I was struck recently by a small article in the Wall Street Journal by Russell Gold highlighting a turning point in the underlying structure of the Texas economy. Gold reports that, based on current modeling by the Comptroller of Public Accounts, for the first time since the Spindletop gusher over one hundred years ago, higher oil prices are not only not a positive for the economic prospects for the State, they represent a negative. The positives that flow from the energy producers are now outweighed by the drag on consumer and business spending and investment and the higher cost of the refinery feedstocks that produce value-added in manufacturing, so that, according to the Comptroller, high energy prices are now the main threat to Texas’s economic growth . We wanted economic diversification to cushion the devastation of the energy-driven bust of the 1980’s and we now have it, to the extent that the State’s economy is no longer counter-cyclical with the nation as a whole. In fact, according to the Federal Reserve Bank of Dallas, the energy extraction industry now accounts for only 6% of gross state product, compared to 20% in 1981, and has been overtaken by the trade and transportation sector in terms of total employment.
We’ve talked about what this hinge point would mean for Texas for over twenty years, and now the critical implications of this dialogue should be in full view—we must restructure our public education system so that all our children have an opportunity to be competitive in a knowledge-based economy and we must realign our government spending and revenue streams to conform to the new economic realities. Both of these outdated systems still reflect the commodity/natural resource-based and capital-intensive structures of the old Texas, and both are continually defended from structural reform by the vested interests of the status quo and the perennial fight over who “wins” and who “loses” as a result of change. This battle is currently on stage in Austin in the debates over legislation proposing significant new reform in public education as well as major changes in education finance and taxation. The outcome will have huge implications for the economic viability of Texas for many years to come, not to mention the welfare of our children.