Monday, February 7, 2011

Non-environmental economics post: The Texas "miracle"

© 2011 Joshua Stark

The L.A. Times reports on Texas' $27 billion debt

The Times gives a positive spin to this problem, even after talking up just how haughty Texans had been over a perceived economic superiority to California, by saying that Texas' problems are now "in the same league" as California's. 

Um, no. 

California's economy is five hundred billion dollars larger than Texas'.  Again: one half of one trillion dollars more is generated in California than in Texas, every single year.  And yet, even with the positive business climate in Texas, even with very low taxes, they still find themselves in a far, far larger debt-to-income ratio than California, which means that they are far, far closer to any kind of default.

Now, how do you suppose Texas is going to deal with its debt?  Lower its taxes to take advantage of the Laffer curve?  I'm guessing they've already fallen off that ideal peak.

There's only one way to go, folks, if you are a government entity who cannot deficit spend any more, and I fear that a parallel of Keynes' comment may come true:  The market can stay irrational longer than you can stay solvent. 

So God bless Texas.  They need it.

No comments: