GOP front-runner Perry's four economic vulnerabilities

Image: Rick Perry, Anita Perry
Republican presidential candidate, Texas Gov. Rick Perry and wife Anita head back to the campaign bus after a stop at D.C. Taylor Roofing in Cedar Rapids, Iowa. Charles Dharapak / AP
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The latest GOP presidential contender has started running with the wind at his back. Unlike most other candidates — including President Obama — Texas Gov. Rick Perry can claim a measure of economic success over the last several years.

Texas has bucked some dispiriting national trends, with an unemployment rate that's lower than the national average and an economy that has held up relatively well during the devastating downturn. Perry's mission is to convince voters that if elected, he can replicate the "Texas Miracle" on a national scale.

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But like most things in politics, the details of Perry's record during more than a decade as governor of Texas aren't as convincing as the sound bites. In fact, as voters, campaign contributors and key interest groups scour his record, they may notice that he's not the small-government conservative they want him to be, and that his economic policies are somewhat airy. Here are four economic vulnerabilities Perry will have to overcome to earn the Republican nomination:

1. He's a big beneficiary of big-government
Perry's No. 1 talking point as a presidential candidate is job creation in Texas. He claims correctly that Texas has created more than one-third of all jobs in the country since the economic recovery began in mid-2009. What he doesn't mention is that virtually all of that job creation was in government, not in private industry.

Here are the numbers, which come from the federal government's Bureau of Labor Statistics: Between the beginning of 2008 and the end of 2010 (the latest data available), Texas created about 75,000 jobs. That makes it one of the few states with any job creation at all over that time. But federal, state and local government hiring accounted for 115,000 new jobs in Texas, while private industry shed about 40,000 jobs. The private sector has definitely held up much better in Texas than it has elsewhere. Since 2008, private-sector employment has shrunk by 6.6 percent nationally, but only by 0.5 percent in Texas. Still, Perry can't credibly claim that private industry has been responsible for job growth in Texas, since it has actually shed jobs.

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Perry and his state have also benefited significantly from the kind of federal spending he's now trashing as a presidential candidate hoping to appeal to conservative Republicans. Federal spending in Texas amounts to more than $200 billion per year, according to the New York Times, on account of several big Army bases, a heavy NASA presence, and other federal installations. That's about 5.2 percent of all federal spending.

Texas also accepted $6.4 billion in federal funds from the unpopular 2009 stimulus program championed by President Obama, according to the Washington Post. There's nothing wrong with Texas or any state getting its share of funding from Washington. The problem for Perry is that the facts don't support the small-government credentials he's now trying to establish.

2. The "Texas Miracle" is unraveling
Texas has been able to delay the kinds of sharp cutbacks in government payrolls and services that most other states have been forced to undertake, partly because of a strong energy sector that helped sustain the state's tax revenues during the early part of the recession. But Texas now seems poised for steep cuts in government services, just like many other strapped states.

In fiscal 2011, for example, Texas increased spending by 15.4 percent, the biggest hike among all 50 states, according to the National Association of State Budget Officers. But in fiscal 2012, which begins in September, Texas will cut spending by 8.5 percent, which will be the second biggest cut of any state, after Nevada. As in other states, the biggest cuts in Texas are slated for education and health care. Texas is also pushing off several big problems until 2013, which means more spending cuts are probably on the way. That could help Perry burnish his small-government cred, but it will almost certainly entail job cuts too — and make the Texas Miracle look a lot less miraculous by this time next year.

3. What's good for Texas is bad for America's drivers
When oil and gas prices rise, the Texas economy gets a big boost. According to the Federal Reserve Bank of Dallas, every 10 percent rise in oil prices boosts annual economic output in Texas by half a percentage point, and employment by 0.36 percentage points. Texas isn't nearly as dependent on energy as it was in the 1980s, when a sharp energy bust sent the state into a deep recession. But the state has clearly benefited from rising oil prices that have pushed gas prices well over $3 per gallon and caused distress for many American families.

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Since Perry became governor in 2000, oil prices have tripled, rising from about $30 per barrel to roughly $90 today. Not surprisingly, that coincides with a Texas economy that has outperformed the national one for the last decade. Again, there's nothing wrong with Texas or any state profiting from worldwide economic trends. But Perry can't exactly boast about an economy that has boomed at the expense of ordinary drivers. And if the recent drop in oil prices sticks, it will detract from the Texas economy and further undermine the gains that Perry is campaigning on now.

4. He sounds clueless about monetary policy
Perry's first pronouncement on the Federal Reserve as a presidential candidate was a convoluted mouthful of economically illiterate posturing. When asked his opinion of the Fed, Perry said of chairman Ben Bernanke, "If this guy prints more money between now and the election ... we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous—or treasonous."

To Tea Partiers and government-bashers, Perry's jabs at the Fed might sound like a welcome challenge to an omnipotent federal agency that routinely manipulates the economy. But if Perry wants to be taken seriously by business leaders and investors — who control a wee bit of the campaign money he'll no doubt be asking for — he might want to take a crash course on the Fed and monetary policy.

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Most economists feel that the Fed's aggressive intervention in the economy since 2008 has been a necessary evil that helped prevent a financial panic and a full-blown depression. Maybe that's the sort of mayhem they welcome "down in Texas," but most businesses would rather retain access to credit, be able to count on a stable economic environment, and have customers who are willing to spend because they're not worried about looming calamity.

The Fed has in fact conducted the modern equivalent of "printing money," but it has done so in a way that hasn't yet produced the runaway inflation that Fed bashers have been warning about for years. The Fed has also helped boost stock prices and restore some of the household wealth lost since the recession began. Is Perry opposed to that? And is he opposed to the increased consumer and business spending that higher stock prices have generated?

The Fed is also the only part of the government that seems capable of doing anything at all to help the economy, since every other part of Washington is paralyzed by political dysfunction. Maybe Perry would like to hogtie the Federal Reserve too, and let the economy thrash around on its own. That's basically what has been happening since the Fed's latest stimulus program ended on June 30 — while Americans, meanwhile, have become profoundly upset with the direction of the economy and more disgusted with Washington than ever.

If Rick Perry intends to present himself as an antidote to that, he still has a lot of work to do.