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MATTHEWS: It’s time to ‘lure’ the left back to basic economic principles

All states could have job growth if they’d follow Texas’ example

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Gov. Rick Perry's "jobs record" is generating much discussion these days, as the Texas governor has officially jumped into the race for the Republican presidential nomination and already has assumed front-runner status. The chief driver of this issue has been the Perry campaign itself - and for good reason. Against the backdrop of a persistent national unemployment crisis, the Lone Star State stands out as a rare success story. Its unemployment rate sits a point below the national average, and it stacks up even better in that regard when compared with other high-population states. Most impressively, as the Texas Public Policy Foundation has noted, Texans created more jobs between January 2006 and January 2011 than all other states combined.

Mr. Perry's approach to and record on job creation stand in stark contrast to President Obama's policies and results. While Mr. Perry has let entrepreneurs flourish in a state with low taxes - though not a perfect tax structure - and minimal regulation, Mr. Obama spent $787 billion on a stimulus that failed so badly that the country's unemployment rate is still higher than 9 percent.

Sensing the credible threat that Mr. Perry, should he win the nomination, would pose to Mr. Obama's re-election chances, the national left-wing pundit class has wasted no time in dutifully trying to discredit the governor on the jobs front and downplay what widely has been dubbed the "Texas Miracle." For reasons we'll get into in a moment, these pundits are dead wrong.

But first, here's Paul Krugman, writing in Sunday's New York Times in a column headlined - wait for it - "The Texas Unmiracle":

"What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe the appropriate response to this insight is 'Well, duh.' The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs - which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice - involves a fallacy of composition: every state can't lure jobs away from every other state."

Echoing Mr. Krugman's conclusion was The Washington Post's Richard Cohen, who on Tuesday wrote:

"Mr. Perry has characterized Texas as one huge job-creating machine, but what lured jobs from other states cannot work on a national level - unless we drain Canada."

Though he's being facetious, Mr. Cohen is actually half right here. Taking the best and brightest people and companies from Canada and other countries has helped the U.S. economy enormously and helped make up for the terrible job the U.S. education system does, especially in science.

A more competitive national business climate vis-a-vis other countries wouldlead to greater employment in the United States because it would attract more foreign companies here while also cutting down on the number of American companies that ship jobs overseas. Business migration can occur between nations, not just between states.

But the core problem with the Krugman-Cohen argument - that the Texas approach can't work on a national scale because having some states "lure" jobs away from others doesn't increase the number of jobs nationally - is even more basic than that.

In assuming that the only way to create new jobs is to lure them away from somewhere else, Mr. Krugman and Mr. Cohen ignore a fundamental economic fact: Job creation is not a zero-sum game.

To create a new job, you don't have to lure one away from someplace else. If you live in Nevada and you want to open a new tire store, you can simply open one - provided you have the necessary startup capital, sufficient consumer demand exists for your products and the government hasn't blocked your way with too many onerous fees and regulations. You don't have to persuade an already-existent tire store to relocate from, say, South Dakota. And your new business will create new jobs without having to eliminate jobs elsewhere. That's why they call it job "creation" and not job "displacement."

California, which has lost so many businesses in recent years - many of them to, yes, Texas - and has an unemployment rate of 11.8 percent, could instead be enjoying its very own economic boom if it had not adopted policies hostile to job creation. And it wouldn't have had to rely on some other state screwing up to do it.

Like many liberals, Mr. Krugman and Mr. Cohen either ignore or are ignorant of this rudimentary economic principle.

The truth is, what has worked in Texas can and would work nationally. Fifty states with 50 business-friendly environments would result in 50 booming economies because the creative-destruction process, uninhibited by excessive government interference, would lead to new wealth, new businesses and, yes, new jobs.

So even if California and other states were to stop driving so many entrepreneurs away, Texas, thanks to its pro-growth policies, would still enjoy a booming economy. The only difference would be that a larger proportion of jobs likely would be created by aspiring entrepreneurs already living in Texas.

In a way, Mr. Krugman and Mr. Cohen are right: There's nothing really miraculous about what Mr. Perry did in Texas. All he did was take the basic economic principles - like getting government out of the way of entrepreneurs - that have worked for centuries and apply them to his state.

As Paul Krugman would say: "Well, duh."

Andy Matthews is vice president at the Nevada Policy Research Institute.

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