Let Our Texans Go?

Should Texas secede? As Ezra Klein says, it's remarkable that a full fifth of Texans are interested in leaving the United States, though to be fair, they're being egged on by some fairly prominent individuals -- governors and major news personalities, who are (or once were) widely considered to be sensible folks. The line of thought seems to go like this.

1) Texas is a big state, with lots of people and a big economy.
2) That's basically what a country is, right?
3) So why not become our own country?

The idea being that the federal government has become overly oppressive, with its taxation and disaster relief. Sophisticated Texans might even note that they get back in federal spending roughly the same amount that they send in tax revenues. It's a break even proposition, seemingly, so there's nothing to lose.

The misunderstanding of the benefits Texas (and other states) get from being in the Union that's involved here is, I think, one of the main reasons people advocate for secession so nonchalantly. They don't really get the cost of leaving (assuming it could be done without bloodshed, which the historical record suggests it couldn't). The most obvious example is defense spending. The American military is massive relative to every other force on the planet, such that it's a major deterrent to aggression of all kinds. If Texas quit funding the American military, it would remain big. But Texas would suddenly be without the American military. If it could not reach a defense agreement with the United States, it would find itself needing to duplicate all the various expenses that go into building credible national defense, and it would need to divert resources from elsewhere to do so.

Or consider free labor markets. Texas' long-term prosperity is dependent upon its metropolitan areas; energy and agricultural riches won't sustain it indefinitely. Taxes has a handful of some of the nation's largest and fastest growing cities, places which have grown extremely rapidly in recent years thanks to domestic internal migration -- people moving from expensive markets in the west and northeast, or declining markets in the midwest. Implicit in these relocation decisions is the benefit of continuing to live in the United States. By remaining American citizens and residents, new Texans understand that they're eligible for the same benefits as every other American, and can travel back and forth between Texas and the US whenever they please. Just as important, they take for granted that if they needed to move to a different state to work, they could do so with no questions asked -- no visa necessary, no work permit needed. The very hint that such status might be in jeopardy would result in immediate flight back across the border, creating a property crash in Texas and a wave of business failures, as well as the gutting of the state's most precious resource -- its human capital stock.

And then there are the financial markets. Whatever the capital mobility arrangement between an independent Texas and the United States, the news of a Texas secession would be basically guaranteed to wreak havoc on finance in the state. Depositors in both local banks and national banks would grow concerned about the status of their money in Texas -- its value relative to American dollars, its convertibility, its mobility, and so on. They'd also worry, rightly, that the American government's deposit insurance was no longer available to them. The result would be bank runs, and bank collapses. Immediate state depression would result. It's unclear whether Texas would have the ability to respond to the crisis. The American government can borrow cheaply and easily; Texas would have nothing like that access to international capital markets. Texas would face a severe downturn and hyperinflation. Millions of refugees would flee the state. Political instability would result leading to further economic and humanitarian crisis.

The independence and strength of the Texas economy is an illusion. Too bad those leading the secessionist cries don't understand that.