Economic Lessons From the Texas Manufacturing Boom
(AP Photo/Eric Gay)
Economic Lessons From the Texas Manufacturing Boom
(AP Photo/Eric Gay)
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Ever since their mother took them to New York City for Christmas a few years ago, my daughters have been determined to return.  My newly-minted high school graduate went so far as to apply to several colleges and universities in the northeast. 

Alas, it wasn’t meant to be.  While her work ethic will likely open doors for her wherever she wants to go in life, she’ll be studying within a ninety-minute drive from mom and dad.

According to a recent story in The Wall Street Journal (WSJ) however, reality might end up tempting her to stay put for the long haul.

It reported how “the lure (of) open land, local tax breaks and a growing supply of tech-savvy workers” produced the largest “regional manufacturing output … in the U.S. in the four years through 2020.”

Among the interesting points scattered throughout, one may seem counterintuitive.

A popular refrain here in the Lone Star state has been “don’t California my Texas.”  Coupled with all the non-Texas license plates my eleven year-old rattles off while I’m driving, the growing number of non-natives who “got here as fast as they could” is evident.  See the latest census.

Yet, the article makes plain that “factories create fewer jobs than they” used to.  Things have been trending that way for as long as I can remember.  All the while, despite normal cyclical dips, output growth has remained in a fairly narrow range.

Unfortunately, since it’s jobholders who vote, and not products, this dynamic has been politically demagogued.  That’s too bad, because it’s a sign of progress. 

When we get good at something, we can do more of it per unit of time.  Add in some specialized machinery, and even more can be produced at less expense. 

This combination frees us up to do other things, like capitalize on an authentic multiplier effect, another phenomena that garners mention here. 

One time we visited my sister’s family in Portland (TX), I happened to be in the middle of training for a marathon.  That Saturday morning, I apparently took a wrong turn on my run and ended up in Sinton.

It looked sad and rundown, but I suspect that’s about to change.

The article highlights the impending opening of a Steel Dynamics (SD) mill there, the “region’s largest.”  The aim is “to be closer to the new factories popping up in the Southwest.”

No doubt some of the newcomers to Texas will land jobs like the “600 positions” at SD.  Others, who perhaps in prior generations would have filled out more factory jobs, will open small businesses that cater to those “$80,000 to $100,000 a year” mill salaries. 

Doctors, restauranteurs, clothiers, CPAs, et al.  And they will need staff.

While central planners dream of a multiplier that first requires poaching already-earned resources from the private sector, here is a real-life example they can’t match.

Furthermore, as much as the mainstream press and politicos lionize “Main St.” businesses, the vast majority arguably wouldn’t exist without the big boys. 

In any community there are certainly skilled tradesmen who exchange goods and services with one another.  However, as-is they would be finite in number, and engaging in what would be closer to a subsistence level of activity. 

The same dollars would regularly be changing hands. 

When a big business moves in though, or a local one finds customers outside city limits, more income starts pouring in.  Wealth accumulates in the jurisdiction.  Transplants bring with them additional, even diversified demands. 

New businesses proliferate.  Jobs are created.  Wages tick up to compete with the increased demand for labor.  All because one or more firms imported income from other towns/regions/countries. 

In a sense, the home town, vicariously through such businesses (not some Monorail the municipality created), experiences a trade surplus with other jurisdictions.  Ironically, some of the businesses exporting their wares might embody a trade deficit on the national scale.

Taiwan Semiconductor Manufacturing Company (TSMC) is one such firm.

Even before my first presidential vote in 1992, politicians hammered the supposed evils of the trade deficit. 

The guy I voted for (albeit for his haranguing of government spending and growing deficits), H. Ross Perot, famously bemoaned the “giant sucking sound” of jobs out of the U.S. if the North American Free Trade Agreement passed. 

Prior to that, Japan was the target of mercantilist invective.  A primary purveyorof that was none other than the most recent one, former president Donald Trump.

While it was and is a falsehood that “we don’t make things anymore,” TSMC, which plans to house 1,600 employees in a factory under construction in Phoenix, is part of our trade deficit with the rest of the world. 

Except, more accurately, it’s representative of foreign direct investment (FDI) in the U.S.  The FDI perfectly balances out the trade deficit in the current account.

It’s not at all that we don’t make stuff, but rather that some of the stateside factories are foreign-owned.  Also, some of our homegrown companies have international owners of their stock.

Regardless, there are a couple natural ways to bring down the trade deficit.  One, as history has shown, is to have a recession.  Another would be to scale back on spending, and instead save more. 

That last bit would require the added step of cutting through the excrement peddled by the media et al that consumer expenditures power economic growth.  That’s no truer than is the fiction that World War II brought us out of the Great Depression.

A direct push against the trade deficit would be to buy a chunk of a company like Didi, the “Chinese ride-hailing” service set to go public here in July.  If keeping the investment American is preferable, do so in a maker of seawater desalination equipment.

Given that the earth is two-thirds covered by it, supplies of water, a concern relayed toward the end of the WSJ piece, will be a problem only to the extentthat local authorities make it so.  Such haplessness of elected officials would make a good case study for my budding college freshman.

She surprised me recently by turning one eye toward a business degree, or perhaps engineering again.  She had the latter in mind when she initially entered high school via the construction magnet school. 

A couple years ago though, she switched to psychology, which could be just as lucrative here. 

She could either treat new Texans struggling to leave their prosperity-inhibiting politics behind as they adjust to greener pastures.  Or, she could counsel natives baffled by transplants oblivious to the connection.

Either way, she capitalizes.

Christopher E. Baecker manages fixed assets at Pioneer Energy Services, teaches economics at Northwest Vista College, is a board member of the Institute for Objective Policy Assessment, policy director at InfuseSA, a member of the San Antonio Business & Economics Society, and is a former candidate for San Antonio city council.  He can be reached via email or Facebook

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