On and off for the last couple of weeks, I’ve been talking about cities getting dangerously close to plunging into an economic death spiral, primarily New York City because I find the likelihood of a young socialist like Mayor Mamdani fixing the city’s financial problems about as likely as a spavined hearse horse winning the Kentucky Derby.
An economic death spiral is what happens when a town gets to circling the drain like a tired dog before a nap: businesses pull out, workers move off, tax money dries up, the roads go to washboard, the schools start selling raffle tickets for copy paper, and the only folks still optimistic are the chamber of commerce, three realtors, and a man at the diner who insists a new truck stop is going to turn everything around just as soon as somebody fixes the exit ramp. As tax income dries up, the city government inevitably tries to raise revenue by raising taxes, thus lighting the bundle of rags tied to the tail of the last fleeing business.
But, it is not only cities that can enter that downward spiral, but whole states can also do it as well, and my state, New Mexico, would be a classic example—if not for one saving economic factor that is an industry that our state government absolutely hates.
There is an old joke that New Mexico is a poor state with excellent scenery. Like many old jokes, it survives because it is uncomfortably close to true.
If one were brutally honest—and honesty is rarely encouraged in economic development brochures—it is difficult to avoid the conclusion that, if not for the oil and gas industry, New Mexico would be firmly planted in an economic death spiral somewhere between “rust belt cautionary tale” and “forgotten Soviet republic.”
This is not entirely New Mexico’s fault. Geography dealt the state a strange hand: It is large, sparsely populated, dry, mountainous, and far from the great population centers of the country. Unlike Texas, California, or Florida, nobody accidentally passes through New Mexico and decides to move there because the freeway exits looked lively.
What New Mexico does possess is beauty, culture, laboratories, military bases, chile, and an astonishing number of turquoise shops. Unfortunately, none of those things generates the kind of tax revenue required to keep an entire state government fed, paved, pensioned, and air-conditioned.
Enter oil.
Oil in New Mexico is less an industry than a life-support system with pump jacks.
The southeastern part of the state—in the Permian Basin region—produces staggering amounts of wealth compared to the rest of the state economy. One could argue that Hobbs and Carlsbad are effectively subsidizing Santa Fe’s ability to debate bicycle lanes, climate justice, and whether chile should be capitalized in official state documents.
Without petroleum revenue, New Mexico would face a deeply uncomfortable reckoning. State government spending would have to shrink dramatically or taxes would have to rise to levels usually associated with medieval tribute systems.
This creates one of the great political ironies of modern America: New Mexico is culturally and politically suspicious of the very industry preventing its becoming economically indistinguishable from rural West Virginia with better sunsets.
The state’s public rhetoric often treats oil companies the way Victorian families treated embarrassing relatives: tolerated because they pay the bills, but never mentioned in polite company. A recent governor of New Mexico declared that it should be the primary goal of the nation to reduce the dependency on petroleum by 50%. Cut New Mexico petroleum income by 50% and the state will be desperate for a recipe for sand soup.
Meanwhile, every time oil prices rise, state government revenues suddenly bloom like desert wildflowers after a thunderstorm. Budget surpluses appear. Legislative wish lists expand. New programs emerge. Everyone becomes an economic genius for six months.
Then oil prices wobble and panic quietly spreads through Santa Fe like a norovirus outbreak on a cruise ship.
The deeper issue is that New Mexico has never quite solved the puzzle of creating a broad, diversified private-sector economy.
There are islands of success:
- Los Alamos,
- Sandia,
- defense contracting,
- tourism,
- healthcare,
- and, a trickle of retirement migration,
But these sectors do not combine into a roaring engine of population growth and entrepreneurial dynamism. They create pockets of prosperity floating in a much larger sea of government dependency, low labor participation, and economic fragility.
One sees this in the demographics.
Young educated people leave in such large numbers that they may well be the state’s largest export. Many rural communities steadily age, so that entire small towns seem to survive on a mixture of federal transfers, retirees, and determination. Outside of Albuquerque and a few select corridors, economic momentum can feel thin.
And yet, oddly enough, New Mexico narrowly avoids outright collapse.
Why?
Again: oil.
Oil revenue functions like an enormous invisible subsidy that holds together a state economy otherwise struggling to generate sufficient taxable activity on its own.
New Mexico’s state government is not merely “helped” by oil and gas; it is structurally dependent on it. Using the cautious state-budget framing, roughly one-third of recurring general-fund revenue comes from oil and natural gas, while a broader accounting that includes severance taxes, royalties, gross-receipts taxes, corporate taxes, worker income taxes, permanent-fund distributions, and related economic activity can push the oil-and-gas share into the 40%-50% range of general-fund support. The direct money alone is enormous — billions from severance taxes, rents, and royalties — but the real dependency is larger because the industry also supports high-wage jobs, contractors, local purchases, and investment funds that feed the state treasury. In practical terms, New Mexico can talk like an energy-transition state, but its schools, roads, agencies, reserves, and recurring spending are still heavily financed by the petroleum economy.
Imagine a household where one cousin works offshore rigs in the Gulf and sends home checks large enough to support twelve other relatives who spend most of their time discussing sustainable gardening and beadwork. That, in simplified form, is New Mexico’s fiscal structure.
The state’s defenders will object that New Mexico has recently experienced pockets of economic growth. This is true: Intel has reinvested in Rio Rancho and Albuquerque has seen some revitalization, so there are real success stories.
But remove the petroleum sector from the ledger and the picture changes very quickly.
Worker participation remains weak compared to many states and private-sector depth is limited. Many counties remain heavily dependent on government employment. The state consistently struggles to retain college graduates. Crime concerns in Albuquerque continue to hurt perceptions. Educational rankings remain stubbornly poor despite decades of reform efforts and spending increases.
And while businesses are fleeing California and New York for the Southwest, almost none of them come to New Mexico because of our state personal income tax, our generally anti-business climate, and the state’s strong union laws. If we draw a line across the United States, going along the northern boundary of New Mexico stretching from the Atlantic Ocean to the Pacific, only two states below this line are not right-to-work states: California and New Mexico. These two are also the only states below that line whose industrial bases are declining.
On paper, New Mexico has quite a few advantages: several large state universities, low land cost, and a low cost of living. Even with those resources, economic activity stops at the state border, as can be seen by this satellite photo of the Texas/New Mexico border at night.The result is a state that often feels suspended between two futures.
One future imagines New Mexico transforming into a southwestern Colorado: affluent, outdoorsy, technologically sophisticated, culturally rich, and attractive to remote workers and retirees.
The other future looks more like a slow demographic fade: stagnant population, shrinking economic dynamism, rising dependency ratios, and a permanent reliance on federal and petroleum revenue to sustain living standards.
At present, oil is keeping the second future at bay, which creates a curious emotional atmosphere in the state.
New Mexico simultaneously behaves like:
- a frontier state,
- a federal dependency,
- an arts colony,
- a retirement haven,
- and an energy exporter.
These identities do not always coexist gracefully.
The state wants the tax revenue from petroleum without fully embracing the culture that produces it. It wants environmental prestige while depending heavily on extractive industry revenue. It wants Scandinavian-style social programs with an economy that’s closer to rural Arizona plus uranium ghosts.
These contradictions could continue for quite some time. Governments are perfectly capable of living with contradictions, especially when oil is above $70 a barrel.
But long term, New Mexico faces uncomfortable strategic questions:
What happens if the petroleum industry contracts substantially before the state develops a replacement economic engine? What happens if the petroleum availability expands and the industry begins shutting down wells in states where governments tax production the most?
These questions lurk behind almost every optimistic press release about film studios, green energy corridors, aerospace hubs, startup incubators, and artisanal lavender festivals.
Because, despite all the brochures featuring happy hikers and attractive people drinking craft beer beside adobe walls, New Mexico’s modern fiscal reality remains astonishingly simple:
The oil patch is paying the electric bill…
And deep down, almost everyone in Santa Fe knows that and hates it.


















