Texas vs. California

I think the California-vs.-Texas debate is silly but it is worth discussing a Texas-vs.-California chart posted by both Ryan Avent and Matt Yglesias.  The chart can be misinterpreted as evidence that California is doing something right.  The reason it might be misinterpreted is important. 

The chart compares California’s productivity (GDP per capita) with Texas’.  California’s rose much faster than Texas’ between 2001 and 2009, except for 2003 when they rose at roughly the same rate and 2007-2008 when Texas’ declined a little more slowly:  

Matt and Ryan both imply, if merely by posting the chart with little comment, that California’s superior productivity growth is a mark in its favor.  I disagree.

California has found an effective policy for raising productivity but it partly consists of running people off and so is not particularly laudable.  California is like a high school whose principal drives up test scores by dumping his bad students on other schools.  California is a very nice place with few good substitutes and so has some monopoly power of home prices.  Which it exploits.  California  has restricted the supply of new housing for many years now.  Housing prices, predictably, have soared.  And rising home prices, predictably, have driven low wage earners — i.e., the least productive — out of the state.  (California lost 1.5 million residents to domestic migration between 2000 and 2009.)   This made the average Californian more productive even if no single worker is more productive than he used to be.   

A better policy is to invest in people but keep housing cheap.  (In mostly built-out California, this means allowing more density.)   Has California been increasing in its investment in schools, universities and infrastructure?  I doubt it but don’t really know.  I’ll allow it has produced more than its share of technological innovation and innovation drives up productivity, too.  The raw numbers do not tell us how much of the productivity increase was due to technological innovation or better schools or infrastructure (good) or its highly inegalitarian land-use policy (bad).

Now consider Texas.  Average productivity in Texas was essentially stagnant between 2000 and 2009.  Some years it rose, some years it declined, but the net result has been a very small rise.

But Texas has experienced rapid growth from domestic migration.  Did that hurt  its productivity growth?  Maybe.  If  inbound workers were less productive than the average incumbent then average productivity would have been flat even if the incumbents grew more productive each year.  That’s possible since Texas housing is cheap and thus attractive to lower income workers.  That’s good policy and highly egalitarian.  

On the other hand, the inbound workers might have been just as skilled as the incumbent Texans.  In that case, Texas” rapid growth did not pull down productivity.  It did not affect productivity at all.  That’s possible, too, since Texas’ growth was and is driven mostly by migration from other states, which means it is dependent on what’s happening in other states.  Texas gets “better” migrants the worse things are elsewhere.  The average California refugee might be more productive than the average  Texan, for example.  In any event, in this scenario productivity was stagnant for the obvious reasons — stagnant investment in schools, universities, infrastructure, etc.  That’s bad policy.

I don’t know which case holds.  I don’t think Texas is increasing its investment in people and infrastructure each year but, again, I don’t really know.

My point is that you can’t tell from Ryan and Matt’s chart whether California’s superior productivity growth is a point in California’s favor or Texas’ favor.  I’m sure that some of California’s growth was due to its insidious manipulation of land prices.  But there may have been other, benign causes and Texas’ stagnant productivity could have been by short-sighted underinvestment in people and things.   Or not.