Lesson One: Don’t be like California or New York
The World Series isn’t the only event at which Texas and California have waged a battle of late.
The nation’s two largest states have also been slugging it out over economic bragging rights. In this contest—unlike like the World Series—Texas is the clear winner.
The scorecard on this competition comes from our recent report by Dr. Arthur Laffer, which compares the two states: “Competitive States 2010: Texas vs. California.” Texas has been creating new jobs, while California has been losing them. As a result, not surprisingly, our economy has been outpacing theirs.
How did Texas beat California?
The answer is simple. Texas has marshaled its vast natural and human resources to grow its economy, while California has wasted its resources.
Along the same lines, Texas has bested New York as well, both on the field and in the marketplace. Jobs leave New York and come to Texas. The Yankees’ huge payroll couldn’t overcome the Rangers’ pitching, and neither could an over-regulated Wall Street outperform Texas entrepreneurs.
Texas relies on the proven formula of low spending, low taxes, and low regulation. Our research has shown time and time again that states that do well in these measures outperform states that don’t.
Despite Texans’ propensity for bragging, our position as the country’s top job-creator for the last decade is not because we are inherently better than other states. It’s because we believe that the free market unleashes the skills and creativity of people in a way that creates jobs and economic growth.
The recent election highlights this difference. Californians and New Yorkers voted to keep the same policies that have brought their economies to a standstill, while Texans spoke loud and clear that economic freedom is the way to go.
Texans don’t want a government that keeps taking and spending more of their money. That is why government spending in Texas in 2008 was actually a smaller percentage of the economy than it had been back in 1987. On the other hand, government spending in California grew 34 percent faster than its economy. This kind of spending can’t help but put an economy in the ditch after a while.
Of course, Americans understand this—they don’t need a study to tell them that the government is responsible for the largest tax increase in American history heading their way come January.
They have seen the decisions being made in Washington over the last few years that have increased the annual budget deficit. And they know that it’s their money that will be paying for Washington’s spending spree.
Economies grow (and jobs increase) more when they are taxed less. It is as simple as that. This concept isn’t lost on Americans, and that understanding explains why we just saw them repudiate the big spending ways of Congress and many state governments.
What are the next steps to putting this simple yet difficult-to-adopt program in place?
Well, the first thing to do is to look to the states. When we look at Washington, the record is spotty at best. Yes, we can hope that positive change will come from the mid-term elections, but the recent bipartisan record of Congress doesn’t exactly spur confidence that we will see fiscal discipline anytime spoon.
On the other hand, there is precedent that at least some states will make the right decisions when facing multi-billion-dollar budget shortfalls.
The last time Texas faced a major budget shortfall, in 2003, it actually managed to balance its budget mostly through spending restraint. And there are other states besides Texas that have generally kept their spending burdens in line.
As state legislatures convene next year, most will have more requests for spending than they have money to spend. Policymakers will be faced with the same decision they face every session: should they control spending or raise taxes?
History has shown that Texas and other states can balance their budgets next year without tax increases if policymakers make wise decisions about spending. The wisdom behind those decisions will largely depend on citizens’ speaking up during the budget debates just as they
did this fall at the polls.
We can turn the tide in the national battle over government spending and put the economy back on track if we do it one state at a time.