Texas Will Not Be the Next California

Summary

The video script delves into Texas' economic prowess, highlighting its status as the second largest US state with a booming economy that rivals global powers. It explores how Texas, with no corporate or personal state income taxes, has attracted businesses and migrants, fostering a diverse industry cluster. The script also examines the state's historical economic shifts, from agriculture to energy and tech, and its strategic advantages in global trade. Challenges such as border tensions, labor shortages, and water scarcity are discussed, alongside its potential to surpass California in population by 2040. The analysis concludes with Texas scoring an average of 8.4 out of 10 on the Economics Explained National Leaderboard.

Takeaways

• 🗺️ Texas is the second largest US state with a population of over 30 million and has the most Fortune 500 companies, surpassing New York and California.
• 💰 Texas has the 8th largest economy in the world, with an annual output of nearly 2.5 trillion US dollars, ranking above countries like Australia and Brazil.
• 📈 The state maintains stable economic growth, outpacing most global economies of similar size and level of advancement.
• 🤔 Key questions raised include whether Texas will become an internal economic superpower, the uniqueness of its economy, and the strategic methods behind its economic plan.
• 🏠 The early economy of Texas was built on comparative advantage, with public lands facilitating the rise of cattle and cotton industries.
• 🚂 Infrastructure development, such as railroads and the cotton gin, along with labor from slavery, contributed to Texas's first economic boom.
• 🌾 Texas has transitioned from reliance on cotton and cattle to a diversified economy including energy, advanced manufacturing, and technology.
• 🏭 The state's land policies, including land grants, have historically supported business-friendly practices and economic development.
• 🌐 Texas's central location, no corporate or personal state income taxes, and strong infrastructure make it an attractive hub for corporate headquarters and relocations.
• 🎓 Investment in higher education has led to dominance in advanced manufacturing and technology, positioning Texas as a top tech exporting state.
• 🌍 Texas faces challenges such as border tensions, a tight labor market, and potential water shortages, which could impact its economic growth and stability.

Q & A

What is the significance of Texas being the second largest US state?

Texas, being the second largest US state, is home to over 30 million people and has the most Fortune 500 companies, outpacing New York and California, reflecting its economic importance and influence.

How does Texas rank in terms of global economic output?

Texas would rank as the 8th largest economy in the world if it were a country, with an annual economic output of nearly 2.5 trillion US dollars, outperforming countries like Australia, Brazil, Russia, and Canada.

What is unique about Texas's economic growth compared to other advanced economies?

Unlike most advanced economies, Texas has managed to maintain stable economic growth, outpacing most global economies of similar size and development level.

What historical factors contributed to Texas's early economic boom?

The availability of cheap land, the promise of opportunity, rich soil, access to public lands, the expansion of railroads, the invention of the cotton gin, and the practice of slavery all contributed to Texas's first economic boom.

How has Texas managed to transition its economy from being overly dependent on one industry?

Texas has successfully transitioned its economy to other industry clusters such as energy, advanced manufacturing, and technology, moving away from being primarily dependent on cotton and cattle.

What are the advantages Texas has that other resource-rich economies lack?

Texas has advantages such as land use and settlement policies that transformed resources into economic growth, a business-friendly environment with no corporate or personal state income taxes, and strategic geographical positioning.

Why is Texas attracting people and companies from other states, particularly California?

Texas's lack of personal state income taxes, business-friendly policies, and competitive advantages have led to a significant influx of people and companies, with California being the top state for both population and corporate relocations.

How has Texas's investment in higher education impacted its economic growth?

The investment in higher education, starting with the creation of two flagship systems in the first Texas constitution, has led to dominance in advanced manufacturing and a position as a top tech exporting state through public-private partnerships.

What role does the energy sector play in Texas's economy?

Energy is both an asset and a liability for Texas's economy. It is one of the highest-grossing sectors, with Texas being a top producer of wind power in the USA, but extreme weather conditions have tested the state's grid system.

How does Texas's central location in North America benefit its economy?

Texas's central location strengthens its economy by providing access to transportation infrastructure, making it attractive for companies to establish headquarters, and facilitating trade both domestically and internationally.

What are some of the challenges Texas faces in terms of international and domestic trade?

Texas faces challenges such as ongoing tensions at the US-Mexico border, which complicate supply chains and create bottlenecks, as well as the need to manage and protect natural resources to sustain economic growth.

Outlines

00:00

🌟 Texas: Economic Powerhouse and Growth

This paragraph introduces Texas as the second largest US state with a booming economy, ranking as the 8th largest in the world with an annual output of nearly 2.5 trillion US dollars. It highlights the state's stable economic growth, surpassing global economies of similar size. The script poses questions about Texas' potential as an economic superpower, its unique economic strengths, and the strategic methods behind its economic plan. It also addresses the challenges Texas faces and its historical economic fluctuations due to its resource-based economy. The paragraph sets the stage for a deeper exploration of Texas' economic prosperity and its implications on a state, national, and global level.

05:00

🚀 Texas' Economic Transition and Business Climate

The second paragraph delves into Texas' historical economic development, from its early days as a state with cheap land and rich soil to its current status as a hub for various industries. It discusses the state's initial economic boom driven by cotton and cattle, and how it transitioned to energy, advanced manufacturing, and technology. The paragraph emphasizes the advantages Texas has, such as land grants and business-friendly practices like no corporate or personal state income taxes, which have attracted companies and people, particularly from California. It also touches on the state's investment in higher education and its impact on advanced manufacturing and tech exports, positioning Texas as a top exporter and a leader in semiconductor production. The challenges of international trade, border tensions, and the state's economic and political climate are also highlighted.

10:02

🏆 Texas' Economic Performance and Future Prospects

The final paragraph assesses Texas' current economic standing and its future prospects. It provides an estimated GDP range for Texas, comparing it to the world's largest national economies, and discusses the limitations in measuring the state's economic output accurately. The paragraph evaluates Texas on various economic indicators, including size, GDP per capita, stability, growth, and industry diversity. It concludes with an average score of 8.4 out of 10 for Texas, reflecting its strong performance and potential for continued growth. The paragraph also acknowledges the challenges Texas faces, such as labor market tightness, water resource management, and the need to sustain its economic growth responsibly.

Keywords

💡Texas

Texas is the second largest state in the US, with a population of over 30 million and the highest number of Fortune 500 companies. It is a central theme of the video, illustrating the state's economic might and its comparison to global economies. The script discusses Texas' economic growth, its transition from a cotton-centric economy to a diverse industry cluster, and its current challenges.

💡Fortune 500 companies

Fortune 500 companies refer to the top 500 corporations in the US, ranked by total revenue. The script highlights that Texas has more of these companies than any other state, indicating its strong business climate and economic prosperity.

💡Economic growth

Economic growth is the increase in the production of goods and services in an economy over a period of time. The video emphasizes Texas' stable economic growth, outpacing most global economies of similar size and highlighting its transition from resource-based industries to advanced sectors like technology and manufacturing.

💡Comparative advantage

Comparative advantage is an economic concept where an economy specializes in producing goods for which it has the lowest opportunity cost. The script explains how Texas leveraged its access to public lands to develop cattle and cotton industries, contributing to its early economic boom.

💡Resource-rich economies

Resource-rich economies are those with abundant natural resources. The video discusses the challenges faced by such economies if they become overly dependent on one industry. Texas' ability to transition from cotton and cattle to energy and technology showcases its economic resilience.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for a society to function, such as transportation and communication systems. The script mentions the importance of Texas' infrastructure in supporting its economic activities and global trade.

💡Advanced manufacturing

Advanced manufacturing involves the integration of technology and innovation into traditional manufacturing processes. The video notes Texas' dominance in this sector, facilitated by public-private partnerships and investments in higher education.

💡Semiconductor production

Semiconductor production is the manufacturing of electronic components and devices. The script highlights Texas' role in this industry, positioning it as a key player in the global semiconductor market amidst geopolitical tensions.

💡Trade

Trade involves the exchange of goods and services between entities. The video emphasizes Texas' position as the top exporting state in the US and its strategic advantage in international trade due to its ports and proximity to Mexico.

💡Labor market

The labor market is where workers and employers meet to exchange labor for wages. The script discusses the tight labor market in Texas, indicating a skills gap in the workforce that poses a challenge to business growth.

💡Natural resources

Natural resources are materials and energy sources found in nature that are valuable to humans. The video mentions the importance of managing natural resources like water for Texas' continued economic growth and the potential risk of water shortages by 2070.

Highlights

Texas is the second largest US state with over 30 million people and the most Fortune 500 companies.

Texas has the 8th largest economy in the world, ranking above Australia, Brazil, Russia, and Canada.

The state maintains stable economic growth, outpacing most global economies of similar size.

Texas's economic dominance is not guaranteed and has experienced big booms and busts.

The state's early growth was driven by comparative advantage in land, cattle, and cotton industries.

Texas's first economic boom was influenced by the railroads, cotton gin invention, and labor from slavery.

The state transitioned its economy from resource dependence to industry clusters like energy, manufacturing, and technology.

Texas used land as a form of currency, rewarding soldiers and promoting settlement.

No corporate or personal state income taxes create a competitive advantage for businesses.

Domestic migration, especially from California, contributes to Texas's record population growth.

Investment in higher education has led to Texas's dominance in advanced manufacturing and tech exports.

Texas's diverse industry clusters make its economy special on a state, national, and global level.

Energy is both an asset and liability for Texas, being a top producer of wind power but facing grid challenges.

Texas has a history of tech innovation, including the first electronic integrated circuit built in Dallas.

More Fortune 500 companies have headquarters in Texas than anywhere else in the US.

Texas's central location and transportation infrastructure attract companies and jobs.

Texas exported more semiconductors and electronic components than California, Arizona, and New York combined in 2022.

Texas is the top exporting state in the US for 21 consecutive years with a total trade value of $285.6 billion in 2022.

The state's proximity to Mexico is both an advantage and challenge for trade and supply chains.

Texas faces domestic challenges like a tight labor market and skills gap in the workforce.

Demand for water in Texas is forecasted to outpace supply by 2070, posing a risk to population growth.

Texas's final score on the Economics Explained Leaderboard is 8.4 out of 10.

Transcripts

This is Texas, the second largest US state home to just over 30 million people and the

most fortune 500 companies in the country, now beating out even New York and California.

Texas on its own would be the 8th largest economy in the world,

ranking above Australia, Brazil, Russia, and even the entire country to their north,

Canada, with an annual economic output of nearly 2.5 trillion US dollars.

Texas is also doing something that most advanced economies fail to do,

maintain stable economic growth, outpacing most global economies of similar size,

certainly those that are equally as advanced.

And to understand why, we need to as always answer a few simple questions.

Will Texas be the next internal economic superpower like California?

What is it that makes the economy of Texas special on a state, national, and global level?

Has Texas just been lucky, or is there a strategic method behind the Texan economic plan?

And finally, will its long list of current challenges see it lose out to other rivals

within and outside of the USA?

Once we have done all of that, we can update Texas' spot on the Economics Explained National

Leaderboard.

Intro Add

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Before we get into it, a small disclaimer is that measuring the exact output of a state is

always up for a little bit of debate because the regular international organizations like

the International Monetary Fund or the World Bank that usually document national output figures

don't do it for Texas because, well, Texas is not a country.

But with that out of the way, in exploring the complexities behind a state's economic

prosperity, such as Texas, it's important to realize that the Lone Star State's economic

dominance is not guaranteed, and unlike sovereign national economies, Texas has certain advantages,

but key risks as well. And that has contributed to its history of big booms and big busts.

The state as we know it today really got started before it was officially a state when the land

was cheap. The promise of opportunity and the rich soil started to attract the new early

Texan settlers. The area once acquired by the United States was allowed to hold onto its public

lands, which was unusual at the time and was the reason for people to start making something of it.

In its most basic form, this is the concept of comparative advantage and economic output.

Where considering the factors of production, access to public lands created opportunities

for cattle and cotton to emerge as industries critical to the state's early growth.

Railroads expanded into the region, along with the invention of the cotton gin,

and it must be recognized the acquisition of labor from the practice of slavery,

all contributed to create the state's first economic boom.

Spinning the white gold into cash crowned Texas as the king of cotton,

creating profitability in the short run, but complicating the state's path to industrialization

in the long term. The comparative advantage of land, labor, and logistics made the natural

resources and infrastructure attractive to people to develop businesses around them.

This might explain how the Lone Star State was essentially a sovereign nation for the

nine years before joining the US. As the economy developed around cotton,

other agricultural sectors emerged such as ranching, timber, and corn.

Resource-rich economies eventually face major problems if they become overly dependent on one

industry. Whether that's pulling gold, oil, or cotton out of the ground, it all creates the

same problems. Today, cotton and cattle are important exports, but are no longer the main

growth drivers, so we know that Texas was able to transition its economy to other industry clusters

such as energy, advanced manufacturing, and technology.

A lot of countries, and even other regions in the US struggle to transition away from

resource economies, and this lesson of Texas can teach us a lot about how to successfully

make the switch. One thing to recognize though is that it had a few advantages that a lot of

resource-rich economies today don't have. One of the biggest things that Texas had going for

it was land. The disposition, use, and settlement of it transformed the resource into the state's

unofficial currency. The Lone Star State used land to reward soldiers, promote settlement,

and finance the operations of the government. Before transportation infrastructure was an

option for moving the state's exports, it depended on the wide-open frontier and access

in the cultivation of land which created trade opportunities with the rest of the country.

Global trade before the mid-1950s, and even trade between regions in the US,

was far less intense than it is today. As food production stabilized and local

industries sprung up to support the existing population, there was little pressure to be

globally competitive because it was easier to make the basic consumer goods of the day locally than

it was to transport them on small ships or early rail networks. Luckily the state was not complacent

because it would later find out that getting global trade right eventually rewarded Texas

with the number one land port and the number one destination for corporate headquarter relocations

The land grants that paved the way for development in the early statehood days

laid the groundwork for the state's business-friendly practices of today.

No corporate taxes and no personal state income taxes which create a competitive

advantage when companies consider places for corporate headquarters or relocations.

Attracting more people to Texas contributed to the record growth in population with domestic

migration leading the way in the last few years precisely because of its no personal

state income taxes. The number one state exporting people and companies to Texas

is California. Nearly 53,000 households with adjusted gross income of over 7.2 billion US

dollars made the move between 2020 and 2021 and over half of companies relocating their

headquarters are moving from the golden state to the lone star state.

If it continues this rate of growth Texas is tracking to surpass California in population

by 2040. The state's investment in higher education through the creation of two flagship systems

started in the first Texas constitution. At the time policy makers probably had no

idea just how much of an impact it would have on the state a century later.

The investment teed up the state's dominance in advanced manufacturing through public-private

partnerships with the state's education system leading to its position as a top tech exporting

state. So will Texas be the next California? No, but it could be bigger and that's because

of the influence of industry. Its diverse industry clusters make the

economy of Texas special on a state, national and global level. Energy's role in the Texas

economy is both an asset and a liability. One of the state's highest-grossed sectors

is as a top producer of wind power in the USA. The state has experienced both record-smashing

hot and cold weather which tested the limits of the state's grid system.

Texas may also be associated with crude industries but the first electronic integrated circuit was

built in Dallas in the 1950s and Texas has continued to pioneer critical tech conventions

leading to increased investment from the state's legislator into initiatives that position the

state as the dominant player in both the national and global race for semiconductor production.

Ironically the state's first constitution prohibited banking and made the formation

of private corporations difficult, completely the opposite of the free market practices

that attract companies to move there and entrepreneurs to start new businesses today.

Today more fortune 500 companies have headquarters in Texas than anywhere else in the US,

55 to be exact. The state's central time zone, access to transportation infrastructure and

tax-friendly business climate are a big deal when it comes to attracting companies that

create more jobs for Texans. The state's central placement in North

America has long strengthened Texas's economy when agriculture, oil and trade were its primary

industries. Now companies in industries such as advanced manufacturing not only move to the state

but increase their investment spending which spurs more innovation. The result is that Texas

exported more semiconductors and electronic components than California, Arizona and New

York combined in 2022. Increases in investment spending from companies is matched by a fiscal

policy response from the Texas government's 1.4 billion dollar boost to the advanced manufacturing

sector through the CHIPS Act. The move meets the moment as geopolitical tensions escalate

between the US and China over Taiwan, the leading global semiconductor manufacturer of advanced

chips in the world. Driving global recognition is important for an economy like Texas,

particularly as it relates to moving goods. As global trade intensifies, Texas is well

positioned in advanced technology and manufacturing to boost the state's exports. As the top exporting

state in the US for the last 21 years in a row, Texas's total trade value rose to 285.6 billion

US dollars in 2022. The Lone Star state has the most ports of entry in the US, linking its companies

with the nation and the rest of the world. The top trade port in the United States is the port

of Laredo in South Texas. As American companies reduce their reliance on factories in Asia and

shift their manufacturing to Mexico, Texas is positioned to continue growing as a dominant

player in international trade. The state's proximity to Mexico is a challenge and an

advantage because Mexico is both the state's top export and import destination. But ongoing

tensions at the US-Mexico border complicates supply chains and creates bottlenecks straining

the very trade flows that contribute to the state's record economic growth.

Economic and political tensions at the border have accelerated the crisis,

and with no federal action in sight to relieve the pressure, it remains one of the state's biggest

challenges. International trade is key to the economy with over one million jobs supported

by Texas's exports and another half a million jobs in foreign-owned Texas firms.

Firms face another crisis on the domestic front, a tight labor market. More than half of Texas's

business executives reported in a Dallas Fed survey that the skills gap in the state's workforce is

an impediment to hiring. Despite all of that, employment on average grows twice as fast in

Texas compared to the rest of the nation, which is due to consistent and sustained net in-migration

from other states and abroad. Texas's rapid population and scaling economic growth are

advantages that also pose challenges in terms of access to natural resources. Demand for the

state's water is forecasted to outpace the supply by 2070, which could result in over a quarter of

the state's population facing a municipal water shortage if nothing is done. Texas has room to

grow unlike the golden state with the largest state GDP, however it must manage and protect

the very natural resources critical to sustaining and supporting that growth.

Water throughout Texas's history has always been a cherished, highly regulated commodity

with specific legal structures in place before and after statehood. Investment in water infrastructure

repair is critical after learning that the state lost 30 billion gallons of water in 2021 due to

broken pipes. Nobody can predict the future, least of all economists, but Texas is today more than

ever facing international and domestic challenges to support the very population growth that is in

turn supporting its economy.

Ok, so now it's time to put Texas on the economics explained leaderboard,

which we have done before, but that was 3 years ago and a lot has changed since then.

Starting as always with size, Texas has an estimated GDP of 2.3 to 2.4 trillion US dollars,

making it comparable to the 8th largest national economy in the world,

if it was to be counted as its own country. Of course it's not, and these figures are less

accurate than world bank figures because imports and exports which are a major component of economic

output are harder to measure over state borders where unlike international borders,

almost no records are kept of what is coming in or going out.

Even still, the state gets an 8 out of 10.

Taking those GDP estimates and spreading it out over Texas's population of 30.3 million people

means the state has a GDP per capita of around $79,207 which puts it in line with countries

like Denmark, so it gets an 8 out of 10, falling only behind the true outliers with 6-figure GDPs

per capita.

Stability and confidence is both helped and hurt by being part of the largest and most

influential economy in the world. Helped because it uses the global reserve currency,

it has a huge domestic market for its products, and it has the backing of the US federal government

if it finds trouble. But it's also hurt because it competes for talent and investment spending

with the other states including California, which is still the go-to destination for a

lot of the same industries. Even still, the state gets a 9 out of 10.

Growth has been strong and consistent, only shrinking during the 2008 global recession

and the global lockdowns of 2020. It's also maintained a growth rate above the US,

outpacing most advanced economies. Texas gets a 7 out of 10.

Finally, industry. Texas is unmatched, as more fortune 500 companies choose to relocate their

corporate headquarters there, particularly advanced manufacturing, which relies less

on extracting value from limited natural resources. Texas rides in at an easy 10 out of 10 here.

Altogether that gives Texas an average score of 8.4 out of 10.

If you liked this video, you'll also like the one that we recently did on California,

and you should be able to click to that on your screen now.

Thanks for watching, partner. Bye.