That lone stellar-economy 

In less than a month, my family and I will be joining a crowded wagon-train of folks moving to the U.S. state that has more-or-less beat the recession. If you didn’t pick it up from the title, I refer to the Republic of Texas.

Being from North Carolina, we’ll have to trade good ole pulled-pork for beef brisket. That’s okay. We’ll have to give up the lush green Piedmont flora for the scrubby vegetation of central Texas. That’s okay. We’ll have to give up proximity to the Blue Ridge and the Outer Banks. Tobacco barns and fireflies. And zeal for college basketball. But that’s okay.

What do we get in exchange? A weird-but-great city (Austin). A new career start for my wife. And a healthy economic climate.

Derek Thompson, writing at the Atlantic Business blog, wonders how Texas weathered the Great Recession so well:


Pick your category, and Texas dominates. Three of the top five most resilient major metro areas for employment are in Texas: McAllen at one, Austin at three, and San Antonio at five. El Paso and Houston make the top 15. How about state debt? Texas ranks fourth in the country. Texas cities claimed four of the top five spots in the Milken Institute's Best Performing Cities Index, four of the top ten of Forbes' "Cities Where the Recession is Easing," and another four spots in last year's Top Ten in Homebuilding (admittedly, a bit like winning a Warmest Ice Cube contest).

Talk to folks in Texas about their state's good fortune, and they'll also point out that the Lone Star State would be the 15th largest economy in the world if it were really alone, and that 64 Fortune 500 companies call Texas home, more than any other state. For relish: more Americans are moving into Texas than any other state, and CNBC recently named it Top State for Business for the second time in three years. (Emphasis mine.)

What does Texas have going for it? Thompson offers four things: 1) A late start to the recession; 2) Stable real estate, 3) The right mix of industries, and 4) A favorable business climate.

All of these are factors to be sure. But let’s linger on number 4, which Thompson gives short shrift. Indeed, all we have to do is look at the data:

  • According to the Mercatus Center, Texas ranks 4th in economic freedom in their Freedom of the 50 States Index.
  • According to Forbes, Texas ranked as the 4th best state to do business in 2008.
  • According to the Fraser Institute, Texas ranks 2nd in North America (including both states and Canadian provinices) in economic freedom, according to their 2008 Index.
  • According to the Tax Foundation, Texas ranks 11th nationally in terms of its business tax climate. Most of the states with a better tax climate have an even lower unemployment rate (e.g. Wyoming and South Dakota).
  • According to CNN Money, Texas ranked #9 in 2006 for being friendly to small businesses

Business climate is a big factor in any state’s ability to weather recessions. Texas offers a great example of a state in which a relative lack of regulation coupled with lower taxes goes very far indeed. It’s also no accident that the states that tend to cluster in the top quartile for relatively low unemployment also cluster in the top quartile in these business-friendliness indices

What’s the lesson for states looking to become more competitive? When it comes to government intervention in the economy, less is more.

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Max Borders

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