Streetwise Professor

January 8, 2011

Give Me a T for Texas, But Give Krugman an F

Filed under: Economics,Politics — The Professor @ 8:44 pm

Paul Krugman spews bilge routinely, and so for the most part I ignore him.  But his most recent op-ed piece is about my adopted home state of Texas, so it warrants–I wouldn’t say “merits”–a reply.  In a nutshell (which fits Krugman quite well, thank you), he argues that (a) in the conservative narrative, Texas is the “role model” for conservative state governance, a foil for basket cases like New Jersey, California, and Illinois, but (b) its fiscal situation is as dismal as any of these other states.  Thus, he concludes, we shouldn’t look to Texas as an example.  Indeed, since Texas is cruel and mean, it is not worth emulation.

As usual, Krugman gets arm weary punching at straw men.  Texas has received positive attention because its economy has weathered the recession better than most, certainly better than other states that are heavy in manufacturing and natural resources.  It was among the last states to enter the recession, and suffered smaller than average declines in employment and income; its GDP fell by less than the national average in 2008-2009, and it did better than all the large states.  The positive coverage has not been mainly about the “modern conservative theory of budgeting,” as Krugman would have it.  And contrary to what Krugman says, serious people never labeled Texas as “recession proof”–they’ve just noted that Texas has done a lot better in this recession than its peers. (Rick Perry, for instance, never did a Vladimir Putin and claim that the financial crisis would not affect Texas.)

Even where the government’s financial situation is concerned, Krugman’s case is weak.  It is no secret to those in Texas that the state’s budgetary situation is hardly ideal.  As a member of the Faculty Senate at UH (I participate because I hear it counts against purgatory), I have heard Chancellor Khator and Provost Antel detail–and bewail–the state’s straitened circumstances, and the dire implication of that for the UH budget.

But it is not as bad as Krugman portrays it.  He picks an outlier number–a $25 billon deficit estimate over two years–and goes from there.  But other estimates put the number at $15 billion over two years.  (Texas works on a two year budgeting cycle.)

To put things in perspective, California’s deficit is around $25 billion over one year, or about 3 times the Texas deficit, whereas the California economy is less than twice as large as Texas’s.  Illinois–$15 billion budget deficit for one year, but its economy is about half the size of Texas’s.  (H/T, commentor Charles.)  New York–about $10 billion, with an economy smaller than that of Texas.  New Jersey–also about $10 billion, with an economy about a third the size of Texas’s.

So not great, but it could be far worse.  And it is indeed far worse, in most other big states around the country.

Moreover, it would be worse–a lot worse–had Texas not been conservative in its budgeting, as compared to other states.  Texas is dealing with its budget strains a lot more constructively than California or New York or Illinois.  (Of course, especially with regards to California “more constructively” is a very low bar.)  Take Illinois particularly.  It is facing a shortfall equal to about 40 percent of its budget–yes, 40 percent–and has just announced a barrage of new taxes.  These will doom it to the tax death spiral that many cities have already experienced, e.g., Detroit, my other sort of home St. Louis (city); in the spiral taxes go up, employers leave, exacerbating the budget problems, so taxes are raised more until the local motto becomes “Last One to Leave–Turn Out the Lights.”  (This is happening in Michigan at the state level too.) Texas is choosing and has already chosen a different route: it didn’t get itself as badly into the financial quicksand, and isn’t trying to get out by flailing about imposing new taxes on everything (including internet purchases, in Illinois).

So yeah, Krugman, tax increases are pretty much out of the picture, because Texas doesn’t want to join the death spiral parade.

Krugman notes that the Texas unemployment rate is below the national average, but argues that this is due to “high oil prices.”   Really?  Uhm, oil prices cratered–absolutely cratered–in 2008-2009, falling from $140 in July 2008 to around $35 in early 2009.  Natural gas prices cratered too, falling by about two-thirds.  Under Krugman’s theory, Texas should have suffered more in 2009 than the rest of the country; the fact that it didn’t is another fact in its favor.  Oil prices have rallied, but only relatively recently, and gas prices have remained in the doldrums.  Also, Texas is far less dependent on energy than it was in, say, 1986.  So Krugman’s attempt to attribute Texas’s relative good performance in the great recession to “oil prices” is just lame–and idiotic.

Krugman claims that Texas balances its books on the backs of the poor:

Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance.

Is this the reasoning that gets you a Nobel Prize?  Then how come every idiot doesn’t have one?  I mean, really.  First, how does the spending on school students averaged across all pupils in the state–which includes those in the richest districts and the poorest ones–have any bearing on how the state treats “its most vulnerable”?  Second, I’m sure Krugman might have heard somewhere that the connection between per pupil spending and academic achievement is tenuous at best.  Third, what does the percentage of citizens without health insurance have to do with the state budget?  The state, like other states, pays for Medicaid, the eligibility rules for which are set by the Federal government.  The state provides health insurance for its employees.  The decisions of private employers and their employees regarding insurance is a matter of private contract, and has nothing to do with the state budget.  He further says that Texas is “willing both to impose great pain (by its stinginess on health care).”  Again–if by “it” he means the State of Texas, he provides no evidence that “it” is stingy, because the fraction of individuals without health insurance is driven primarily by decisions in the private sector, not in the state government.  (It’s also worth noting that the same figures that show that Texas has the highest level of uninsured demonstrate that the state’s growth in the uninsured over 2007-2009 was below the national average.  So does that mean that Texas became less “brutal” in recent years?  Or that other states–including many quite blue ones–have become more brutal?)

Krugman also tries to blow off Texas’s good economic performance in the recent decade by attributing it to “liberal land-use and zoning policies.”  (If it’s liberal, why doesn’t he like it?)  Well, that’s just one of a whole set of policies that make Texas a desirable place to work, live, and operate a business.  And that’s exactly the kind of thing that Texas boosters say that other states would be wise to emulate.

Krugman mentions, but effectively ignores, the elephant in the room: Texas’s rapid population growth.  That’s the best barometer of the desirability of a state’s amenities and its policies.  Do people move to places that are “brutal”?  Do they move to places with crappy schools?  Obviously not.

People move where the bundle of private and public goods is most attractive.  That Texas is gaining population while California, New York, Illinois, etc. are losing it is the most important fact, by far.  Period.

Jerry O’Driscoll and Michael Barone understand this.  Krugman, Nobel Prize and all, apparently doesn’t.

I would have hoped that this was the worst thing Krugman has written in the last couple days, but alas that is not to be.  For not only is Krugman a reflexively ideological and dishonest opinion writer, he is a loathsome human being.

Think that’s too strong?  Well consider this.  The powder smoke was still hanging in the air in Tuscon when Krugman assigned blame.  No prize to those who guessed the obvious: that Krugman blamed conservatives:

We don’t have proof yet that this was political, but the odds are that it was. She’s been the target of violence before. And for those wondering why a Blue Dog Democrat, the kind Republicans might be able to work with, might be a target, the answer is that she’s a Democrat who survived what was otherwise a GOP sweep in Arizona, precisely because the Republicans nominated a Tea Party activist. (Her father says that “the whole Tea Party” was her enemy.) And yes, she was on Sarah Palin’s infamous “crosshairs” list.

Just yesterday, Ezra Klein remarked that opposition to health reform was getting scary. Actually, it’s been scary for quite a while, in a way that already reminded many of us of the climate that preceded the Oklahoma City bombing.

You know that Republicans will yell about the evils of partisanship whenever anyone tries to make a connection between the rhetoric of Beck, Limbaugh, etc. and the violence I fear we’re going to see in the months and years ahead. But violent acts are what happen when you create a climate of hate. And it’s long past time for the GOP’s leaders to take a stand against the hate-mongers.

Yeah, tell us about hate, Krugman: you’re the expert.

If you want a more reasonable conjecture about the Tuscon shooter, I suggest Shannon Love’s piece at Chicago Boyz.  The conclusion is spot on:

The left plays a dangerous and ultimately self-defeating game when in every case to date, they have immediately, often literally within minutes, of a reported act of political violence, sprung out to denounce ordinary non-lefitsts as culpable in the attack. Since it is widely known that such attackers are either seriously mentally ill or individuals with highly egocentric and idiosyncratic ideologies, seeking to link such attacks to their mainstream political opposition makes it clear that they see instances of political violence merely as chances to advance their political power. Moreover, since such attackers have a hodgepodge ideology, one can just as easily blame leftist’s rhetoric for such attacks as non-leftists.

More darkly, by linking ordinary, mainstream political opponents to such political violence, the left appears to be creating a context for suppressing or even violently attacking such opposition. They are desperately trying to create an equation in which disagreeing with a leftists is tantamount to a violent attack.

Words to heed, Krugman.  Not that you ever will.

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  1. A weird libertarian thought, but if the Big Brother cut its spending on warmongering and the military-industrial complex back in the early 1990s and never increased it, and gave some of the savings back to the states and taxpayers, both our Fed government and states would be debt-free now. Not to mention hte $2.3 trillion stolen by somebody from the military budget:

    January 07 2011
    Dennis Kucinich: Pentagon Is Missing Trillions Of Dollars They Can Not
    Account For

    “They constantly lose track of taxpayers money inside the Pentagon and
    how the money spent. This is a problem that’s been going on for
    decades thru Democrat and Republican administrations alike.”

    “When I came to congress there were over a trillion dollars where the
    accounts they couldn’t reconcile. When secretary Rumsfeld came to
    congress in the early part of the Bush term, he acknowledged there
    were trillions of dollars they were losing track of.”

    “Over $10 Billion dollars were sent to Iraq .. they didn’t even keep
    track ..”

    On September 10 2001, Secretary of Defense Donald Rumsfeld declared
    war. Not on foreign terrorists, “the adversary’s closer to home. It’s
    the Pentagon bureaucracy,” he said. He said money wasted by the
    military poses a serious threat.

    “In fact, it could be said it’s a matter of life and death,” he said.
    “According to some estimates we cannot track $2.3 trillion in
    transactions,” Rumsfeld admitted.


    So, these $15 billion in Texas debt are peanuts…

    Eisenhower’s farewell address
    by Dwight D. Eisenhower
    The farewell speech of U.S.A. President, Dwight Eisenhower. Given on
    17 January 1961 and televised in the U.S.A.

    Good evening, my fellow Americans.

    Understandably proud of this pre-eminence, we yet realize that
    America’s leadership and prestige depend, not merely upon our
    unmatched material progress, riches and military strength, but on how
    we use our power in the interests of world peace and human betterment.

    Crises there will continue to be. In meeting them, whether foreign or
    domestic, great or small, there is a recurring temptation to feel that
    some spectacular and costly action could become the miraculous
    solution to all current difficulties. A huge increase in newer
    elements of our defenses; development of unrealistic programs to cure
    every ill in agriculture; a dramatic expansion in basic and applied
    research — these and many other possibilities, each possibly
    promising in itself, may be suggested as the only way to the road we
    wish to travel.

    But each proposal must be weighed in the light of a broader
    consideration: the need to maintain balance in and among national
    programs, balance between the private and the public economy, balance
    between the cost and hoped for advantages, balance between the clearly
    necessary and the comfortably desirable, balance between our essential
    requirements as a nation and the duties imposed by the nation upon the
    individual, balance between actions of the moment and the national
    welfare of the future.

    But threats, new in kind or degree, constantly arise. Of these, I
    mention two only.

    We have been compelled to create a permanent armaments industry of
    vast proportions. Added to this, three and a half million men and
    women are directly engaged in the defense establishment. We annually
    spend on military security alone more than the net income of all
    United States corporations.

    Now this conjunction of an immense military establishment and a large
    arms industry is new in the American experience. The total influence
    — economic, political, even spiritual –is felt in every city, every
    Statehouse, every office of the Federal government. We recognize the
    imperative need for this development. Yet we must not fail to
    comprehend its grave implications. Our toil, resources, and livelihood
    are all involved. So is the very structure of our society.

    In the councils of government, we must guard against the acquisition
    of unwarranted influence, whether sought or unsought, by the military-
    industrial complex. The potential for the disastrous rise of misplaced
    power exists and will persist. We must never let the weight of this
    combination endanger our liberties or democratic processes. We should
    take nothing for granted. Only an alert and knowledgeable citizenry
    can compel the proper meshing of the huge industrial and military
    machinery of defense with our peaceful methods and goals, so that
    security and liberty may prosper together.

    Akin to, and largely responsible for the sweeping changes in our
    industrial-military posture, has been the technological revolution
    during recent decades. In this revolution, research has become
    central, it also becomes more formalized, complex, and costly. A
    steadily increasing share is conducted for, by, or at the direction
    of, the Federal government.

    During the long lane of the history yet to be written, America knows
    that this world of ours, ever growing smaller, must avoid becoming a
    community of dreadful fear and hate, and be, instead, a proud
    confederation of mutual trust and respect. Such a confederation must
    be one of equals. The weakest must come to the conference table with
    the same confidence as do we, protected as we are by our moral,
    economic, and military strength. That table, though scarred by many
    past frustrations, cannot be abandoned for the certain agony of the

    Disarmament, with mutual honor and confidence, is a continuing
    imperative. Together we must learn how to compose differences, not
    with arms, but with intellect and decent purpose. Because this need is
    so sharp and apparent, I confess that I lay down my official
    responsibilities in this field with a definite sense of
    disappointment. As one who has witnessed the horror and the lingering
    sadness of war, as one who knows that another war could utterly
    destroy this civilization which has been so slowly and painfully built
    over thousands of years, I wish I could say tonight that a lasting
    peace is in sight.

    Thank you, and good night.

    Dwight D. Eisenhower

    Comment by Ostap Bender — January 9, 2011 @ 1:01 am

  2. […] This post was mentioned on Twitter by Tom Kirkendall. Tom Kirkendall said: Craig Pirrong disassembles Paul Krugman: […]

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  3. I was a high school teacher for a brief period of time in Houston. I can totally assure you that the amount of spending per pupil has indeed very little to do with student achievement. Pointlessly large sums of money are spent on the latest and greatest graphing calculators, smart boards, new text books (which shamelessly regurgitate the same old 2x + 1 = 3 algebra year after year in slightly different formats), etc. Very little is done in terms of teacher performance tracking which has met with every possible obstacle. I would attribute this dismal performance on the education front to a lack of affordable private schools. In places like India (where I grew up and got educated – thankfully!!) there is a vibrant (and very affordable by the middle class) private school segment. People often enroll their kids in schools which have the best graduation rates and placement of kids in good universities. There are good public schools & they are good because they are literally forced to bench mark themselves against “market” standards. This also forces schools to hire and retain the best teachers and weed out the weak ones. Sadly this will never happen in the USA in our life times …. and this will further back stab American kids just at a time when they really need to step up to the competition from kids around the world.

    Comment by Surya — January 9, 2011 @ 12:41 pm

  4. Not sure about the Tucson shooting. I find Sarah Palin more loathsome than Krugman. Making up a target list with cross hairs on people is “seriously mentally ill and highly egocentric” in itself. And the entire Beck, Limbaugh, Palin rhetoric is more on the hate mongering side. That there is an active market for such speech is disturbing. Makes me wonder if there is any connection between this type of hate speech and the rise in CCC(/KKK) numbers during any recession…….

    Comment by Surya — January 9, 2011 @ 1:04 pm

  5. @ Surya Yes, it amazes and angers me that after many decades of talk, the idea of having a voucher system, in which parents would have the freedom to take their child’s voucher to a school that they like, hasn’t gone anywhere. Such a system would create competition and make the US school education – one of the worst in the world – work like the US college education – one of the best in the world.

    Comment by Ostap Bender — January 9, 2011 @ 5:33 pm

  6. Surya–I think you are overreacting to the Palin site and the “target list.” In fact, this exact rhetoric with accompanying graphics is a bipartisan thing and very common. To wit: this and this (which includes several examples and this not to mention some stuff on Daily Kos.

    None of these things, by either party, can realistically be considered an incitement to violence by those with an even tenuous control on their faculties; the fact the violence that occurred is so shockingly singular demonstrates that clearly.
    The picture that is emerging of the shooter is that of a paranoid schizophrenic. Trying to map the actions and thoughts of the insane into political categories and rhetoric is futile. What I find disturbing is that so many people leapt to do so without the slightest attempt to wait for facts to come out, or to attempt to gather their own facts. Indeed, there are reports that political operatives are explicitly attempting to do just that.

    An application of Occam’s Razor would lead one to explain what happened as the result of insanity. Attribution of any political motive or meaning is superfluous at best, certainly misleading, and cynically manipulative at worst. To do so without any facts whatsoever–what is what Krugman did, and what the COP in Tuscon did–is disgraceful.

    The ProfessorComment by The Professor — January 9, 2011 @ 5:36 pm

  7. @Ostap, uhm, defense spending was cut in the early-1990s. Manpower levels declined substantially from ’92-’00. Ditto ship counts, aircraft etc. Indeed, the decline in defense spending in real dollars began in 1986. As a fraction of GDP defense spending declined from 6.2 percent in 1986 (a pittance compared to the 13.1 percent in 1954, or the 9.4 percent at the time of Ike’s speech) to 3.0 percent immediately prior to 9-11 Even with Iraq and Afghanistan, defense spending/GDP has risen to 4.7 percent in 2010, which is low by post-WWII standards.

    If you want to look for culprits in budget expansion post-1986, you have to look elsewhere than defense. This is especially true w.r.t. state spending; during the 1986-2010 period total federal spending rose from 22.1 percent of GDP to 24+ percent, and state and local spending rose from about 6.5 percent to nearly 10 percent.

    And yes, the Pentagon tends to do a bad job of bookkeeping. Do you think there is any branch of government that does a good job?

    The ProfessorComment by The Professor — January 9, 2011 @ 5:47 pm

  8. DoD budget as a % of federal is around 19%. That is quite high, given we are in the post Cold war era and also due to the fact that in the 60 years after the first nuclear weapon was built, no two nuclear powers have ever gone on war against each other (in fact a one of the grand fatherly people I met recent told me that the best way to ensure world peace is for each country to have a nuclear weapon!). The real threat of a potential nuclear war in the 1950s justified a high defense spending. That threat has definitely receded.

    Also defense related expenses are tucked in quite a few other programs. In fact interest payments on debt incurred during past wars might be as high as 114 billion dollars a year! From the wiki link ( we have
    “This does not include many military-related items that are outside of the Defense Department budget, such as nuclear weapons research, maintenance, cleanup, and production, which is in the Department of Energy budget, Veterans Affairs, the Treasury Department’s payments in pensions to military retirees and widows and their families, interest on debt incurred in past wars, or State Department financing of foreign arms sales and militarily-related development assistance. Neither does it include defense spending that is not military in nature, such as the Department of Homeland Security, counter-terrorism spending by the FBI, and intelligence-gathering spending by….”

    A useful pie chart like defense, social security and medicaid account for 65% of the budget expenses! That is flab that should be cut in half…

    Comment by Surya — January 9, 2011 @ 7:46 pm

  9. @surya-

    While you state that no two nuclear powers have gone to war against each other (I debate that, as I consider the Cold War and actual war, just fought on terms different than conventional wars), I also point out that no two democracies have ever gone to war with each other. Hence, promoting democracy around the world seems to be a more effective and safer method of promoting peace than encouraging nuclear proliferation would be.

    Comment by Surya — January 10, 2011 @ 8:07 am

  10. Professor,

    Nice article. Unfortunately the metrics to evaluate the performance of public education are woefully weak relative to the level of investment by the public. Our company has worked with both the Texas legislature and school district leadership for 8 years to correct this inadequacy. Our tools rank school district performance on both academic achievement and productivity (i.e. return on investment).

    We have also ranked the states on their relative performance. When adjusting for demographics and local costs, Texas ranks 1st in academics and 31st in spending.

    Contact us if you would like to learn more.

    Comment by Paul Haeberlen — January 12, 2011 @ 11:19 am

  11. @Paul–thanks for your comment. I’m very interested in learning more about your analysis. It’s important that you don’t just run unconditional performance-spending correlations, but condition on demographics, costs, and other factors that matter, and also look at some measure of value added. Do you have anything published or available electronically that you could point me to? I may well write something about it on SWP.

    The ProfessorComment by The Professor — January 12, 2011 @ 1:12 pm

  12. Mr. Haeberlen,

    I am curious how specifically Texas in general ranks first nationally in academics. In terms of nationally administered standardized tests, average math SAT for tExan kids #46 and verbal SAT # 49. Education is more than about SAT scores. In our northeastern schools we, who value a classical education for our children, are able to have them study Latin and Classical Greek (classes which incorporate readings in Latin and Greek law and philosophy) in the local public school district; things that are important but not reflected in SAT scores. Our friends who live in Texas are amazed by this.

    In terms of “return on investment” I suspect that there is a confound in terms of Texas’s relatively good economy. Texan kids might earn more or be more employed not because their schools are better but because they graduated high school in a state with a better economy. Is this accounted for in your analysis?

    Comment by AP — January 13, 2011 @ 10:54 am

  13. While you state that no two nuclear powers have gone to war against each other (I debate that, as I consider the Cold War and actual war, just fought on terms different than conventional wars), I also point out that no two democracies have ever gone to war with each other. Hence, promoting democracy around the world seems to be a more effective and safer method of promoting peace than encouraging nuclear proliferation would be.

    So what? No two communist countries have gone to a real war with each other. Hence, promoting communism around the world seems to be a more effective and safer method of promoting peace than encouraging nuclear proliferation would be. 🙂

    Moreover, when UK and Argentina fought each other, weren’t both democracies? How about Greece and Turkey? How about Central American wars?

    Moreover, since the concept of modern democracies is quite recent and most of its history, the democratic world was united against the Communist threat, there just hasn’t been time for the hostilities to ripen, so to speak. Until 2008, no two Greek Orthodox countries had gone to war with each other either. But that sure changed in a hurry, as the Greek Orthodox Georgia attacked the Greek Orthodox Ossetia defended by the Greek Orthodox Russia.

    Certainly, as the Spanish Civil War, US Civil War or the Chili junta attest, being a democracy doesn’t safeguard a country from a civil war.

    Moreover, Germany was truly democratic in the 1920s, and then the Great Depression hit the world, the Nazis came to power, and WWII started. All in a matter of a few years. The same can happen again. For example, when the US economy collapses and the right wing comes to power, what will prevent the currently modest US warmongering policy – two countries at a time – into escalating into a wholesale war against the rest of the world, dozens of countries at a time? After all, USA spends on defense as much as the rest of the world combined, so what will prevent USA – together with, say, UK and Australia – from truly terrorizing the rest of the world? This will certainly be of great benefit to the military-industrial lobby.

    Comment by Ostap Bender — January 13, 2011 @ 11:01 pm

  14. @ The Professor

    Sure, government waste is ubiquitous. But at least when the taxpayers’ money is spent on, say, social programs like social security or unemployment or on road construction, much of it goes to a useful purpose. More than half of the military budget is not useful in any way at all.

    Comment by Ostap Bender — January 13, 2011 @ 11:05 pm

  15. Texas has the near-worst schools in the US. It basically leeches off all the civilized states, by bribing skilled workers from elsewhere with low taxes.

    Comment by Sublime Oblivion — January 15, 2011 @ 11:58 am

  16. Professor,

    Much of our material is published on our website ( The Select Committee on Public School Accountability (Texas Senate) is another source. You are correct that adjustments must be made for demographic characteristics of the student population. From the subsequent comments, there is some urgency to do so. Public perception is an important part of the funding process, so clarity in performance adds value.

    I would be happy to send the study that demonstrates the relative performance of the 50 states on both spending and academic achievement.


    Comment by Paul Haeberlen — March 29, 2011 @ 7:19 pm

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