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Over the last several years, California has basically existed as a tutorial for how not to run a state government. It’s faced years of crippling budget deficits, has had several of its cities declare bankruptcy, and has been hit especially hard by the recession, all with help from one of the nation’s most useless legislatures.
Texas, on the other hand, has fared relatively well — and politicians and pundits have made much of the divide. California is a state crushed by excessive taxes and burdensome regulations, they say, while Texas, with its business friendliness and low cost of living, has been raised as the model for how a state can unleash a dormant economy.
The data seemed to support the conclusion. For the past couple of years, Texas has consistently led the nation in job growth while California has continued to lag. That’s starting to change, though, and it’s calling into question the assumption that the significant difference between the states is the regulatory climate or tax burden.
Bloomberg reported yesterday that California has now surpassed Texas in job creation, to lead the nation.
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“The increase runs counter to the notion that growth favors states with lower taxes,” Bloomberg writes. “California, the world’s ninth-biggest economy, has the highest statewide sales tax in the U.S., at 7.25 percent. That would rise to 7.5 percent if voters approve a November ballot initiative. The income tax rate for those making $1 million or more a year, now 10.3 percent, would rise to 13.3 percent, the most of any state.”
Partly it’s a matter of California having more ground to make up. It’s sitting on 10.7-percent unemployment compared to Texas’ 7.2 percent. More than that, according to the experts Bloomberg talks to, is simply that the two states’ economies are different: California’s is more heavily dependent on housing, which crashed especially hard, while Texas’ is more focussed on energy.
That’s due more to historical accident than the policies of either state. And while it’s hard to argue California hasn’t been poorly governed over the past decade or two, that’s not why its economy was hit so hard. Same thing applies over here. Rick Perry didn’t create the “Texas Miracle.” He just campaigned on it. And, as Jim pointed out last year, it wasn’t much of a miracle in the first place.
