Not Texas

The state we are probably lectured about the most as a model for how Michigan state government should work like is Texas. The story goes they are a low tax/low spending/weak union state and therefore has a strong economy. Think again!  Turns out they have one of the largest state budget deficits in the country. A two-year $25 billion deficit. Yes billion with a b. Michigan’s is $1.8 billion. 7 times less on an annual basis. On a per capita basis our deficit is close to 3 times smaller than theirs.

They have managed to run up an unfathomable deficit despite having an economy still greatly benefited by high energy prices, that did well in the expansion and held up better than most in the Great Recession, has weak public employee unions and basically one party rule. And still they have  a deficit three times larger than us on a per capita basis. So much for us needing to take lessons from them. Turns out one can make a stronger case they should be learning lessons from us.

Two great articles highlight the Texas mess. One from Paul Krugman in the NY Times. The other from Both really worth reading.

The article tries to answer the question why aren’t more people talking about Texas as one of the states in big budget trouble. Their answer: So why haven’t we heard more about Texas, one of the most important economy’s in America? Well, it’s because it doesn’t fit the script. It’s a pro-business, lean-spending, no-union state. You can’t fit it into a nice storyline, so it’s ignored. But if you want to make comparisons between US states and ailing European countries, think of Texas as being like America’s Ireland. Ireland was once praised as a model for economic growth: conservatives loved it for its pro-business, anti-tax, low-spending strategy, and hailed it as the way forward for all of Europe. Then it blew up.

They also include a list of the 15 states with the biggest budget deficits as a percentage of state spending. Who is not on the list? Michigan. Who is along with Texas? Virginia, North Carolina, South Carolina, Arizona, Louisiana and Mississippi. Once again, so much for the south being a model. To be fair there are plenty of northern so called big spending/strong unions states as well.

It’s time to get real. Michigan’s lost decade was not caused by high taxes, high spending or irresponsible elected officials unwilling to make tough decisions. When it comes to state budgets we actually did better than most. We had a lost decade primarily because our preeminent industry – the Detroit Three – collapsed. And we did not have an alternative engine to offset its collapse. The sooner we learn the lesson that copying Texas (and similar states) in terms of taxes and spending has nothing to do with building that alternative engine – which is the key to rebuilding the Michigan economy – the better.

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