California’s Economy is Weaker Than it Looks

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.

This inconvenient truth hasn’t stopped the Governor from proposing a record-high $286.4 billion budget that will focus on education, health spending for undocumented residents, and expanding the state’s already massive social spend.

Indeed, even with a surplus, the state legislature seems determined not to lower taxes but to raise them. Newsom plans to implement a single payer health care system funded by massive new taxes on business and higher income revenues, raising what is already the nation’s highest rate. On top of that, the legislature seems ready to impose other wealth taxes on the very rich who keep the state afloat.

Yet the reliance on the elites — the 1% who account for half the state’s income tax — could prove troubling once the current stock market boom ends, and the IPO picture darkens. The state tax and regulatory regime has already kneecapped most other sectors of the economy, including both blue collar industries like manufacturing, energy and construction. And much of this has been accelerated by a growing exodus of companies, including such iconic firms as Tesla, Oracle, HP Enterprises, Charles Schwab, Bechtel, Parsons Engineering, and others. Meta has reportedly purchased thirty-three floors in an Austin high rise.

Despite professing to be the start-up capital of America, California’s leaders simply ignore or dismiss any notion of economic peril. But the reality is stark: this is a state that suffers the country’s highest cost-of-living adjusted poverty rate, the largest gap between the middle class and the rich, among the most crowded housing, and the second lowest homeownership rate. Post-pandemic it also has the nation’s highest unemployment rate.

These facts are rarely discussed in the predictably pro-Newsom media. The party line is that such attacks reflect the political bias of Right wing “haters”. Yet what California needs is not media or academic shills, but a willingness to confront the state’s emerging neo-feudal structure that, amid unprecedented wealth, has done little for most residents. Only a course correction, and change of consciousness, can restore the state to its former greatness.

This piece first appeared 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: Gage Skidmore, via Flickr under CC 2.0 License.

Restoring the California Dream

Join us for a webinar hosted by Joel Kotkin and Marshall Toplansky to learn how we can restore the California Dream for middle and working class Californians. Following the presentation of the report, there will be an all-star panel led by Jeff Ball, new CEO of the Orange County Business Council.

Panel participants include Raul Anaya, Joe Hensley, and Karla Del Rio.

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California is a Bastion of Innovation Marred by Deep Inequality. Is That America’s Future?

Everyone seems to be California dreaming these days. Much of America, particularly its red parts, see California as a hopeless dystopia best understood as everything the nation should avoid. Meanwhile, for the progressive Left and many around Joe Biden, California is the Mecca, a great role model being attacked by jealous reactionaries.

As in so many cases, both sides have a piece of the truth.

To be sure, despite the many well-documented problems, California still has an impressive economy that will shape the country’s and the world’s economic future—through the entertainment, space, critical software and social media industries and international trade. A spirit of experimentation and innovation persists across the state and fuels this industriousness.

Sadly, along with new technical and cultural innovations, the everyday reality outside the glamor zone presents a prospect as cautionary as it is aspirational, a harbinger of innovation marred by massive social inequality.

For the parade of startups and youthful billionaires coexists with the country’s highest cost-of-living adjusted poverty rate, the largest gap between the middle class and the rich, the most crowded housing and second lowest homeownership rate.

California once projected the essence of our common national dream. Today, its leaders increasingly see it as a kind of post-America, with its own racial, gender and environmental standards. It’s an approach welcome in Malibu or Palo Alto, but most Californians are left coping with the nation’s worst homeless crisis and rising crime. A ride on Highway 33 through the impoverished expanses of the Central Valley reveals a vast and bleak landscape of abandoned cars, dilapidated houses and threadbare shops.

The pandemic has accelerated California’s class divide, vastly enriching the tech elite and financial oligarchs but leaving California with the nation’s highest unemployment rate and making it the second hardest place to find a job.

Silicon Valley was once among the most egalitarian regions in the nation; today, as it has become more aggressively woke and taken to massively funding progressive Democrats, it has become one of the most segregated places in the country, what CityLab has described as “a region of segregated innovation.”

Times may be flush for venture capitalists and serial tech entrepreneurs, but they’re not so great for those who clean their own buildings and work in the food service industry. Nearly 30 percent of Silicon Valley’s residents rely on public or private financial assistance. African Americans and Latinos have seen declines in real incomes. The one percent pay roughly half of the state’s income tax and windfalls from IPOs fund the state’s ultra-generous pensions and an ever expanding welfare state—and yet, none of this creates good jobs.

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Trouble in Paradise: The Crumbling California Model

Some horrified conservatives dismiss California as the progressive dystopia, bound for bankruptcy and, let’s hope, growing irrelevance. Progressives, for their part, hail the Golden State as the avatar of a better future, the role model for a new, more environmentally friendly and socially just economic order. They often dismiss critiques as conservative misinformation.

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Here’s Why California is Losing Population for the First Time

California is suffering a major demographic reversal, one that threatens both the state’s economic future and the durability of its progressive model.

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California’s Keenest Competitors for Tech Jobs are Blue Western States

For a generation, California has seen more of its residents and companies head elsewhere, but has found a way to respond, at least in terms of wealth creation, by constant innovation. But today, the Golden State’s hold on the elite reaches of the economy is slipping in ways that could threaten the state’s long-term prosperity.

Innovation is California’s best driver of high wages and upward mobility. Bureau of Labor Statistics data show that in the innovation industry — software, computer and semiconductor manufacturing, technology services and nine other sectors — the median wage was $208,000 in California last year. That’s almost three times the $76,000 median wage for all jobs in California.

But now, prime competition for innovation-based jobs comes not only from low-tax, low-cost states like Texas but also from bluish states such as Colorado and Washington. We found that Washington and Utah have actually created more innovation sector jobs per capita than California over the past decade, while Arizona, Colorado and Idaho have had higher per capita growth rates for such jobs.

Many of these states, noted Christopher Lloyd, chair of the Site Selection Guild, which follows investment flows, are duplicating “many of the great things about California.” This includes building elite university systems in places like Washington, Texas, Colorado and Utah. “The development model has turned on its head,” Lloyd suggests. “These states have learned from California. There seems to be a failure there to recognize things have changed and tech people are much more mobile.”

Keeping tech in California is all the more critical with the state suffering the nation’s highest unemployment rate and Los Angeles the highest of any large metro area. We have already experienced a troubling shift in business and professional service jobs such as accountants, lawyers and management consultants, the largest source of higher-wage jobs. Over the last three decades, Texas saw more than double the level of California’s growth in that sector, but Washington, Oregon and Colorado also outperformed California by a wide margin.

Now tech seems also under assault. Some tech linchpins have already moved their headquarters to Texas, including Hewlett Packard Enterprise, Oracle and, perhaps most crucial, Tesla. Many other firms, like Apple, Airbnb, Amgen, Uber and SpaceX, are expanding largely outside of this state. These trends are accelerating, notes a recent Hoover Institution study.

Of course, big companies often move production and jobs to cheaper locales. But growth in the number of innovation businesses is also slowing. Since 2005, the number of these businesses grew far faster on a per capita basis in Arizona, Utah, Colorado, Florida, Georgia and Oregon. This is not only a reflection of high taxes and regulation; many of our keenest competitors, such as Washington, Oregon and Colorado, are hardly governed by conservative, anti-regulatory politicians.

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: Alek Leckszas, via Wikimedia, CC 4.0 License.

California Dreamin’

“I just took [my son] to our local Walgreens to buy him a toy. While there, a man shoved past me so firmly that he sent me into the shelving. Then he proceeded to fill a brown paper bag with Halloween candy and waltzed out of the store. This is one of five Walgreens stores in SF that will be closing in the next two months, in part because of rampant theft. And our city leaders all keep insisting crime is down.”   San Fransicko: Why Progressives Ruin Cities, by Michael Schellenberger

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Slow Boat from China

To some in the Biden Administration, the supply chain crisis can be dismissed as a loss of East Asian-made consumer trinkets that, as Vox tells us, we could all be better off without—or as White House spokesperson Jen Psaki suggested, amounts to little more than “the tragedy of the delayed treadmill.” Yet, in reality, a broken supply chain is hardly a rich man’s problem—global bankers are having their best year ever—but mostly impacts ordinary folks suffering from rising prices for everything from soybeans to natural gas. The crisis is now expected to last for at least a year.

The chaos on the ground level may not much hurt the elites of Manhattan or Palo Alto, but inflation, which is now expected to continue apace for at least the next year, has wiped out wage gains in the U.S., the UK, and Germany. Low-income groups are the most threatened, struggling to pay energy costs, surging rents, and higher food prices. All this is also eroding President Biden’s already weak poll numbers.

Our vulnerability to supply chain disruption clearly predates the Biden Administration, forged by the abandonment of the production economy over the past 50 years by American business and government, encouraged and applauded by the clerisy of business consultants. The result has been massive trade deficits that now extend to high-tech products, and even components for military goods, many of which are now produced in China. When companies move production abroad, they often follow up by shifting research and development as well. All we are left with is advertising the products, and ringing up the sales, assuming they arrive.

Unable to stock shelves, procure parts, power your home, or even protect your own country without waiting for your ship to come in, Americans are now unusually vulnerable to shipping rates shooting up to ten times higher than before the pandemic. Not surprisingly, pessimism about America’s direction, after a brief improvement Biden’s election, has risen by 20 points. The shipping crisis is now projected to last through 2023.

Not everyone loses here. For years the American establishment saw China as more of an opportunity than a danger. High-tech firms, entertainment companies, and investment banks profit, or hope to, from our dependency, becoming in essence the new “China lobby.” Behind the scenes these representatives of enlightened capital often work to prevent condemnation for the Middle Kingdom’s mercantilist policy, and its joint repression of democracy and ethnic minorities.

After all, the pain is not felt in elite coastal enclaves, but in Youngstown, south Los Angeles, and myriad other decaying locales. Meanwhile, by enabling China’s focus on production, and the conquest of technologies related to making goods, we have devastated  large parts of our country.  This shift has cost us 3.7 million jobs since 2000. Throughout the period between 2004 and 2017, the U.S. share of world manufacturing shrank from 15 to 10 percent, while our reliance on Chinese inputs doubled, even as our dependence on Japan and Germany shrank.

Yet perhaps even more debilitating has been our drift towards what British historian Martin Weiner has called “psychological de-industrialization.” Weiner was referring to the lack of interest in productive enterprise during late Victorian and Edwardian England, but he could just as easily be describing contemporary America’s corporate and financial elite.

Fortunately, America is not England, now a shadow of itself as an industrial country, living off its imperial connections to bolster its media, finance, and tourism sectors. It is a small country, at the edge of a fading continent in seemingly permanent decline. It lacks our vast expanse with its agricultural, energy, and other resources, not to mention our still considerable entrepreneurial spirit. As a huge continental country with enormous resources, lots of arable land and a large, traditionally hard-working population, the United States should be ideally suited to survive the retreat of the global economy, so evident in the supply chain crisis, and be able to shift to a more autarchic model. 

Read the rest of this piece at American Mind.


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: Don Shall via Flickr under CC 2.0 License.

Confronting the Supply Chain Crisis

For a generation, the Long Beach and Los Angeles harbors in California handled more than 40 percent of all container cargo headed into the US and epitomized the power of a globalizing economy. Today, the ships—mostly from Asia—still dock, but they must wait in a seemingly endless conga line of as many as 60 vessels, sometimes for as long as three weeks. These are the worst delays in modern history, and the price per container has risen to as much as 10 times its cost before the pandemic. The shipping crisis is now projected to last through 2023.

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To Make Homeownership Affordable in California, Rethink the Suburbs

California’s future as a place of aspiration is fading for all but the wealthiest residents — with that promise nearly out of reach for young people and new immigrants.

This state has become a place marked both by spectacular successes and by not-so-welcome superlatives. The rise of the tech giants, engines of wealth creation, coexists with the nation’s highest cost-adjusted poverty rate, the second-lowest rate of homeownership among the states and the greatest concentration of overcrowded housing in the nation.

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