Why Texas Is Our Future

by Tyler Cowen,

It’s not an accident that three of the five fastest growing cities are in Texas. It’s more like destiny. They say the Lone Star State has four seasons: drought, flood, blizzard and twister. This summer 97% of the state was in a persistent drought; in 2011 the Dallas–Fort Worth area experienced 40 straight days in July and August of temperatures of 100° or higher. The state’s social services are thin. Welfare benefits are skimpy.

So why are more Americans moving to Texas than to any other state?

Texas has acquired a certain cool factor recently. The pundit Marshall Wittmann has called it “America’s America,” the place where Americans go when they need a fresh start. The state’s ethnic and cultural diversity has made places like Austin and Marfa into magnets for artists and other bohemians.

But I believe the real reason Americans are headed to Texas is much simpler. As an economist and a libertarian, I have become convinced that whether they know it or not, these migrants are being pushed (and pulled) by the major economic forces that are reshaping the American economy as a whole: the hollowing out of the middle class, the increased costs of living in the U.S.’s established population centers and the resulting search by many Americans for a radically cheaper way to live and do business.

Over the past 20 years, more than 4 million Californians have moved out of California, according to Bernard Weinstein, an economist and associate director of Southern Methodist University’s Maguire Energy Institute. “That’s two cities the size of Houston,” he notes.

Why is California, for instance, so expensive and Texas so cheap? “God wanted California to be expensive,” Jed Kolko, chief economist for San Francisco–based real estate website Trulia, says, with its ideal climate and attractive but limited real estate squeezed between the mountains and the ocean.

On the flip side, Texas has a higher per capita income than California, adjusted for cost of living, and nearly catches up with New York by the same measure. The website MoneyRates ranks states on the basis of average income, adjusting for tax rates and cost of living; once those factors are accounted for, Texas has the third highest average income (after Virginia and Washington State), while New York ranks 36th.

Of course, it’s not just cheap living that draws people to Texas. It’s also jobs. In the past 12 months, Texas has added 274,700 new jobs–that’s 12% of all jobs added nationwide and 51,000 more than California added.

“My uninformed friends usually say, ‘But Texas creates low-paying jobs.’ To that I respond, You are right. We create more low-paying jobs in Texas than anybody else,” Dallas Federal Reserve president Richard Fisher says. “But we also created far more high-paying jobs.” In fact, from 2002 to 2011, with 8% of the U.S. population, Texas created nearly one-third of the country’s highest-paying jobs.

“The bottom line,” says Fisher, is that “we have experienced growth across all sectors and in all income categories … If you pull Texas out of the puzzle of the United States, the rest of the country falls down!”

How did Texas do it?

“Texas Monthly” senior editor Erica Grieder credits the “Texas model” in her recent book, Big, Hot, Cheap, and Right: What America Can Learn From the Strange Genius of Texas. “The Texas model basically calls for low taxes and low services,” she says. “In a sense, it’s just a limited-government approach.” Cheap land, cheap labor and low taxes have all clearly contributed to this business-friendly climate. But that’s not the whole story.

“Certainly since 2008, the beginning of the Great Recession, it’s been the energy boom. However, he says, the job growth predates the energy boom by a significant margin. “A decade ago, before the shale boom, economic growth in Texas was based on IT development,” Weinstein says. “Today most of the job creation, in total numbers, is in business and personal services, from people working in hospitals to lawyers.”

Of course, not everyone’s a fan of the Texas model. “We are not strong economically because we have low taxes and lax regulation. We are strong economically because of geography and geology,” says Scott McCown, a former executive director of the Center for Public Policy Priorities.

“We’ve built an economy favoring the wealthy … If that’s the ultimate end result of the Texas model in a democratic society, it will be rejected.”

So will the rest of the country follow Texas’ lead? People are already voting with their feet. The places in the U.S. seeing significant in-migration are largely in relatively inexpensive parts of the Sun Belt.Texas is just the most striking example. But Oklahoma, Colorado, the Carolinas and other parts of the South are benefiting from the same trends–namely that California, New York and the other high-tax, high-cost states are no longer such good deals for much of the U.S.’s middle and lower-middle classes.

The Americans heading to Texas and other cheap-living states are a bit like the mythical cowboys of our past–self-reliant, for better or worse.

Automation and globalization don’t just make a lot of goods and services much cheaper–they sometimes make them free.

This suggests that wages and GDP statistics may no longer be the most accurate gauges of real living standards. A new class of Americans will become far more numerous. They will despair at finding good middle-class jobs and decide to live off salaries that are roughly comparable to today’s lower-middle-class incomes. Some will give up trying so hard–but it won’t matter as much as it used to, because they won’t have to be big successes to live relatively well.

“The world of work is changing, and what we are learning is it’s no longer about the 9-to-5, it’s about the work itself,” says Gary Swart, CEO of oDesk.

For an example of one of these “new cowboys,” take Joe Swec. For most of his life, Swec, 32, has lived in beautiful (and, he notes, expensive) places. Born in the San Francisco Bay Area, he graduated from California Polytechnic State University. So five years ago, Swec moved to Austin. “My friends thought I was crazy–why would I move to Texas?” he says. “They also wondered why I would leave a six-figure job. I saw it differently. I wanted my job to give me a happy life.” “My friends out in California don’t understand why I like it here,” Swec says. “But I have just developed a fondness for the local way of life.”

A little more freedom in strategically targeted areas–that is, a little more Texas–could go a long way.

Don’t be scared. As Tara Connolly found, Texas is a welcoming place: “Everyone is just so friendly, and they look you in the eye.” And she wouldn’t even think of going back to New York City. “The constant stress doesn’t seem appealing,” she says. “The cost was insane, and it was time to start fresh. This was a good place to try.”

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