The Texas Model

Now, if only someone could do for the rest of the country what Governor Rick Perry did for Texas...

Six years ago, Mr. Perry's state underwent a critical tort reform that was codified in the state constitution. The payoff is that Texas is now outpacing California economically. According to the Texas Public Policy Foundation, between 1997 and 2006 Texas' economy grew an average of 4.3% while California's grew at a rate of 3.7%. But as of 2002 (to 2007), with tort reform in place, Texas' annual economic growth jumped to 5%, while California's remained essentially the same at 3.6%

With a tan baseball cap hanging off one knee, Mr. Perry is proud to report that "Texas created more jobs in 2008 than the rest of the states—combined." As of July, the state, which taxes neither capital gains nor income, had an unemployment rate of 7.5%, two points below the national average, while California's hovered at 11.5%, two points above.

No wonder over half a million people flooded into Texas between 2000 and 2007. Meanwhile, 1.2 million residents left California in the same seven-year period.

Governor Perry's plans do not include a move to Washington, DC anytime soon.  This is unfortunate, since President Obama is obviously intent on pushing the country down California's path, instead of the one Texas has taken.  Notice the White House position on tort reform.  It is widely agreed that medical malpractice liability and opportunistic litigation has added significantly to the cost of health care in the U.S..  Yet tort reform doesn't rate a mention in Obama's health care reform plans as one of the ways costs might be contained.  If you're wondering why, take a look at this useful graph which I pilfered from Maggie's Farm.

According to Governor Perry, the turnaround in Texas came about through a combination of tort reform, cuts in spending and taxes, and by working to get special interests out of government.  There's every reason to believe that what has worked in Texas would also work for California, and if implemented at the federal level, would work for the country as well.  Based on Obama's performance to date, though, I'd say the chances of seeing that kind of an approach from Washington are slim to none.

Cultivation of key special interests is signature to the Obama governing style.  Witness the pharmaceutical industries support for health care reform, a quid pro quo masterpiece.  The industry gets a promise of $80 billion in savings over the next ten years, and in return it will pony up $150 million now to help sell the scheme. 

The Obama style is to funnel huge piles of the taxpayers' money to special interests.  The United Auto Workers Union which spends millions on Democrats every election, has already been rewarded with a disproportionately large ownership stake in the post-bankruptcy General Motors.  According to the Wall Street Journal, the U.S. government took a 50% stake in return for $16.2 billion in bailout money, awarding the UAW another 40%.  Meanwhile while GM's bondholders, who held $27.2 billion in unsecured debt, had to settle for 10% of the equity, which could turn out to be as little as 5 cents on the dollar.

This kind of strategy offers a degree of insulation between Obama and the voters.  The $150 million that the pharmaceuticals have agreed to spend in support of health care reform won't go into a dispassionate recital of the pros and cons.  We can expect a message of emotion laden fearmongering, whose purpose will be to create a perception of heightened crisis.  Just as Obama has hoped a crisis mentality would drive health care reform through congress before anybody really had any idea of what was in it, special interest campaign money will seek to stampede voters into voting for their guy.  Just like any other kind of advertising, it works.

And Obama is not even a little bit bashful about political payoffs and payback.  Election time will be harvest time, as vast sums in campaign money flow from the favored special interests to Obama in return for the taxpayers' money he sends their way in the name of reform.  In Obama's governing style there is no room for tax cuts or spending cuts.  And tort reform?  Forget about it.  The Texas model isn't going to find its way to Washington anytime soon.