only company and shareholder profits count as “profits”—a conceit that is likely to be seen for what it is, in places like Michigan, Indiana and Ohio. Assuming, of course, that Will is read in such places, or that some other wingnut picks up the argument and runs (literally, may) be with it there.

(Please, please, Paul Krugman. Respond to Will’s bizarre claim. You’re the only one who could do this and who has a wide enough readership for it to matter. We both know that no response to this type of canard will be forthcoming from the White House. Ever. Okay, well, at least until 2017.)

Two or three weeks ago, Newsweek ran a lengthy article by Bill Clinton listing 14 proposals for job creation. (Oh, for the days when the Democrat in the White House had some actual ideas, some energy, and the willingness—the eagerness, in fact!—to discuss his policy proposals, in detail and concertedly, with the public.) One of them concerned one of the Obama administrations (very) few policy ideas: Substantial tax credits and outright loans to green-tech startups, which resulted in an increase in America’s share of worldwide production of batteries for battery-powered cars from 2% to 20% before our dear leader quietly—why raise this issue publicly during negotiations when it’s just so much easier to simply give the Republicans what they want—caved, er, negotiated away this law during last December’s budget white-flag waving, er, compromise. Clinton, of course, suggests that this program should be brought back, immediately, and expanded to other types of industries.

Won’t happen, of course. Well, maybe in 2017.

As for Johnson and his ilk, hopefully there’s still time, statute-of-limitations-wise, to prosecute these folks. And hopefully, the Morgenson and Rosner book will cause enough pressure for that to happen. And I agree with Will completely that one of the most despicable aspects of what happened with Fannie and Freddie was the fraudulent claim of compassion. Wonder, though, whether Will would agree with me that the Repubs’ genuine compassion for, say, oil company execs and shareholders is just as unseemly, in its own way. Nah.


*That sentence was amended on July 4 to add “in their recent, destructive form”, in light of comments to my identical post on Angry Bear indicating that mortgage-backed securities were conceived apparently all the way back in 1968 or so.