Texas Remains the Gold Standard for State Budgeting

Paul Krugman (KPR: -0.8) has a scathing article in the New York Times, ripping into Texas for its upcoming budget shortfall.

It’s hard to tell though what Krugman is actually upset about.  He claims that the Texas model has been debunked, but the state has done amazingly well, with an enviable economic performance that continues to this day.  It has achieved this performance without running up massive debts: today it holds about $34b in debt, and a large chunk of that is self-supporting– i.e. the state loaned out money to other people (like students) and when those people pay the state back, it pays its creditors back. Nor has the economic growth come at the expense of investments in the state’s future: it’s middle of the pack in things like education and infrastructure, and has even saved up about $8-10b in a rainy day fund.  So the conservative model of small government has worked well.

Still, Krugman claims that there is evidence that a low tax, low spending system doesn’t work, namely that if the state changed nothing in its budget, it would face (he claims) a $25b shortfall (the real number is probably a good chunk less than the estimate Krugman cites).

But this doesn’t constitute evidence; Krugman is merely predicting that the state will be unable to write a satisfactory budget that covers the shortfall without raising taxes.  If they do indeed pass a budget that raises taxes, or they pass a budget that doesn’t raise taxes and then have some sort of economic collapse, that might be evidence of an abandonment or failure of the conservative model.  And either way, this evidence would not simply erase away past experience– it is not as if Texas has been kicking the can down the road for a decade and shoveling burdens onto future generations.  There is no way to point the finger of blame for future troubles at past policy, as Krugman does (without explaining at all why past policies are to blame).

Furthermore, Krugman’s prediction of future troubles is itself shaky.  Kevin Williamson at National Review reminds us how robust the Texas budgeting process is.  It’s also worth noting that Texas’ budget problems are much, much smaller than California’s, New Jersey’s, or Illinois’ when looked at as a fraction of the state economy, and unlike California, which has made pension promises it has no hope of keeping, Texas does not have any exploding entitlement programs– when the recession goes away, so too does Texas’s budget shortfall.  Nor are the municipalities in Texas in particularly bad shape, as the risk of having to bail out cities is comparably low.

If there is a case to be made about Texas having a bad experience with conservative economic policies, Krugman hasn’t made it in the least.

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