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March/ April/ May 2014 Oops: The Texas Miracle That Isn’t

Conservatives say the Lone Star state’s recent record of growth validates their economic agenda. That record crumbles upon inspection.

By Phillip Longman

The comparatively low levels of entrepreneurship in Texas in turn help to explain its comparatively low rates of upward mobility over the last generation. Here the evidence comes from a recent study, led by Raj Chetty and colleagues at Harvard University and the University of California, Berkeley, which tracked children born into families of modest means in different parts of the country and determined how many of them managed to move up the economic ladder when they became adults. The findings are illuminating.

In the San Francisco Bay Area, for example, children who grew up in families in the bottom fifth of the income distribution had only a 12.2 percent chance of rising to the top fifth as adults. Those who grew up in or near San Diego or Los Angeles had even lesser odds—only 10.4 and 9.6 percent, respectively. It’s depressing that for so many Californian children, the chances of realizing the American Dream are so slim. But California looks like the land of opportunity compared to Texas.

In the greater Austin area, children who grew up in families of modest means had only a 6.9 percent chance of joining the top fifth of earners when they became adults; in Dallas, only 7.1 percent; in San Antonio, just 6.4 percent. Yes, Texas offers more chances for upward mobility than places like Detroit and some Deep South cities like Atlanta. Yet the claim that Texas triumphs over the rest of America as the land of opportunity is all hat and no cattle. Children raised in the postindustrial wasteland of Newark, New Jersey, during the 1980s, it turns out, had a better chance of going from rags to riches than did children born in Houston, which was the best city in Texas for upward mobility during that time.

No wonder then, that the flow of Americans moving to Texas is so modest. The state may offer low housing prices compared to California and an unemployment rate below the national average, but it also has low rates of economic mobility, minimal public services, and, unless you are rich, taxes that are as high or higher than most anywhere else in America. And worse, despite all the oil money sloshing around, Texas is no longer gaining on the richest states in its per capita income, but rather getting comparatively poorer and poorer.

It’s hard to think of any two states more different than Texas and Vermont. For one, Texas has gushers of oil and gas, while Vermont has, well, maple syrup. As early as the 1940s, Texas surpassed Vermont in per capita income. Vermont had virtually nothing going for it—no energy resources except firewood, no industry except some struggling paper mills and failing dairies. By 1981, per capita income in Vermont had fallen to 17 percent below that of Texas. That year, the state’s largest city elected a self-described “democratic socialist,” Bernie Sanders, to be its mayor. Vermont, it might seem, was on the road to serfdom and inevitable failure.

But then a great reversal in the relative prosperity of the two states happened, as little Vermont started getting richer faster than big Texas. By 2001, Texas lost its lead over Vermont in per capita income. By 2012, despite its oil and gas boom and impressive job creation numbers, Texas was 4.3 percent poorer than Vermont in per capita income.

This is not an isolated example. Since the early 1980s, Texas has also been falling behind many other states in its income per person. In 1981, per capita income in Texas came to within 92 percent of that of Maryland; now Texans earn only 79 percent as much as Marylanders. In 1981, per capita income in Texas almost equaled that of Massachusetts; now Texans on average earn only about three-quarters of what residents of Massachusetts do. Relative to Connecticut, Texans have seen their per capita income slip from 82 percent to 71 percent.

Now let’s compare Texas with a big, demographically and economically diverse state like New York. Same pattern. As with Vermont, Texas started out poorer than New York. Into the 1930s, per capita personal income in Texas was less than half that of the Empire State. But gradually, Texans began to catch up. By the mid-1950s, Texans on average earned a full three-quarters as much as New Yorkers, thanks to a combination of New Deal-era investments in rural electrification, paved roads and other infrastructure, huge increases in federal military spending during and after World War II, and, of course, the oil boom.

In this era the state was under the firm control of Democrats like Sam Rayburn and Lyndon Johnson, who passionately believed in big federal spending projects, especially if, as with the early space program, a significant share of the spending flowed to Texas. By the beginning of the 1980s, per capita personal income for Texas reached 92 percent of that of New York.

Yet since then, per capita income in Texas has fallen to as low as 72 percent that of New York, and still remains at just 80 percent. This is true even though most of New York’s major cities, including Buffalo, Rochester, Syracuse, and pretty much the whole northern tier, have been in deep recession since the 1980s, and even though it’s only within the last few years that upstate New York has derived any income from shale oil. Meanwhile, per capita income in metro Houston has fallen from 4 percent above that of metro New York City in 1981 to 13 percent below in 2012.

A big part of the reason that Texas has not been able to keep up with New York in per capita income is, of course, the fantastical, world-historical fortunes that have been racked up on Wall Street since the 1980s, which inflate the per capita income numbers for not just New York City but the state as a whole. And Texans would be right in saying that their tax dollars, along with everyone else’s, went to bail out those big New York investment banks back in 2009. But that does not explain why Texas, even as it has led the nation in job formation, has fallen further behind states like Vermont, Maryland, and Massachusetts in per capita income.

So what is the explanation for that riddle? Here’s a stab. As we’ve seen, the flow of native-born Americans moving to Texas has been quite modest over the last generation, and for good reason. Few native-born Americans could lower their taxes, or raise their standard of living, by moving there. But Texas population has nonetheless boomed due to two main factors: immigration from abroad, mostly Mexico, and a birthrate that is the second highest in the nation after Utah.

Both come with challenges. Texas leads the nation, for example, in the percentage of teenagers with multiple children. And one factor driving down Texas’s per capita income is simply a compositional effect of having a high and rising percent of its population comprised of young, low-skilled, recent immigrants.

Phillip Longman is a senior editor at the Washington Monthly and a lecturer at Johns Hopkins University, where he teaches health care policy. He is also a senior fellow at the New America Foundation, where Atul Gawande is a board member.

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