Just as we are working to flatten the mortality curve of the pernicious Covid-19 virus, state governments are seeking to flatten the mortality curve of businesses and open them up again. Texas is an interesting case study.
I was for 10 years until 2015 president and CEO of the Federal Reserve Bank of Dallas. From that perch, I watched the statistical marvel of the job-creating machine that is the Lone Star state. I recall reporting to the Fed in 2009 that practically 100% of the net new private sector jobs created that year in the USA occurred in my Federal Reserve district, 98% of which is Texas.
Now, serving on Governor Greg Abbott's private sector "Strike Force" on reopening the Texas economy, I am getting a bird's eye view of applied macro-economics as we seek to reinvigorate our economic engine.
From the standpoint of recovery from coronavirus, so far so good. The state has one of the lowest per capita mortality rates in the country. Its rate of recovery from Covid ranks second in the nation. And the critical ratio of recovery from Covid to positive tests for the virus is climbing and is now running at 2.5 to 1.
Why is what we are doing here worth watching? Because of the size of our economy, which is larger than that of South Korea, Russia, Spain, Mexico, Canada and Australia.
And it is the job growth epicenter of the U.S., as well as the leading state for corporate re-locations. Whether and how Texas recovers and reconfigures will give us a sense of how the nation's 'U' or 'Swoosh'-shaped recovery will manifest itself. And provide insight into what the 'New Normal' economy will look like and where it will take root.
Before the coronavirus struck, the tax, cost-of-living, regulatory and pro-business climate in Texas was draining capital and jobs (and Congressional apportionment) from the Northeast, the Midwest and California, as well as investment from abroad. Should Texas smartly and safely navigate Covid recovery, the movement of capital and people (and political power) will further accelerate. In doing so, it will reinforce the notion that the federalist structure of the USA is part of our magic.
Capital and jobs may move between states but they remain in the United States, reinforcing the attractiveness of the dollar and markets denominated in it, making the U.S. primus inter pares in the global economy.
Now that we are reopening, another blow has been struck, increasing the difficulty of repairing the damage suffered to our economy: the riots that have been sparked by the senseless killing of George Floyd now spreading like wildfire throughout the nation, including in the major cities of Texas.
I have been worried about this since the 2008-09 "Great Recession". In Danielle DiMartino Booth's excellent book titled "Fed Up," she documents a conversation I had with her well before I left the central bank.
"What will we see in your lifetime that will be the most surprising (to others)?" she asked. I answered,"I think there is potential for riots in our own streets, social unrest."
To be sure, this worry receded as the economic expansion that ensued led to job creation of historic proportions in every nook and cranny of the U.S. and in every demographic grouping. But it never went entirely away. My logic was that when the economy turns sour, gapping income disparities become further exaggerated. Especially in a political environment of meanness, anger boils up and civil disorder ensues.
This is another test by fire for Governor Abbott and Texas. If we handle this woeful development more skillfully than others we will further our reputation for being a crucible of economic prosperity. If not, all the good work being done to restore the Texas economy will be diminished.
Richard Fisher was president and CEO of the Federal Reserve Bank of Dallas from 2005-2015. He is senior advisor to Barclays and serves on the boards of AT&T, PepsiCo and Tenet Healthcare. He is also a CNBC contributor.