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Texas’ rapid growth unlikely to continue at current pace

Aug 23, 2023

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Texas has been on a tear. The “Lone Star State” currently stands as one of only two U.S. states with a population of 30 million or more. According to the latest employment data from July, Texas has once again taken the lead nationwide in terms of jobs added throughout the past year.

Straight Arrow News contributor Peter Zeihan breaks down the factors that have contributed to the state’s remarkable success and also explores reasons why sustaining such rapid growth is unlikely.

Excerpted from Peter’s Aug. 23 “Zeihan on Geopolitics” newsletter:

Texas is known for many things – cowboys, bbq, oil, and who could forget the Alamo – but none of those are why Texas has been (and will continue to be) the fastest-growing state in the US.

Four big things have helped Texas climb to the top. Thanks to a low cost of living, Texans have been popping out babies left and right, contributing to strong demographic growth. Their proximity to Mexico has bolstered the Texan economy, trade, and manufacturing sector. Texas is a red state with blue cities, so residents can enjoy the perfect regulatory mix. And lastly, Texas has been able to attract businesses from other struggling states.

The past few decades have been great for Texas, but times are changing. Birth rates are falling, the cost of living is rising, immigration is falling off, and the business “stealing” model won’t be the same. This doesn’t mean Texas is collapsing (cities like Houston, El Paso, and Austin have bright futures ahead); things are just starting to slow down.

Everybody, Peter Zion here coming to you from one of my favorite places in central Colorado Elkhorn paths just above the Missouri Basin. It has, let’s see, there is Mount Missouri there, emerald, there’s a pointy one. And all important is that long sloping one, which is Iowa Pete. And as long as I was here surrounded by Midwestern names, I thought today would be a great time to talk about Texas. Now, Texas has been economically and from a demographic point of view, the fastest growing state in the United States now for roughly 30 years. And I don’t think that that trend is going to break anytime soon. But things are going to look a little bit different. First, I guess we should evaluate what has allowed Texas to be successful to this point. And really, there’s four things.
First up is demographic growth, you’ve had a relatively high birth rate in Texas, because cost of living is relatively low for
or property for housing, for electricity for food, that definitely helps with family formation helps young families have more children. Oh, second, and just as important, if not more important, is proximity to Mexico, about half of the trade that the United States participates with with Mexico is actually Texas, Mexican trade, and nearly half of what’s left passes through Mexico, all the way to the rest of the country. So one of the things that that the United States really is bad at is manufacturing because we don’t have different wage levels and skill levels were pretty homogenous across the country. Even if you compare the richest state, Connecticut to the poorest one, Mississippi, you’re only talking about a two to one ratio difference. And that means it’s difficult to get synergies and economies of scale manufacturing where it’s really best if you have one person doing the software and one person doing the metal casting and one person doing the wiring and so on. Mexico plus Texas has that to a degree. And so Texas is far and away the number one manufacturing state as result, probably couldn’t have achieved nearly probably not a third as much success if it wasn’t for partnership with Mexico. But once you get to the last two factors, things get a little bit weird and a little bit political. Texas is a red state, obviously, which means relatively low taxes and relatively low generate or relatively low regulation.
Companies love that. But people don’t, citizens, especially if they live in cities still want services. So Texas is kind of the model for a red state where the state has very, very low interference in the economy. But blue cities where the cities provide a number of economic and services advantages that you would see in more traditional urban centers across the country. And for companies that are looking to move somewhere, this is kind of the magic mix. Because at the state level, tax levels are low. And even in high tech cities like Austin, they’re not nearly as high as they would be in a place like say, Los Angeles, Chicago or New York. So you get the best of both worlds, you get a low tax and regulatory regime at the same time your workers actually get the services that they want if they’re going to live in a city. Which brings us to the fourth reason why Texas has been so successful. They’ve got a state development policy that’s kind of
well, it’s kind of dickish, whenever they see a another state facing fiscal problems, the governor gets together a bunch of representatives from local communities, as well as a little local business leaders and take them on a tour of that state. So that he can make the case where she can make the case that Texas has a better business environment. And we have a balanced budget. It’s constitutionally mandated, and you could move your business to Texas, and we’d even give you a tax holiday on the sort of taxes that you’re used to pay. It’s been really successful. So what we’re seeing now, though, is it’s unclear whether this strategy is going to continue to work as well, it’s still going to work. Number one, birth rates in Texas have fallen. One of the many downsides of having a strong red state environment is that you kind of skimp on infrastructure. And that means we’re seeing inflation rise up and it’s been become more difficult for Texans to live the way that they have the low cost of living that they’ve been experiencing. Also places like Austin, which were like the seventh pit of Hell 25 years ago, have now become tech hubs and have gone from being relatively inexpensive to in the upper third of living costs across the United States. Second migration, Mexico is tapped out, especially if this Texas Mexico axis continues to develop. More Mexicans are going to be staying in Mexico, which is going to make it difficult for Texas to replace its own last birth rate with birth from somewhere else.
What we’ve seen since the early days of COVID, is this weird little shift where Texas has actually been birth rate negative, but it’s still been drawing people from not Mexico from the rest of the country. And if we’re now in a situation where the birth rate in California has been negative for so long and inward migration to California has been negative for so long, then Texas is looking at potentially losing its two biggest sources of in migration. At the same time, California is number one, Mexico’s number two,
ask for the business model. You know, Red State Blue State works to a point, the five major cities in Texas have expanded massively over the last 30 years and they are not done. But the easy pickings is gone. If Texas really wants to continue this pace, it’s going to have to do something at the state level to continue to encourage people in businesses to move in. And that something has to be something more substantial than nothing. It’s not that it’s relatively hands off, libertarian policy needs to go away. But the idea of all the decisions being made at the local and county level, probably is pretty close to running its course. Now that doesn’t mean that Texas is looking down the mall of an economic collapse or anything like this, I’m just saying that the growth that we have seen in the last 35 years, probably can’t be replicated at the same pace on a state wide basis. But because we’ve got blue cities in a red state, you can have a number of urban centers that are still going to do incredibly well moving forward. I would expect at the top of the list to be Houston, because it’s got a foot in manufacturing a foot in finance and a foot in energy and foot in Mexico. I think El Paso will probably be second because in when it comes to manufacturing having those different great weight structures. El Paso shares its urban zone with Juarez, Mexico, it’s a perfect setup. And then third will pour probably be Austin. The more problems that Silicon Valley has, and you know, you might want to take a look at that California video we did. The more that tech is going to disperse out of the brain work into the application work, and that’s where Austin really shines. All right. That’s it. See you guys later.

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