Thursday, August 18, 2011

Krugman's ill considered claims about Texas

Krugman makes several claims about why Texas' economy really isn't looking that good. An economist shouldn't be making the mistakes that Krugman does. Here are his claims:

"In June 2011, the Texas unemployment rate was 8.2 percent. That was less than unemployment in collapsed-bubble states like California and Florida, but it was slightly higher than the unemployment rate in New York, and significantly higher than the rate in Massachusetts. . . ."

Anyone who has been following the US unemployment numbers knows that things are a lot worse than the simply unemployment rate number indicates, and they are worse for a simple reason: people have given up looking for work and have completely left the labor force. People can stop being unemployed either when they get a job or when they give up looking for a job. Obviously, everyone wants to lower the unemployment rate through only the first option. Yet, unfortunately, people giving up looking for work has been the hallmark of the Obama administration. People are supposed to start looking for work during recoveries. It is during a recession that Americans give up looking for work. During the Obama "recovery" about 2.8 million more Americans have given up and completely stopped looking for work.

The data for individual states is available at the Bureau of Labor Statistics website. Texas' unemployment rate is better than the national average, and it is true that there are other states such as New York and Massachusetts who have very similar rates.

So how is it that Texas is creating all these jobs but not showing a drop in the unemployment rate? The answer is that unlike Texas workers in the nation as a whole as well as Massachusetts and New York have completely given up looking for work. While Texas' labor force has grown by 350,000 since the recession ended in June 2009, Massachusetts has remained virtually unchanged and New York's has fallen by 140,000. Keeping a similar unemployment rate to Texas isn't quite the wonderful accomplishment when so many people have given up looking for work. The rest of the states will suffer a long term unemployment problem that Texas won't face because eventually when the economy does recover those who have given up looking for work will start looking again.

"It’s true that Texas entered recession a bit later than the rest of America, mainly because the state’s still energy-heavy economy was buoyed by high oil prices through the first half of 2008. . . ."

If Krugman can see significant swings in either the number of people employed or the number in the labor force as gas prices change, he has better eyes than I do. Krugman notes that Texas benefited from gas prices rising in 2008, but he fails to mention how Texas still did well relative to other states even when gas prices plummeted in late 2008 and stayed low through most of 2010.

"Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending. . . ."

The reason that Texas didn't have a meltdown is largely because it didn't have the huge rise in housing prices preceding it and the reason that happened was because Texas has relatively few zoning regulations that restrict growth.

The Washington Post's Brad Plumer and Harold Meyerson largely get marching orders from Krugman, mentioning Texas' "oil boom" economy and then going after the high rate that Texans earn the minimum wage.
Plumer: "And Texas’ job surge hasn’t necessarily led to high-paying jobs: The state boasts the highest percentage of minimum-wage workers in the country, and its per capita income still sits below, say, California’s. . . ."

Meyerson: "It has the fourth-highest poverty rate of any state. It tied with Mississippi last year for the highest percentage of workers in minimum-wage jobs. . . ."

Unfortunately, neither of these writers really understand what these numbers mean. The biggest problem with both sets of claims is that Texas has the second largest percent of its population under age 18 at almost 28 percent. (Mississippi by the way is 8th.) Children ages 0 to 17 don't make much income if any, but obviously they go into calculating per capita income numbers. If you want to compare what people are making across states, a much more useful approach is to compare GDP per adult and in 2008 Texas ranked 8th, not too shabby. California ranked at 11th. This high rate of young people also dramatically raises the rate that people in the population are earning the minimum wage. Given that single women with kids make up such a large portion of those in poverty, it isn't surprising that this high rate of having children also drives up the poverty rate.

Another discussion of Krugman's claims can be found here.



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