A Tale of Two States

A recent Wall Street Journal article compared two oil states – Texas and California. The author's point is that current conditions in both states are a result of good and bad policy choices.

Let's start with Texas. It has doubled its oil output since 2005. Around 400,000 Texans are employed by the oil and gas industry with an average salary  of around $100,000 a year. The industry generates something like $80 billion a year in economic activity.

So how does California compare? Well, oil output is down 21% since 2001. Some might say that this is due to California running out of oil. Not true. Our state has huge reservoirs of oil.

One big reason for the difference between the two states is the political culture. Californians have politicians who don't like fossil fuels and constantly block hydraulic fracturing (fracking) in the state. California has also passed cap-and-trade legislation that adds a lot of cost to conventional energy production and refining.

There's another big contrast. A lot of the Texas oil is on private lands, so oil companies have a chance to work their magic there. However, in California, much of the oil-rich areas are owned by the state or the federal government, so much of it is off limits to oil companies.

What does all this mean? It's no accident, according to the article, the Texas, has been leading the nation in job creation since the recession ended. The energy boom not only creates jobs in the oil industry but also in other industries, such as transportation, high technology, construction, and manufacturing. The Texas jobless rate is close to 6% while California's is the third highest of all states at 9.4%.

One other thing has come out of these two different attitudes. Oil and gas production in Texas has produced so much money in state taxes. The they can avoid a state income tax. Not true in California, where top marginal income-tax and capital-gains tax rate is 13.3%.

What's in the future? Well, it will be interesting to see if our governor out here, Jerry Brown, will split with his party and pursue gas and oil production. Let's hope we start looking a little more like Texas.