California Can’t Afford to Be an Economic One-Trick Pony

For the past decade, the soaring stock prices and nosebleed valuations of Silicon Valley’s IPOs and tech sector unicorns has been a boon for California, helping create a record budget surplus of almost $22 billion.

Yet this bonanza has occurred just as the state’s overall job creation, once among the country’s leaders, has slowed to a more middle of the road status, well below the rates for key competitors such as Nevada, Arizona, Washington State and Texas. On a GDP basis, according to the most recent federal data, Texas by the last quarter of 2018 was growing nearly three times as fast.

Slower growth could expose California even more to its growing, and unhealthy, dependence on the relatively small, in terms of employment, tech sector.

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California’s Progressive Betrayal

California’s left-wing policies hurt working-class and middle-class residents.

The recent California Democratic Party convention in San Francisco exposed the divide between the state’s progressive and working-class voters. Progressives, in their militant certitude, support left-wing policies that often don’t affect them; it’s the working class that suffers the consequences of these proposals. But the Green New Deal, widely embraced by party leaders, pushed too far, triggering a backlash at the convention. The state’s private-sector labor unions, notably the building trades, organized a “Blue Collar Revolution” protest against the Democrats’ climate legislation. Read more

Densification Efforts Like SB50 Are The Wrong Fix to California’s Housing Problem

For decades California’s regulatory and tax policies have undermined our middle class, driving millions out of this most favored state. Perhaps nowhere is this clearer than in a drive that seeks to destroy the single-family neighborhoods preferred by the state’s middle-income households.

SB50, introduced by state Sen. Scott Wiener, would allow division of existing houses to duplexes, triplexes and fourplexes “by right” in single-family neighborhoods. Further, higher density apartments could be built-in single-family neighborhoods close to transit. This could lead to significant house value losses by families for whom their home is their greatest single asset.

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Clippers Offer A Better Model For SoCal Than The Lakers

This year’s basketball season, with the collapse of the Lakers and the surprising rise of the Clippers, poses a metaphor for the region. On the one hand, there’s the Laker obsession with the “star system” and impressing outsiders, notably on the East Coast. The Clipper model, reflecting a culture of hard work and teamwork, relies not only on celebrity but the raising of often obscure people into prominence.

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Candidate of Big Tech

In the free-form, roller derby race for the Democratic presidential nomination, few candidates are better positioned than California’s Senator Kamala Harris. She is a fresh and attractive mid-fifties face, compared with septuagenarian frontrunners Joe Biden and Bernie Sanders, or the aging progressive Elizabeth Warren. Part Asian-Indian, part Afro-Caribbean, and female, Harris seems the frontrunner in the intersectionality sweepstakes that currently largely defines Democratic politics. Yet the national obsession with ethnicity and novelty obscures the more important reality: Harris is also the favored candidate of the tech and media oligarchy now almost uniformly aligned with the Democratic Party. Read more

The Opium of California

The current frenzy of new IPOs — Uber, Lyft, Slack, Postmates, Pinterest and Airbnb — seems destined to reinforce progressive notions that California represents the future not just for the state, but the nation. It will certainly reinforce California’s fiscal dependency on tech-dominated elites — half of the state’s income taxes come from people making over $500,000 a year — and provide a huge potential multi-billion dollar windfall for the state treasury.

To be sure, the insiders — founders, with nearly half the voting shares in companies such as Lyft, a small “tech mafia” of venture firms, foreign investors such as Japan’s Softbank and Wall Street investors — will have reason to celebrate. But the lavish paydays will do little to relieve, and may even serve to worsen, the state’s gaping inequality and nation-leading poverty rates.

Most damaging of all, the IPO high will encourage supporters of the state’s policy agenda. If new companies crop up, and the handful of politically savvy investors thrive, California’s illuminati can fend off criticism of policies that undermine the middle and working class in everything from energy to housing.

The changing nature of California’s tech economy

“Science,” observed Daniel Coit Gilman, the second president of the University of California, ”is the mother of California.” With few navigable rivers, a persistent shortage of water, far from the then-dominant Eastern seaboard, California’s growth depended on engineering prowess. Not tied to the traditional industries, the state seized on emerging fields such as aviation, space and eventually semiconductors, laying the basis for an expanding middle class

In contrast, little of today’s tech growth produces tangible products, and those that remain, such as Space X, the semiconductor industry and Apple, are placing their production either abroad or in less expensive and less highly regulated states. This allows them to escape California’s high electrical rates, poor roads, collapsing bridges and lagging public education system. The digital future may remain in California but the action in chip-manufacturing, biomedical products or space exploration seems headed elsewhere.

The firms in the new “information peddling economy,” notes the University of Washington at Tacoma’s Ali Modarres, have a very different relationship with their employees than “first wave” companies such as Hewlett Packard and Intel. In the first wave a broad range of employees enjoyed rewards from corporate success and stock gains; drivers for Uber, as one analyst suggests, will get nothing but the privilege of seeing vast flows of cash used to replace them with automated vehicles.

The neo-feudal city

The new wave of IPOs will expand the ranks of what The New York Times aptly describes as “the elite caste who can afford to live comfortably in the Bay Area.” Tech senior managers will enjoy huge capital gains, greatly reducing their federal tax liability. In contrast, less well-placed working schmucks will pay upward of half their income in taxes while those who clean their offices will face potential new fees on everything from tires and soda to water.

Even in the Bay Area, home to four of California’s wealthiest ZIP codes, middle-wage jobs are disappearing and most new growth is tilted toward low-wage service work. Nearly half of all millennials are planning to leave and analysts suggest the area may face a severe shortage of skilled workers. Overall, notes a new Joint Venture Silicon Valley report, homelessness and inequality has expanded in the region, while the quality of life is perceived by most to be deteriorating.

One can appreciate the economic benefits that Uber, Lyft, Salesforce and others have brought to San Francisco, but there’s also a neo-Dickensian reality: sky-high housing prices, widespread homelessness, displaced minorities, few children and a rapidly shrinking middle class. There are now more drug addicts in the city of San Francisco than high school students and so much feces on the street that one website has created a “poop map.” More than half of the Bay Area’s lower-income communities, notes a recent UC Berkeley study, are in danger of mass displacement.

As for the rest of California

In previous tech-led economic booms — as recently as the last decade — growth extended to the rest of the state, particularly the more affordable interior. Tech firms expanded eastward, to Sacramento, south toward Salinas and throughout Southern California. The new tech economy, in contrast, has no real need for a periphery. It expands almost anywhere, whether to media-centric New York, less expensive places including suburban Austin, Nashville or Dallas or to China, India or the Philippines.

This has left much of Southern and interior California an economic dependency, hosting largely on low-wage jobs and increasingly dependent on an expansive welfare state. Worse yet, the tech boom serves as a narcotic, anesthetizing our political leaders from confronting the economic realities outside the venture capital-funded Bay Area bubble.

What is needed now is a focus on the middle- and working-class Californians, the vast majority of whom live far from the Bay Area.

California’s policy makers need to start by rolling back many of the regulations on energy and housing that are reducing opportunity by driving up costs and driving middle-class jobs out of the state. We also need to focus more on developing employment centers outside the ultra-expensive coastal areas, something that would allow people to live closer to where they work. This suggests a policy that focus on such things as good roads, decent schools and a variety of upwardly mobile jobs — things that may not matter much to oligarchs or the youthful staffs, but make all the difference to middle- and working-class families.

To be truly a sustainable society, California needs opportunities for carpenters, machinists, middle managers, not just for the current structure that relies on superstar coders and produces large numbers of low-paid service workers. We need a California boom that lifts most of our citizens and does not drive them toward a permanent semi-feudal state, servants and supplicants of a small, fantastically wealthy and preening technological elite.

This piece originally appeared in The Orange County Register.

Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. He authored The Human City: Urbanism for the rest of us, published in 2016 by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.

Photo Credit: Daniel L. Lu (user:dllu) [CC BY-SA 4.0], via Wikimedia Commons

California’s Self-Created Future Energy Crisis

In much of the country a powerful energy boom is providing a serious stimulus to economic growth. But in California, where fossil fuels are considered about toxic as tobacco, we are lurching toward an anticipated energy shortage that will further exacerbate the state’s already deep geographic and class divisions.

California, in a typical feat of “virtue signaling,” has committed the state to getting half of its electrical power from renewables such as wind and solar, up from 16 percent today, within the next decade. This drive has meant the rapid abandonment of electricity generated by nuclear power as well as natural, gas which together comprised nearly 70 percent of all electricity production in 2015.

This may not end well. California Public Utilities Commission President Michael Picker suggested recently that we could soon return “the kind of crisis we faced in 2000 and 2001.” The rapid abandonment of existing reliable energy sources makes the state, in the estimate of the Institute for Energy Research, “vulnerable to rolling blackouts.”

An electric future without electricity?

Los Angeles Mayor Eric Garcetti’s recent decision to not invest in L.A.’s existing natural-gas plants took place against the advice of staff at the Department of Water and Power. Silly realists, they worried about the ability of the city to generate all its power off of renewable sources, which tend to be unreliable and intermittent. Cold weather this year already stressed the natural gas supplies of the city.

If the mayor insists on transforming Los Angeles into a “green” paradise, expect much higher prices, and greater energy instability. California is already the second most expensive state for energy in the continental U.S. Similar policies have been responsible for high energy prices, and little greenhouse gas reductions, in such diverse places as Germany and Australia.

This is occurring, remarkably enough, as our political leaders commit to forcing more Californians to electrify everything — our heating and cooling systems as well as our cars. To meet the demand generated by electric cars alone, according to one recent estimate, would require 50 percent more electricity than today. This is occurring as we are not adding capacity but stripping it away from reliable nuclear and natural gas sources.

Creating dependency

The price of our leaders’ green virtue will fall particularly hard on working-class Californians who already suffer the nation’s highest rate of people living in poverty. They also tend to live in less-temperate geographies such as the Inland Empire, the high desert and the Central Valley. Expect the recent moves to expand the ranks of the million Californians who suffer from “energy poverty,” defined as spending 10 percent or more of their household income on energy-related expenses.

Our economic dependency is worsened by the fact that California, once a major energy exporter, has adopted a bizarre policy that restricts not only local production but restricts imports from places such as North Dakota and Texas. Instead of embracing these Trump-leaning states, our leaders seem happier to get most of our crude oil shipped in forward-looking despotisms like Saudi Arabia.

There’s a cost to this. Last year other regions added over 130,000 energy jobs, most of them high-paying, and mostly union, while our green leaders cheer on the continued elimination of such work here. This may seem fine to people working at Apple, Google, Facebook and in Hollywood, who make so much that high prices barely impact their lavish lifestyles, but may prove more damaging to blue-collar workers who either drill or refine energy, or work in industries dependent on reliable, affordable electricity. This is one reason why manufacturing in California last year grew less than one fourth the rate of the rest of the country, one-sixth that of Texas and one-tenth of neighboring Arizona and Nevada.

The Green New Deal: Class warfare and virtue signaling

Ultimately, California’s energy policies reinforce the class and geographic bias that increasingly defines our state. Firms such as Apple boast of their solar-powered offices while using servers in energy-producing states and making products in Chinese factories reliant on coal. Generally new solar facilities, located far away from the coastal enclaves that demand them, gobble up land and kill wildlife; San Bernardino County recently restricted new solar “farms” due to such environmental concerns.

Nor is this policy doing much for the climate. Increasingly almost all new greenhouse gas emission come from countries such as China and India, which seem content to continue boosting fossil fuels. We are not even out-performing other states in reducing greenhouse gases: California ranks 40th in per capita GHG reductions among the states since 2007. Our biggest energy accomplishment may be boosting the self-esteem of the ruling caste of oligarchs, the political apparat and state-funded bureaucrats.

Less pleased will be most Californians who spend extra dollars on heating and cooling their homes, driving to work or working in businesses dependent on power. But until they are willing to say no to their self-congratulatory overlords, we will continue to work overtime to make California safe for economic feudalism.

Homepage photo credit: Downtowngal [CC BY-SA 3.0], via Wikimedia Commons

This article first appeared in The Orange County Register.

Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. He authored The Human City: Urbanism for the rest of us, published in 2016 by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.

California’s Message: You Built That, Now Get Out!

The people who build our homes increasingly can no longer afford them. As the state elite and their academic cheering crew celebrate our progressive boom, even the most skilled, unionized construction workers, notes an upcoming study, cannot afford to live anywhere close to the state’s major job centers.

In fact, notes the study, soon to be published by Chapman University, not a single unionized construction worker can afford a median-priced house in any of the major coastal counties, including Orange, Los Angeles, San Mateo, San Francisco, Santa Clara, San Diego, Alameda, Sonoma and Napa. Even with incomes averaging over $73,000 annually, notes author and economist Dr. John Husing, most can afford median-priced homes only in the further reaches of the Central Valley or the Inland Empire, requiring huge commutes.

This gap between blue collar and professional and entrepreneurial wages is even greater among the majority of construction workers who are not unionized. Husing suggests that most of these workers could only afford the cheapest starter house in the furthest reaches of exurbia and beyond.

California’s growth model

For many progressives and futurists, California’s growth model represents a beacon to a prosperous future. It’s repeatedly pointed out that California is now the world’s fifth-largest economy, largely the product of massive wealth concentrated in the Silicon Valley giants, as well as a much stronger dollar versus the pound and Euro, and sub-par growth throughout Europe.

To be sure, California came out of the recession with a robust recovery, paced by increased property values, a soaring stock market and, critically, huge growth in the Bay Area, which represents roughly 17 percent of the state’s population. Yet overall, California’s post-recession growth, according to the BLS, is now only marginally above the national average, and in many regions, notably Southern California, somewhat below. The contrast is greatest with our strongest rivals: California is now growing jobs at a rate 50 percent or more below the rate of Texas, Arizona and Nevada.

Even in the Bay Area, growth is slowing, particularly in the San Francisco-Oakland area where job growth has plummeted from nearly 5 percent in 2015 to less than 2 percent last year. The bulk of the job growth there now is at the low and high ends, leaving little in the middle. Nearly half of millennials in the Bay Area, according to a recent survey, plan to leave; since 2012 millennial outmigration from Los Angeles, as a new Brookings study reveals, lags only metro New York in exporting its youthful workers.

Future threats to the working class

The California economic model is based largely on income and capital gains accruing to a relatively small part of the population, one reason the state ranks second in inequality to New York, and is becoming ever more unequal. To be sure, the new wealth has driven housing demand, largely for expensive new homes and apartments, but overall construction employment remains considerably below its 2007 levels. Growth in the sector has actually fallen from 2013, and now lags well behind the rate enjoyed in Nevada, Arizona, Florida and Texas.

Other key blue collar sectors such as manufacturing have also under-performed national average. The sector is now growing at one quarter the national rate, a shortfall exacerbated by state climate policies that have increased both energy costs and imposed ever more rigid regulatory burdens that encourage producers to move to other locales.

How sustainable is the “California Model”?

If the rest of the country wants to adopt the “California model,” it should be aware of what this means for the middle and working classes. The likely further acceleration of our state’s tougher climate regulation polices, as well as the prospect of more taxes on things like soda, guns and tires may please our green gentry and the oligarchs, but inevitably will hurt job prospects and raise the cost of living for most California workers.

Pushing our construction workers to the far fringes, particularly as state policy seeks to concentrate employment in expensive core cities, makes it less likely that new workers will enter the labor pool necessary to address our housing shortage. With residential sales dropping across the state, and California’s rate of new housing permits per new resident roughly half the national average, the prospects facing construction workers may be dimmer than necessary.

State measures to encourage the creation of subsidized housing could help some, but in reality would make only a tiny dent in the problem. Increasingly the political class focuses not on expanding the land for development, or bringing jobs to the more affordable interior, but on mandating subsidies, set-asides and rent control. Some, including certain oligarchs, suggest offering regular cash outlays so working people can subsist but never enter the property-owning classes.

Having sought accommodation with the green, anti-suburban regulators, both developers and labor need to recognize that it’s time to challenge a policy agenda harmful to the prospects both of business and most working Californians. Rather than doubling down on policies that reinforce our state’s descent into feudalism, we need to forge a new agenda that encourages instead broad economic growth and greater opportunity.

This article first appeared on The Orange County Register.

Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. He authored The Human City: Urbanism for the rest of us, published in 2016 by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.

Homepage photo credit: Rishichhibber via Wikimedia under CC 3.0 license

This Train Won’t Leave the Station

Governor Gavin Newsom has canceled the bulk of the state’s long-proposed high-speed line between Los Angeles and San Francisco, leaving only a tail of the once-grand project—a connection between the Central Valley’s Merced and Bakersfield, not exactly major metropolitan areas. “Let’s be real,” Newsom said in his first State of the State address. “The project, as currently planned, would cost too much and take too long. There’s been too little oversight and not enough transparency.” The project’s cost, originally pegged at $33 billion, ballooned over the last decade to an estimated $77 billion (or maybe as high as $98 billion), with little reason to assume that the cost inflation would end there. Read more

Restoring the California Dream, Not Nailing Its Coffin

Virtually everyone, including Gov. Gavin Newsom, is aware of the severity of California’s housing crisis. The bad news is that most proposals floating in Sacramento are likely to do very little to address our housing shortage.

Newsom has promised to have 3.5 million homes built over the next seven years to solve the problem. That is, conservatively stated, more than 2.6 million that would be built at the current rate of construction.
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