Obama Policies Copy Moribund California, Not Texas

November 21, 2012

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Anyone who thinks that President Obama's economic policies will spur strong growth should consider U-Haul rates between California and Texas.

Renting a 20-foot truck one-way from San Francisco to San Antonio, for example, will cost $1,693. But the U-Haul tab to go in the opposite direction is just $983.

To University of Michigan economist Mark Perry, who has tracked this "U-Haul Index," the difference in these rental rates is the result of straightforward supply and demand.

Put simply, far more people want to leave California for Texas than vice versa.

Why? Because California's economy is moribund while Texas' is thriving.

"The American people and businesses are voting with their feet and their one-way truck rentals to escape California and its forced unionism, high taxes, and high unemployment rate for a better life in low-tax, business-friendly, right-to-work states like Texas," noted Perry, who is also a scholar at the American Enterprise Institute.

California Nation

The problem is that Obama's economic policies are pushing the country to be more like the California people are leaving and less like the Texas they're flocking to.

"Every dream program that the administration embraces — cap and trade, massive taxes on the rich, high-speed rail — is either in place or on the drawing boards" in California, notes Joel Kotkin, executive editor of NewGeography.

Like President Obama, California's Gov. Jerry Brown pushed for a substantial new tax on the "rich" that raises the top rate to 13.3%, a hike voters approved in November. Even before these taxes kick in, California was the fourth most heavily taxed state, according to a ranking by the Tax Foundation.

Also like Obama, the state is regulation happy. The Mercatus Center at George Mason University ranks California as one of the four worst states in terms of regulations. The state also imposes one of the heaviest tax burdens on businesses.

As a result, California consistently ranks at or near the bottom for business friendliness.

And like Obama — who has pushed federal spending up to historic highs for the past four years — per-capita spending in California has climbed 42% from 2000 to 2010, even after adjusting for inflation. The state is now one of the biggest spenders in the country.

The contrast in economic policies between California and Texas — which otherwise share many things in common, since both are big-population border states with lots of immigrants — could not be more striking.

The Lone Star state has one of the lowest tax burdens in the country, imposes far fewer regulations and taxes on business, and consistently comes in the top five in various rankings of business friendliness.

Chief Executive magazine , for example, has rated Texas the best state in the U.S. for business eight years in a row, citing "its business-friendly tax and regulatory environment," but also the quality of its workforce.

Also in sharp contrast to California, Texas has one of the lowest levels of per-capita spending, according to Govpro.com, and spending growth has been slower in Texas than California over the past decade.

The results of these two economic approaches could not be more striking, either.

In fact, on just about every important economic measure, Texas outshines California. A sampling:

GDP. Last year, Texas recorded 3.3% state GDP growth, and the year before that it was 5.2%, according to the Bureau of Economic Analysis. California's growth was just 2% in 2011 and 1.7% in 2010.

Jobs. Since the recession ended in June 2009, Texas has created more than twice as many new jobs as California, according to the Bureau of Labor Statistics. As a result, while California's unemployment rate is an astonishingly high 10.2%, the jobless rate in Texas is 6.8%, well below the national average.

Wages and income. Texans have also seen faster wage growth than Californians. Between 2008 and 2011, median hourly wages climbed 8% in Texas, but just 5.7% in California, BLS data show. And while per-capita personal income climbed 1.3% in Texas during that time, it fell by almost 1% in California, according to the Bureau of Economic Analysis.

Poverty. Despite its substantial government spending programs, California has the highest poverty rate in the nation, with 23.5% of its population counted as poor, according to a new Census Bureau measure of poverty, which tries to better account for taxes, government benefit programs, cost of living differences, and other factors. The poverty rate in Texas is 16.5%.

Entrepreneurship. According to Kotkin, California has also slowed as a source of fast-growing companies, while other states such as Texas have gained ground.

Education. Despite spending less on education, Texas students vastly outperform those in California schools, according to a study by McKinsey & Co. Not only do students do better overall on math and reading, but Texas does a far better job educating its Latino, black and poor students than California. As the study noted, "Texas outperforms California in terms of achievement despite similar demographics, lower GDP per capita, and lower per-pupil spending."

Escape From L.A.

As a result of all this, California has become a state that people are increasingly trying to escape, and Texas a state people are increasingly migrating to.

According to Census data, California lost half a million people to other states between 2007 and 2010. Texas, on the other hand, gained 394,000.

A study by the Manhattan Institute found that Californians have been leaving for states with better job prospects, lower taxes and better business climates.

In other words, states that are pursuing the kind of low-tax, limited government, free market policies Obama typically rejects.

The public may have voted to give Obama a second term. But many people in California are voting with their feet, leaving the state that's already put in place policies Obama has promised to keep pushing for four more years.

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