I’d like to expand on something I wrote near the end of my last post on the current boom in Texas. As I said, buying into or shorting secular trends is a key investment strategy for me, and Texas’ explosive growth is a major opportunity. But I don’t think most people understand why the state is doing so well. It’s not just because of its low taxes and hands-off regulatory regime. If that were the case, low-tax backwaters like Alabama and Mississippi would be thriving, too. What sets Texas apart is education, especially the public UT system, which possesses the third largest endowment in the country behind only Harvard and Yale.
Dynamic, innovative economic regions–with the highest per capita incomes–always benefit from quality educational systems. Silicon Valley and the Northeast are the most obvious examples. But other places like North Carolina’s research triangle have also been fueled by great schools. The reason for this isn’t rocket science. You simply can’t have sustained economic growth without a steady supply of smart, highly educated people.
The problem is that schools cost a lot of money. And most states these days–especially the state where I live, California–spend far more on prisoners, public employees, and old people than education. It’s a disturbing secular trend, so disturbing that if California were a stock, I’d short it.