Economy

Paul Krugman Destroys Conservative Arguments on Job Creation—And Reveals Surprising Reason People Move South

Rick Perry's Texas is not the success story he claims it to be.

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Paul Krugman has a great deal of fun in today's column poking giant holes in Rick Perry's claims that conservative politics are the reason for Texas's success in creating jobs. In fact, he systematically debunks all those familiar right-wing arguments that avoiding regulations that interfere with business and keeping taxes low on rich people—so-called job creators—are why Sunbelt states with conservative governments seem to be growing jobs and attracting migrants. "It turns out that there are big problems with this story," Krugman writes, "quite aside from the habit economists pushing this line have of getting their facts wrong."

If Perry and his cohorts' claims were true, says Krugman, "we’d expect all those job opportunities to cause rising wages in the Sunbelt, wages that attract ambitious people away from moribund blue states."

That ain't what's happening. Here's Krugman:

It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.

The real reason people are moving out of places like New York to low-wage places has nothing to do with opportunity, says Krugman, it's because of housing prices. Another way people have expressed this: The rent is too damn high! Ever the numbers man, Krugman backs this up: "According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta." People are essentially being pushed out of the northeast (and California).

Krugman doesn't stop there; he goes on to ask why housing prices in California and New York are so high, then, of course, provides an answer:

Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, as Harvard’s Edward Glaeser and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.

So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply.

Krugman's conclusion?

Yes, Americans are moving to places like Texas, but, in a fundamental sense, they’re moving the wrong way, leaving local economies where their productivity is high for destinations where it’s lower. And the way to make the country richer is to encourage them to move back, by making housing in dense, high-wage metropolitan areas more affordable.

So Rick Perry doesn’t know the secrets of job creation, or even of regional growth. It would be great to see the real key — affordable housing — become a national issue. But I don’t think Democrats are willing to nominate Mayor Bill de Blasio for president just yet.