Who Will Be the Next Mayor of Los Angeles?

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Central Avenue, the historic heart of South Los Angeles, has seen better days. Once the home to leading black institutions, like the famous Dunbar Hotel, where jazz and other musical greats stayed, it was also an industrial powerhouse that promised decent work for those fleeing the Jim Crow South. But today many, if not most, of its factories are closed; many icons of the old black business community have disappeared, too. The area, site of two of the most devastating riots in American history, is now poorer in relation to the rest of the city than before those upheavals.

Yet amid a malaise that afflicts much of the city, entrepreneurial energy remains evident. Central Avenue’s sidewalks crowd with the brightly colored booths of street vendors, selling a broad range of food, clothes, and other products—more like Mexico City or Mumbai than the South L.A. of the past. Some new apartments are rising to replace the decrepit ones, and the street-level liveliness seems more Washington Heights than car-centric Los Angeles. Despite its troubles, Central Avenue does not exhibit the deathly sense of abandonment of places like the South Side of Chicago or other inner-city communities, where the spirit of enterprise has all but disappeared.

“We still have potential,” insists 63-year-old Rick Caruso, a billionaire running what once seemed a quixotic campaign for mayor. On June 7, Caruso will be a candidate in the city’s open mayoral primary, facing off against, among others, the race’s early frontrunner, long-time congresswoman Karen Bass. (The top two finishers will meet in a run-off general election in November if no candidate wins a majority of the vote.) Without any press, but for me, Caruso spent a recent morning at the Beehive, a new Southside business incubator located amid the detritus of the city’s industrial past. The youthful activity of the startups seemed to energize him. “I want to get on the phone and get investors to come back here—but they won’t if they see instability, the homeless camps, and the crime. That has to change.”

Though he has discarded his designer suit, Caruso cannot help but appear natty with his coiffed hair and monogrammed white shirt. The grandson of Italian immigrants, and son of an entrepreneur who founded Dollar Rent a Car, he started his real estate business here in 1987 and made a fortune worth more than $4 billion by developing shopping complexes, most notably the Grove, adjacent to the iconic Farmer’s Market. A key Caruso theme is restoring the promise that made L.A. the premier urban growth center of the last century, during which the city’s population grew from barely 100,000 in 1900 to nearly 4 million. Now, Los Angeles’s population is in decline and its appeal has faded. The city peaked at a population of 3,983,000 in 2019, and fell 134,000 to 3,849,000 by 2021, with a 41,000 loss in the last year.

The Wall Street Journal has described Caruso as a “liberal,” but that’s a stretch. A longtime Republican now conveniently turned Democrat, Caruso is best seen as a pro-business moderate Republican trying to downplay his membership, for example, in the Ronald Reagan Foundation. Yet unlike most GOP candidates here, he also has lots of money. He has spent over $24 million of his own money to reach out to Angelenos. His campaign boasts of his skills in dealing with L.A.’s fractious communities, whether in his business ventures or as a member of the Water and Power board, president of the Police Commission, or chair of the USC trustees. His money and message are clearly making headway. Despite the now strongly progressive tilt of the L.A. electorate, Caruso has managed to rise from single digits in February to parity, and perhaps even a lead, over Bass.

Read the rest of this piece at City Journal.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Homepage photo: Karen Bass via Flickr in Public Domain and Rick Caruso via Flickr under CC 2.0 License.

California Needs a Recession

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Nowhere is better suited for flights of fancy than California, a place of miraculous growth and remarkable innovation. A backwater barely a century ago, with just over 3 million residents compared to nearly 40 million today, the Golden State has established pre-eminence over everything from agriculture and film to space travel and the internet.

Yet in recent years, California’s lead has become increasingly concentrated in one sector: tech. This has left the state deeply exposed to the recent decline of the stock market, which is concentrated heavily in tech stocks, and the inhospitable short-term climate for start-ups, which once reliably filled the state’s coffers. Easy Street is about to get a lot less so.

Even as state offices and their media megaphones crow about its nearly $100 billion surplus, California’s Legislative Analyst’s Office predicts the likely reappearance of budget deficits in the near future. Instead of flush times, we are likely to see a repeat of the last recession, which ended in 2009. Back then, it took California five years to get revenue back up to pre-downturn levels, during which time the government was forced to cut state programmes by roughly $45 billion to compensate for the deficit.

In many ways, California is even more vulnerable today. Governor Newsom and his PR team may boast about the state’s economy “roaring back”, but California enters the recessionary environment with the nation’s fourth highest unemployment rate and one of the nation’s slowest job recoveries. Los Angeles and San Francisco, its two biggest cities, are near the bottom of all metros in terms of job recovery.

This decline has its roots in the pre-pandemic era. For years California has been severely underperforming its main rivals — Texas, Washington, Arizona and Utah — in construction, manufacturing and professional and business services. Over the past decade, roughly 80% of all jobs created in California paid below the median income, creating an ever-expanding working class in low-end service industries.

During the boom for the rich, the state decided not to re-diversify its grassroots economy but expand its welfare state. This may have won plaudits from progressive publications, but the state is not a bottomless pit. California still suffers the highest long-term debt of any state — $507 billion — and that will only increase with interest rates.

And yet there seems little appetite to change course. Flush from his recall triumph, Newsom, along with the legislature, is determined to double down on his attempt to fashion California as the model for the progressive future. Others, such as the University of California’s Laura Tyson and former Newsom adviser Lenny Mendonca, see the Golden State as creating “the way forward” for a more enlightened “market capitalism”. But this reality is hard to see on the ground.

Read the rest of this piece at UnHerd.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Homepage photo: Jay Galvin via Flickr from CC 2.0 License.

California’s Economy May Seem Healthy, But Just Wait for the Next Recession

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The California economy may seem healthy on the surface, with home prices soaring, Silicon Valley booming and the state government posting big multi-year state budget surpluses thanks to a massive surge in capital gains tax revenues and income tax revenues from tech stocks.

But that good news masks a dangerous period ahead.

In fact, California’s heavy dependency on tax payments from the rich and on the continued strength of the tech economy makes the state highly vulnerable in the event of a significant slowdown — or, worse yet, a full-bore global recession. According to Jim Doti of the A. Gary Anderson Center for Economic Forecasting at Chapman University, the probability of a recession starting late this year or next is very high.

Property prices are already beginning to drop in parts of the Los Angeles area. Similarly the IPO market, a major source of capital gains, is retrenching. Financial setbacks for the wealthy are problematic for the state because the top 1% of income-earning Californians pay 46.2% of all personal income taxes.

We’ve been here before. After the last recession ended in 2009, it took the state five years to get revenue from income taxes back up to pre-downturn levels. During those five years the state received about $50 billion less in revenue than if the recession had not occurred, and government was forced to cut programs by about $45 billion to compensate, according to the California Franchise Tax board.

Today, the state is even more reliant on tax revenues from its wealthy elites: Capital gains collections have increased roughly fivefold since 2010. Income taxes, mostly from the very wealthy, which barely constituted one-third of state revenues in 1980, now make up two-thirds.

A new recession, or even simply a slowdown, would place California in a very difficult position, particularly given that it continues to engage in what CalMatters columnist Dan Walters calls “an expansionist binge” of ever greater social spending and housing subsidies. Despite strong annual budgets, California suffers the highest debt of any state — $507 billion. It is projected that the cost of servicing the state’s debt in 2022 and 2023 will be approximately $8 billion annually and could grow even higher as interest rates rise.

Read the rest of this piece at Los Angeles Times.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Marshall Toplansky is a Clinical Assistant Professor of Management Science at the Argyros School of Business and Economics at Chapman University.

Homepage photo: D. Ramey Logan, used under CC 4.0 License

What the New York Times Won’t Admit About California

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Even the New York Times has to admit unpleasant realities, like the departure of people from California and other deep blue states. But one thing the paper, and other similarly-minded reporters based here, will never admit: the connection between the California economy and regulation and the rising out-migrations.

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California’s Vanished Dreams, By the Numbers

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Even today amid a mounting exodus among those who can afford it, and with its appeal diminished to businesses and newcomers, California, legendary state of American dreams, continues to inspire optimism among progressive boosters.

Laura Tyson, the longtime Democratic economist now at the University of California at Berkeley, praises the state for creating “the way forward” to a more enlightened “market capitalism.” Like-minded analysts tout Silicon Valley’s massive wealth generation as evidence of progressivism’s promise. The Los Angeles Times suggested approvingly that the Biden administration’s goal is to “make America California again.” And, despite dark prospects in November’s midterm elections, the President and his party still seem intent on proving it.

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Tarnishing the Golden State

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No state advertises its egalitarian bona fides more than California. Governor Gavin Newsom brags that his state is “the envy of the world,” a place that is “not going to abandon our poor people.” In his inauguration speech, he claimed that “unlike the Washington plutocracy, California isn’t satisfied serving a powerful few on one side of the velvet rope. The California Dream is for all.” Yet even as Newsom and his progressive allies have backed Black Lives Matter and enacted a racialized “ethnic studies” curriculum in public schools, reality tells a less positive story. The Golden State’s racial minorities are far from thriving. Increasingly, they’re seeking fortunes elsewhere—often to redder, less “enlightened” states.

The minorities leaving California are not running away from beautiful weather or scenery but toward an opportunity horizon that no longer seems achievable in the Golden State. In a new report for Chapman University, my coauthors and I found that African-American and Latino Californians’ real earnings ranked between 48th and 50th among the states. Blacks in California earn roughly the same, or slightly less, than do their counterparts in Mississippi. The state has the nation’s worst cost-adjusted poverty rate and the third-highest Gini Inequality index (behind New York and Louisiana). According to the United Way of California, over 30 percent of California residents lack sufficient income to cover basic living costs even after accounting for public-assistance programs; this includes half of Latino and 40 percent of black residents.

It was different once. Ever since the nineteenth-century Gold Rush, people from around the world rushed to California to seek their fortunes, giving the state a diverse population of whites, Asians, Latinos, and blacks. Deeply afraid of an “Asian invasion” into what newcomers called Gold Mountain, incumbent Californians limited the rights of Chinese, Japanese, and other migrants from the East and backed racially oriented bans originating from Washington, D.C. that lifted only in the early 1950s. The Asian population has risen since. Until 1990, Asians were not systematically enumerated in the decennial census but were instead combined with Pacific Islanders; this larger grouping increased from 2.0 percent to 9.6 percent of the state’s population, according to Census Bureau research. The state’s Asian population increased from 10.9 percent in 2000 to 15.1 percent in 2020.

Immigrants also entered from Mexico, at first to escape the chaos of that country’s brutal 1910–1920 revolution. Controls on Mexican migration tended to follow economic conditions, but a liberalization of immigration laws in 1965, and a mass amnesty in 1986, assured that Latinos would be the Golden State’s largest group. Census Bureau research indicates that California’s Hispanic population rose from 6.0 percent in 1940 to 13.7 percent in 1970 and 32.4 percent in 2000. A figure of 37.6 percent was reached in 2010, rising to 39.4 percent in 2020.

Finally, African-Americans started coming to the state in the 1920s and 1930s, with their numbers increasing during World War II. Lured by good jobs in the state’s burgeoning aircraft, automobile, and construction economies, blacks may have faced some discrimination, but far less than they did elsewhere. In L.A., wrote Ralph Bunche, blacks were “eating high up” off the hog. As late as 1940, less than 2 percent of the population was black—a number that more than doubled by 1950 and reached a peak of 7.7 percent in 1980. Since 2000, however, California’s black population has dropped from 6.7 percent to 5.4 percent.

Today, the California opportunity structure is no longer so promising. Once seen as a mecca of sorts for blacks, L.A. now ranks toward the bottom of the Urban Reform Institute’s Upward Mobility Index, which measures such factors as income, housing affordability, unemployment, educational attainment, and homeownership. San Francisco does poorly by the same metrics. The best American cities for upward mobility today are not Los Angeles or San Francisco but Atlanta; Phoenix; Virginia Beach and Richmond, Virginia; and Lancaster, Pennsylvania.

Read the rest of this piece at City Journal.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Photo: City Journal.

You Can’t Fix Housing with New Houses. We Need New Cities

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Housing is rapidly becoming the key economic issue facing America’s beleaguered middle class. Even as interest rates rise, rents are on a wild binge, up near 20 percent in the past year or more in some cities. Meanwhile, home prices have hit a high and appear to be climbing further still. Higher prices are emerging even in what have long been relative bargain communities in the southeast, as refugees from the high-priced Northeast pour in with their greater resources.

The property gold rush has been made more problematic by the growing role of professional, well-funded investors and speculators, to whom the housing market is more attractive than a sometimes unsteady stock market. Read more

The Tech Breakdown

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The record meltdown of Meta stock earlier this month suggests turbulence in the tech world and a difficult period ahead for the company formerly known as Facebook. But even as Meta’s stock has fallen, the record profits being posted by fellow oligarchical tech firms Google, Microsoft, Apple, and Amazon indicates that Silicon Valley’s hegemony is far from over. Read more

Fresno Business Council Meeting

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Joel Kotkin and Marshall Toplansky join a Fresno Business Council Board Meeting to discuss unaffordable housing and solutions to housing costs.

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California’s Economy is Weaker Than it Looks

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Whisper it, but the $45 billion surplus Gavin Newsom has projected for California next year isn’t quite what it seems. In fact, the bulk of that surplus is largely due to the earnings of a few giants such as Google, Apple and Meta (formerly Facebook), as well as a handful of IPOs. Read more