The Texas Miracle Myth

The NYT had a article this week discussing a book that defended the "Texas Miracle", the idea that Texas has had solid economic growth in recent years and therefore its policies should be mimicked elsewhere. Paul Krugman had already dissected this idea last year, noting that Texas's growth is mostly explained by increasing population (both migrants northward out of Mexico and Central America, as well as the long-term gradual drift of Americans to the south and west), combined with the recent commodity boom. Texas's fortunes have always waxed and waned with oil booms and busts.

However, Krugman's key critique lies here.

"What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is “Well, duh.” The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state."

This, folks, is a classic prisoner's dilemma. Sure, it is a "win" for Texas if it can kill a $30/hour labor job and Michigan by turning it into an at-will $12/hour in Texas. Texas's economy will grow a bit, Michigan's will shrink by more, and the nation loses as a whole on a number of levels. Should then Michigan retaliate and undercut Texas, thus "winning" the job back at $11/hour and causing "growth"? It is clear here what is going on is that Texas is defecting in a prisoner's dilemma, which does in fact work in the short term to maximize one's gains. However, as I mentioned before, if your answer to a political issue is to defect in a prisoner's dilemma, you are almost certainly wrong. In the long term, it is a losing strategy for everyone.

Writ large or small, this same pattern keeps occuring. Almost all nations are engaging in a tit-for-tat game of poaching jobs from one another by subsidizing, bribing, gutting regulations, or stomping on labor. Likewise, it is sicking to watch blue states Oregon and New York bend over backwards to offer the biggest wet-kiss subsidies in order to capture "Project Azalea", a multi-billion dollar next-gen semiconductor factory. This stuff doesn't "create" jobs. That factory is going to be built regardless. It is only a question of who poaches the jobs from whom, and for how much the taxpayers will be on the hook.

This kind of job poaching can be framed as a "race to the bottom", which can never be won, and only fools enter. Sadly, playing this game is a core element of the Republican party's economic platform.