The Sunbelt’s Boom Is Over; the Frostbelt Is Making Hay

The near panic in this state over oil prices tumbling to under $20 a barrel confirms that the species Texicanus humanis are economic mortals.

Economists here are talking of serious statewide recession if oil prices, down from $35 in 1981, don’t recover. Politicos tremble at the thought that each $1 drop in the cost of a barrel clips $3 billion a year off the Texas economy, $100 million off state-government revenues, and throws 25,000 people out of work.

The state that made out like gangbusters in the roaring ‘70s, as OPEC-driven oil prices hurtled upward, is learning the pain of the downside--the perils of tying state revenues too closely to energy and letting citizens and businesses get used to a bargain-basement tax system.

For Northeastern states, the falling oil prices only add momentum to an economic turnaround that scarcely anyone predicted during the ‘70s heyday of Sunbelt expansion. Recognition of how fast things have changed comes out of Texas itself. “Many parts of the Frostbelt are returning to prosperity, while the Sunbelt has collapsed into only a few ‘sunspots,’ ” say Dallas economist Bernard Weinstein and two colleagues, co-authors of a new book, “Regional Growth and Decline in the United States.”

Eleven of 19 Sunbelt states, Texas included, have unemployment rates above the national average. Louisiana, even more dependent on oil and gas than Texas, has nearly 11% of its work force idle. Only West Virginia is worse off, and not by much. By contrast, the six New England states that were on the economic ropes back in the ‘70s now have the nation’s lowest unemployment rates, most between 3% and 4%. Only one, Pennsylvania, has unemployment as high as 7%.

The layoffs, plant closings and capital flight that afflicted the Northeast in the ‘70s have now gone South, says Weinstein. He notes job losses in 10 Sunbelt states, triggered by decline in petrochemicals, refining, steel and textiles--the latter a special scourge in Georgia and the Carolinas. At the same time, he adds, seven Northern states have posted job gains.

What does all this say? The swirling tides of national and international economic change are beyond any state’s power to control. But the way a state manages its economy, from human services to capital spending, determines how well it can respond and adapt.

Texas and many other Sunbelt states built their economy by offering Northern “smokestack” firms cheap land, low personal taxes and no unions. Neglected in the process, until the celebrated Southern state “reforms” of the past two years, was serious investment in schools. Southern social “safety-net” programs are still among the country’s stingiest.

But now it turns out that a balanced tax system and critical education and social expenditures, all traditionally anathema to the Texas Legislature, are not the fruit of pointy-headed Yankee liberal thinking, but rather the basics of running a resourceful and resilient society.

As the country moves into the heralded “post-industrial society,” Weinstein writes, “the Frostbelt will be able to capitalize on its legacy of investment in human capital. Indeed, the resurgence of New England can best be explained by high aptitude and literacy in its work force, a reflection of first-class public schools as well as top-notch universities.” It will be more than a decade before the Sunbelt can capitalize on its push for better schools.

Weinstein’s warnings notwithstanding, Sunbelt decline is of a limited sort. In the first half of the decade, 91% of the nation’s population gains were shared by the South and West. There should be plenty of vigor to re-adapt. But if the Sunbelt follows the path that many of its leaders are pushing, agreeing to a public-investment strategy that does involve higher personal taxes, the region’s future may indeed be dim.

The Northeast learned an opposite lesson during the ‘70s: that it was a serious mistake to let tax and social-welfare levels drift too far above the national average. Massachusetts today is no longer the “Taxachusetts” it once was. Welfare rules have been tightened across the region; municipal unions have been tamed; fiscal practices were shored up after New York’s near bankruptcy. And from Boston to Pittsburgh to Baltimore, the corporate community has played a major role in urban revival.

The Sunbelt faces different challenges: to expand, not curtail, social services; to break loose of energy tax dependence and raise personal taxes to adequate levels, not depress them. And to create a corporate responsibility ethic in a region dominated by branch plants rather than home offices.

Even an improved Sunbelt, learning to make government a partner rather than enemy of future-related investment, won’t be immune to the vagaries of capitalism and economic shifts. But it will be more adaptive, less prone to panic when inevitable hard times hit.