Nerve Endings Firing Away

You may have heard the conservatives’ favorite complaint – government interference not only exacerbates an economic downturn but also creates it. Without getting into Keynesian or Miltonian economics, I would like to say I agree. At least on an anecdotal level. Hear me out.

Not too long ago when the country was reeling under the threat of one of the most severe recessions since the Depression, Rick Perry, Governor of Texas made a bold statement. When asked about the economic condition of Texas, he replied:

Why is Texas kind of recession-proof, if you will? As a matter of fact, just today I think, Michael, you said someone had put a report out that the first state that’s coming out of the recession is going to be the State of Texas. I told him, I said, ‘We’re in one?’

As arrogant as that may have seemed not to mention the 95,000-odd jobs Texas had lost by then leading to 8% rate of unemployment, I kinda agreed with his basic premise. Compared to California, Florida, and other states, Texas given its size was not as badly hit because the housing crisis that had primarily caused the economic recession hadn’t hit Texas as bad. Ironically, some aspects of the State of Texas Constitution that limited “cash-out” refinancing and home-equity lending which if introduced at the federal level would be decried as socialism had helped. So Texas looked in great shape, right? Even if parts of Texas suffered, towns like College Station that relied on education and research industry at the university seemed immune.

Unfortunately Rick Perry bought into the hype of his other Republican colleagues and among crazy talk of secession, he announced an across-the-board 10% budget cut for state agencies; one of which also happened to be Texas A&M University. Located in College Station, Texas A&M University is the primary employer of the town’s 70-80,000 population; not including the people living in the twin city of Bryan. This directive from the Governor’s Office led to much debate and consternation at the university where even tenured faculty jobs were not considered safe.

Following initial rounds of layoffs mostly among lower levels of staff like at the physical plant and other related departments, it led to a feeling of apprehension and unease in the town. Although the university will end up slashing less than 1% jobs, almost everyone was afraid that they too might lose their job. Other measures like hiring freezes, pay hike freezes, and reduction in other benefits although health insurance premiums rose, were also enforced. This in spite of the fact that student enrollment has significantly risen as it always does during an economic downturn and for some strange albeit political reason, tuitions and other fees have been frozen for two years too.

After an uncertain summer, the housing report for July for Bryan-College Station came out last week. It turned out that housing sales had fallen by 56%, the steepest drop in years. The expiration of the homebuyer tax credit hadn’t helped either. Realtors in the region were frustrated that due to the uncertainty in the employment market, even those who were still employed did not want to step into the housing market although July is historically the busiest month for real estate since school year begins in August. Now we know that downturn in the housing market is often the harbinger for downturn in other aspects of the economy like home services, home improvement, food & dining, electronics and appliances, etc triggering a slowing down of an economy that was otherwise quite robust and thriving. The 10% cut that the university was forced to implement while freezing tuition and fees that started all this might not even make much of a difference in the state’s finances. Obviously, this does not even scratch the surface of the effect on the quality of education and research for Texas A&M.

So yes, anecdotally, I’ve seen how the government can trigger a potential recession where previously none existed. Or it has just been a strange coincidence. You decide.