Paul Krugman: A Success Story as Big as Texas? Actually, That's a Myth

Thursday 18 August 2011

by: Paul Krugman, Krugman & Co. | Op-Ed

Texas has been adding jobs faster than the rest of the nation, a fact that has become especially notable in the past couple of years — I recently saw it referred to as the Texas “jobs juggernaut” — as overall job growth has been so poor.

But what’s the story here? Oddly, it’s rare to see anyone in this debate talking in terms of models — that is, the kind of stylized, simplified, but internally consistent stories (not necessarily mathematical) that are what economic analysis is all about. So let me try to fill that gap by offering three informal models of what might be going on in Texas.

In each of these stories, I imagine, to clarify things, an initial state in which America is divided into two identical regions; call them Texas and New York. Each of these regions has a labor force that lives in houses; I ignore other factors of production, except that I assume that building houses requires land, which is in limited supply. And we assume that initially everything is in equilibrium: wages and the cost of housing are the same in both regions.