I was recently told that because of Texas' low-tax economy (my home state), the state was growing at strong rates while high taxes and complex regulations were forcing California to bleed jobs and growth. I've heard these arguments time and again. But -- I'd never seen anybody back it up with numbers and data. So, I went to the St. Louis Fred's database to see what story the numbers told. What I found was far different: both states are doing well.
A word on the data. State level data is a bit more sparse than national data. So, there's a smaller amount of data to deal with. But the data that was available was widely used and understood, meaning there's enough to argue for equivalency.
Let's begin with population growth -- which, in combination with productivity increases, is responsible for potential GDP:
California's population (in blue) has consistently been higher than Texas' (in red).
Is California's population growth slowing? Yes:
It's now growing below 1% Y/Y and the pace of growth has been trending lower. But it's still positive.
Next, let's move to the state-level gross domestic product, which the BEA releases annually, not seasonally adjusted:
California's GDP (in blue) has always been larger than Texas'.
Above is the absolute difference between the size of both economies, which is increasing in California's favor.
And finally, there is the pace of overall growth, which we see above in the year-over-year percentage change in GDP for each state. Here, the picture is evenly split. California enjoyed stronger growth at the end of the 1990s expansion, probably due to technology's growth. Fracking was probably the reason Texas' economy grew strongly at the end of the early 00s. During the latest expansion, the states exchanged leads in overall growth.
From a growth perspective, California's economy has been consistently larger. Its absolute size is increasing while the states are growing and more or less equal rates.
The BEA also publishes state-level personal income numbers, which are below:
These mirror the GDP numbers; both are growing. However, California's total income is now marginally larger than Texas'.
The Y/Y percentage change in the pace of income growth is, once again, more-or-less evenly matched.
Next, let's look at unemployment.
Despite the oil market collapse in the 1980s, Texas' unemployment has consistently been lower than California's. However, by the end of a recession both states wind-up at full employment; it's just that California's economy experiences a higher unemployment rate at the beginning of an expansion.
Here is the unemployment difference between both economies:
California's economy has experienced an unemployment difference of as high as 4% (at the end of the last recession), although it looks like 2%-3% is more "normal."
The Census doesn't break retail sales numbers down to the state level. However, the BEA does for PCE data, which is below:
Once again, the states are evenly matched. California's PCEs were growing a bit faster at the end of the 1990s, the beginning of the early 2000s, and the last three years. But Texas' pace of growth was nearly just as strong during those years when California's was a bit faster.
The macro-level data above is clear: both economic models are going well. They create comparable levels of economic and income growth, and, after a recession, eventually return to full employment. Consumer spending (about 70% of all growth) is also healthy.
That does not mean each state does not have its share of problems. California's problems with homelessness (most likely caused by ever-increasing real estate prices) have been in the news a great deal lately while Texas ranks in the lower half for health care and education. But be that as it may, the top-line economic data shows two states whose economic models are working.