In the past year or so, traveling the various geographies of this country has become increasingly depressing. From the baked Sun Belt suburbs to the green Valhallas of Oregon and the once luxurious precincts of Manhattan, it is hard to find much cheer--at least from entrepreneurs--about the prospects for the economy.
Until recently Texas, and particularly Houston, has been one of the last bastions of that great traditional American optimism--and for good reason. Over the past few years, Houston has outperformed every major metropolitan area on virtually every key economic indicator.
Last year, the region was rated among the major metropolitan areas as the best place for everything from earning a living to college grads to manufacturing, according to such publications as Forbes, Business Week and Kiplinger's.
But the city that could may soon not. Like a couple of bad storms, the recession is barreling in from east and west, shutting off credit to even the most successful businesses. Just last month, Hanley Wood's Builder ranked Houston the "healthiest" housing market in the nation. But when you get on the ground, things appear far less sanguine.
Particularly hard hit has been the once-vibrant inner city condominium market, which has been attracting a whole new generation of young professionals to urban living. Now some condominiums, suggests developer Tim Cisneros, are being abandoned by younger workers who have become the prime victims of a contracting economy. As seen in other regions, others are turning to rentals as potential buyers fail to qualify even at Houston's reasonable prices.
However, the biggest problem facing Houston today revolves around the energy industry, which represents to this region of well over 5 million what finance does to New York. Already lower energy prices, along with the global slowdown, have taken a dent in job growth. Just last week, the Texas Workforce commission reported a 0.7% employment increase for the area in 2008, compared with a robust 3.5% the year before.
Bill Gilmer, a veteran economist who covers energy for the Dallas branch of the Federal Reserve, reports that proposed new taxes and regulations plus falling prices have started to decimate the domestic oil and gas industry. Over the past year, he reports the number of rigs in operation across the country dropped from 2,000 to some 1,300.
The impact of this on Houston's energy economy, Gilmer suggests, will be severe, and it will drag the region and much of Texas down with it. "We are talking about a Texas recession now without question," he says. "I lived through the Jimmy Carter era before, and now it's déjà vu."
Of course, some high-end jobs in energy will remain, particularly for those who work on massive new projects overseas, like in Saudi Arabia. Instead, the biggest hits will affect the production sector, which until recently was a prodigious creator of high-wage blue-collar jobs. Over the coming years, the production downturn could devastate places like western Texas, the Dakotas, Louisiana, California's Kern County and anywhere else that produces American crude and gas.
Indeed, it may turn out to be one of the great ironies that the Obama administration, which campaigned earnestly against our "dependence on foreign oil," will in the end make us more so. Barring an unexpected shift toward nuclear power, it is hard to see how the country--given the administration's stance--will produce enough energy to meet its need in the near or even mid-term without turning increasingly to the Saudis and others overseas.
Of course, the Houston-centered domestic energy industry may not go quietly into the night. The D.C. correspondent for the Energy Compass, Bill Murray, expects a "battle royal" in Congress over climate change legislation this fall.
Houston Mayor Bill White, who is running for the Senate in 2010, also seems ready to fight the anti-oil and gas prejudices of key administration insiders. Natural gas, he suggests, "has to be a big part of the future if [we] have any chance at all to have electric power that is affordable and cleaner."
It is critical to point out that White is not some Neanderthal GOP "ditto head" but a former assistant energy secretary under Bill Clinton, a one-time chairman of the Texas Democratic Party and a widely popular figure in majority non-white Houston. He has a long record championing energy conservation and alternative fuels, but he says he cannot embrace an inquisitional approach to his city's signature industry.
"There's a difference," he said, with obvious reference to the Democrats in Washington, "between mandating one kind of technology and reality."
Yet even if the green Torquemadas have their way, White thinks Houstonians will find a way to keep their city ahead of the country's other urban sad sacks. Throughout the expansion of recent years, when other cities went on insane spending sprees, Houston has kept the cost of services low and focused on basic infrastructure. Critically, Houston is also among the few big cities that has streamlined its pensions for public employees.
Houston may also benefit from its historical experience dealing with near-depression conditions. When energy prices collapsed after 1983, the region went through a decade-long recession. The city went from being one of the country's busiest construction sites to being filled with empty "see-through" office buildings and expanses of foreclosed homes.
Under another Democratic mayor, the revered Bob Lanier, Houston gamely recovered, without much help from Washington. Lanier and other Houston leaders drove to diversify the economy--particularly in medical services, international trade and manufacturing--by investing in basic infrastructure and keeping costs low.
"We've already lived through one depression," says local real estate investor David Wolff, who also serves as chairman of the region's transit agency, Metro. "We have already learned humility, and we have learned how to prepare for the world when everything shifts under our feet."
So despite all the problems surrounding energy and the encroaching recession, Houstonians continue to be cautiously optimistic about their future.
They still excel at all the hallmarks of a progressive economy, such as improving both road and rail transport, reforming the school system and working to expand new industries, such as medical services, that have not yet been targeted by the Obamamians.
To be sure, Houston, which missed the Bush recession, is beginning to feel the pain during the new administration's watch. But Houstonians long have displayed remarkable grit and creativity in the face of tough times. Having survived catastrophic energy price declines, several huge hurricanes and endless humid summers, Houston is still among the best bets to survive these tough times and come out, in the end, a strong winner.
This article originally appeared at Forbes.
Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History
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