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Hail to the States

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Hail to the States

President Obama takes credit for growth stoked largely by red state policies. January 21, 2015
Photo by NIOSH

Supreme Court Justice Louis Brandeis called the states the “laboratories of democracy.” President Barack Obama ought to be glad that a handful of states are governed by Republicans doing lab work very different from his own. The economic gains registered in some of those states have played a significant part in pulling America out of its economic doldrums, allowing Obama, after six years in office, to give a State of the Union speech in which he could assert with some validity that the state of the union is “strong.”

In his address on Tuesday night, the president “took credit,” as the Washington Post observed, for America’s recent robust economic gains. Obama framed the country’s growth—which he characterized as outpacing other leading economies in Europe and Asia—largely around two areas, our “bustling industry, and booming energy production.” He didn’t explain why American companies are suddenly hiring workers and making products here again, or why energy production has ramped up—perhaps because the revival of these sectors represents an inconvenient truth for the president.

Take manufacturing. The president noted that, since 2010, the sector has added 800,000 jobs (though official Bureau of Labor figures put the increase at 614,000 jobs). That represents a gain of somewhere between 5.3 percent and 6.9 percent, depending on which numbers you accept. Yet in truth, manufacturing job growth has been highly concentrated in a few states; many others have seen little or no gains, and a few continue to lose industrial jobs.

The biggest winners have been states that emphasize a pro-growth agenda, not a redistributionist one like the president preaches. Michigan, with a 19 percent increase in industrial jobs, and Indiana, with a 14 percent gain, have seen the greatest manufacturing job growth (on a percentage basis). Texas, meanwhile, with 71,000 new jobs, has led the way in creating the largest number of new industrial positions.

Employment in Michigan and Indiana got a boost in 2012 when both states passed right-to-work laws letting individuals decide whether or not to join a union. Obama opposed those laws, declaring in Michigan that, “These so-called right-to-work laws, they don’t have to do with economics, they have everything to do with politics. What they’re really talking about is giving you the right to work for less money.” But since adopting right-to-work, Michigan and Indiana have each added about 28,000 industrial jobs, some of them coming back from overseas in a process known as reshoring. The jobs wind up in right-to-work states, because they allow American companies to be competitive on labor costs with goods made overseas.

Still, labor law alone doesn’t account for all the industrial growth in Indiana and Michigan. Both states have emphasized keeping taxes low and reforming corporate levies to make them fairer. Michigan governor Rick Snyder eliminated the state’s ineffective Michigan Business Tax and replaced it with a flat corporate tax. This year, the state voted to kill a tax on business equipment. Indiana, ranked by the trade magazine Area Development as the seventh-best state for doing business (and the best in the Midwest), has kept its corporate taxes among the lowest in the nation.

Texas, meanwhile, retains one of the most favorable business climates—with low taxes, a sensible state regulatory regime, and access to decent affordable housing for workers. For ten years in a row, business leaders in Chief Executive Magazine’s annual poll have voted the Lone Star State the nation’s best place to do business. As one executive told the magazine, “The education and quality of eligible employees is excellent right now. Business is booming and growing quicker and more rapidly in 2014 than any other year. It’s an exciting time in Texas.”

In the midst of the manufacturing revival, seven states—Arkansas, Connecticut, Delaware, Maryland, Massachusetts, New Jersey, and New York—have lost industrial jobs. Virtually all except Arkansas are blue states, burdened with the kind of heavy tax and regulatory regime promoted by the president. California—which inherited the mantle as the nation’s industrial powerhouse when New York gave up the title years ago—has added manufacturing jobs, but just barely. Though the state’s overall job growth has been solid, thanks to technology hiring centered around Silicon Valley, the Golden State has added just 8,000 industrial jobs since 2010, an increase of a mere 0.6 percent.

In his speech, the president linked industrial growth to the booming energy sector. Many economic observers have made that connection, because the declining price of energy—an important component in manufacturing—is helping to drive new industrial investment domestically. The National Association of Manufacturers, for instance, has projected that declining energy costs will add 1 million new industrial jobs in America over the next decade.

Obama trotted out an old cliché, noting that America is reducing its reliance on imported energy—a goal of American policy since the 1970s. Until recently, we largely tried to achieve it through conservation and the promise of new technologies, like deriving more energy from renewable sources. Instead, America has achieved remarkable gains—cutting its dependence on foreign oil from 60 percent of American consumption to just 28 percent since 2006—thanks to a technological breakthrough that was largely unanticipated and unheralded until a few years ago: hydraulic fracturing. America is consequently becoming the world’s largest energy producer—poised soon to be a net exporter of energy to the rest of the world. The gains can also be seen in terms of new investment and jobs created. After decades of declining oil and gas employment, which hit a low point in 2003, the industry rebounded, thanks to fracking. Since 2005, America has added some 300,000 new jobs in energy production. Last year alone, energy companies invested $60 billion in the U.S., according to a study by the Progressive Policy Institute.

But President Obama has had little to do with America’s energy success and has often gotten in the way of it. In a recent open letter to the president, Brookings Institution energy expert Charles K. Ebinger noted that the country is indeed experiencing energy abundance, but complained that President Obama was hampering even greater gains. He criticized the administration for failing to allow permits for the construction of new natural gas facilities, blocking the Keystone XL pipeline, and failing to lift bans on exporting U.S. crude oil. “You have allowed your environmental constituency to guide your inaction,” noted Ebinger. “I am a lifelong Democrat who voted for you twice, but I join a growing group of those who are tired of protectionist policies that keep this nation from moving our energy strategy forward.”

Fortunately, leaders in states like Texas, North Dakota, Pennsylvania, Colorado, and Oklahoma have allowed sensible exploration and extraction of oil and gas. Meanwhile, solidly Democratic states like New York and California, sitting on vast energy reserves, have declined to allow fracking—resulting in lost jobs and production. America’s economic fortunes would look far different right now had the country followed the path outlined by those two states.

President Obama ended his State of the Union address by observing, “We have picked ourselves up, dusted ourselves off, and begun again the work of remaking America.” A lot of that work, however, is being led by people who don’t share the president’s views.

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