Texas Still Runs On Black Gold

Paul Krugman gave Phillip Longman’s piece exploding the Texas Economic Miracle a shout-out today, and then added some thoughts of his own on the importance of petroleum to current Texas growth rates:

Philip Longman has a very good article in the Washington Monthly debunking the hype about the Texas economy. Things I didn’t know include the fact that net inward migration by native-born Americans is actually quite small.

But I wanted to follow up on one particular point: the role of oil and gas in recent years. Longman concedes that these industries directly account for a fairly small share of the economy even in Texas, but argues that their rapid growth, combined with multiplier effects, makes them a much bigger story when it comes to Texas growth. Indeed. Let me put some numbers to this, using the BEA data on real GDP by state.

What you learn from these data right away is that Texas is indeed king of the extractive expansion. Nationwide, mining output, measured in 2005 dollars, expanded $29 billion between 2007 and 2012; Texas accounted for $22.7 billion of that expansion. Nationally, the expansion of mining was 0.2 percent of 2007 GDP; in Texas, it was 10 times that, 2 percent.

This mining expansion must also have had a multiplier effect, as mining operations and workers spent money in the local economy, raising incomes, and generating further increases in demand. The state of the art estimates of regional multipliers come from Nakamura and Steinsson (pdf), who use fluctuations in defense spending as natural experiments; they conclude that the multiplier is around 1.5. So that 2 percent of GDP Texas extractive boom should have raised the state’s GDP by 3 percent, or 2.7 percent relative to the nation as a whole.

Meanwhile, overall Texas GDP rose 13 percent from 2007 to 2012, while national GDP rose only 2.5 percent. What this calculation suggests is that the oil and gas boom accounts for more than a quarter of that growth difference. That’s a lot, although it’s not the whole story.

What about the rest? Partly we’re seeing the continuation of the long-term movement of U.S. population and jobs to the Sunbelt; Ed Glaeser likes to point out that the single best predictor of state growth is the number of winter degree days. On top of that, Texas does do one very important thing right: it has relaxed zoning, which keeps housing abundant and cheap.

And what about the more general miracle of free-market capitalism? It exists only in the eyes of the beholder.

And in the words of the propagandists serving up Texas a template for the nation.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.