For Texas, Economics Is Dust in the Wind

If I can be forgiven a little piece of hometown news (albeit one that I think is of general interest) the halls of power in Lubbock, Texas, are abuzz with the notion that the city has a fair shot at landing Tesla’s new $5 billion “Gigafactory” building the lithium-ion batteries that power its cars and those of some other automakers as well. That speculation is a bit premature — Tesla is still working through negotiations at the state level, with Rick Perry personally leading the campaign to edge out Nevada, New Mexico, and Arizona — but the powers that be in Lubbock believe that they have something special to offer: wind. If you are looking for wind power, and Tesla is said to desire to incorporate it into the new facility, then West Texas is the place to be.  There’s the wind itself, which is endless, but there is also — and I know this sounds made-up — the National Wind Institute,  which houses a variety of research projects related to wind energy and other wind-oriented subjects. Texas Tech University is one of the go-to places for wind-energy research. (The wind geeks there also have a tornado simulator, which is kind of cool.)

The Tesla story is a good example of the fact that business and economics are really two very different fields. Business does not work the way we ideologues think that it should.

Conservatives will note with some glee that Tesla apparently never even gave serious thought to building the plant in California, where the company is based. Texas presumably is on the list for the usual reasons: a very business-friendly tax-and-regulatory environment, low cost of doing business, etc. There is hardly a union goon to be seen, and General Motors and Toyota both operate happily in the state. About 15 percent of Texas’s economy is manufacturing, much of it related to the energy industry, but there is a substantial non-energy manufacturing economy as well. Forbes recently ranked Houston first in the nation for manufacturing jobs, and, with 21 percent growth in manufacturing over the past ten years, it’s not hard to see why.

But Tesla is not a success story for the free-market purists. It was famously the beneficiary of low-interest financing from the federal government. And Tesla in Texas, should that come to pass, would not be a case study for free-market purists, either. Texas has a very good business climate, but there is more to it than low taxes. Austin became a high-tech center in no small part because the University of Texas cranks out a big class of engineers and code-monkeys every year. That wind-energy research in Lubbock is funded largely by government entities. One of the ironies of the political culture of my hometown is that it is a very conservative place in which the two big economic players — the university and the cotton industry — are government-supported.

And if Texas does land the Tesla plant, it will not be because Rick Perry is so good at making the case for the economics of Milton Friedman, but because he is an expert practitioner of state-level mercantilism.

Is that so bad?

Tesla courtship represents what I think is a reasonably good model for economic development, much as it may offend my ideological sensibilities. If government is going to spend money on economic development, then funding for university-based science and engineering research must be at or near the top of the list for prudent uses of taxpayers’ money. As jobs programs go, offering sweetheart tax deals to employers is preferable to adding 10,000 Head Start teachers or whatever it is the Democrats are proposing this week. Yes, all of that amounts to subsidies for businesses with the political and economic clout to demand them. But until our federal, state, and local governments adopt the Williamson platform, the question is not whether to have a relatively high level of government involvement in what should be private economic matters but exactly what kind of involvement to have. There are better and worse ways to do that. I’ll take funding science research over trying to reinflate the housing bubble on behalf of the National Association of Realtors ten times out of ten.

That is something to think about for Republicans as they look for ways to connect with voters on the bread-and-butter issues. Current cost estimates for federal  corporate welfare run around $100 billion. If some substantial share of that were cut, we could apply some of the savings to deficit reduction and redirect some of it to basic science research. I suspect that many Democrats, knowing that their voters are very often found attached, piglet-style, to educational institutions, would not object to backing such a deal. It would be a way to help address the Republicans’ “Santa Claus problem.” The Democrats promise voters free stuff — it always works out badly, but it sounds good in November — and Republicans promise voters tax cuts. Republicans have done such a good job delivering on tax cuts for the middle class and the poor that the issue has lost much of its efficacy. So, what do Republicans have to offer instead? Rick Perry has been the most successful governor in modern Texas history not because of his winning personality or because of an Ann Richards-style personality cult, but because he can point to something that he and other Texas Republicans have delivered on for voters: jobs. Lots of them.

The reality is that a federal government that looked more like Texas government would not be an exercise in unmixed conservative wish-fulfillment. But it would be a hell of an improvement.

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For Texas, Economics Is Dust in the Wind