By Dr. Vance Ginn and William Wang
The latest report from the Bureau of Economic Analysis (BEA) shows that many states economies improved in 2014. Real Gross Domestic Product (GDP), a measure of inflation-adjusted economic output, increased in 48 states and the District of Columbia, and the entire U.S. real GDP increased 2.2 percent last year after a 1.9 percent increase in 2013.
Though this is good news, these rates for the nation remain well below the growth during previous economic expansions and below the long-term growth rate of about 3 percent. This signals the weaknesses that remain nationwide and across many states.
Slow growth is apparent when considering the labor market where many have stopped searching for a job pushing the underemployment rate up to around 11 percent instead of the often-reported rate of about half that.
Texas has been an exception.
Chart 1 shows that Texas’ 5.2 percent economic growth rate ranked second nationally last year only behind North Dakota’s 6.3 percent growth. Further, the economy improved by $72 billion in 2009 dollars. In 2013, Texas’ economy was 17 percent of the national total and increased to 21 percent last year. In addition, the Lone Star State moved up from 8th place for economic growth in 2013 to 2nd last year. Though things look to have slowed this year from an appreciated U.S. dollar and drop in oil prices, this past growth contributed to greater prosperity for Texans.
Texas is the second largest economy only behind California. On a larger scale, if Texas was a separate country, Chart 2 presents evidence it would rank 12th largest worldwide following Canada.
On the other hand, California’s economy grew by only 2.8 percent, nearly half the speed of Texas. Moreover, California has a 50 percent higher cost of living than Texas, which translates into each dollar for Texans going much further than for Californians, contributing to more prosperity in Texas.
With consistently higher economic growth rates, Texas continues to approach the position of the largest, economically prosperous state from pro-growth, conservative policies that have been the backbone of the Texas model’s success.
Some critics doubted Texas’ ability to sustain strong growth under the pressure of growing out-of-state migrants. This report, however, shows the flexibility and continued growth of the state under the Texas model.
The sustained economic prosperity of Texas originates from the high level of economic freedom achieved through low taxes, particularly no individual income tax, sensible regulations, and a good lawsuit climate. This fostered strong nondurable goods manufacturing and mining industries, the creation of well-paying jobs for hard-working Texans.
Overall, the principles of free market and limited government should be further applied in Texas and nationwide, especially in D.C., to achieve economic prosperity for all.