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California needs a recession Its progressive rulers deserve a rude awakening

So much for 'roaring back' (David McNew/Getty Images)

So much for 'roaring back' (David McNew/Getty Images)


May 31, 2022   5 mins

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.

The state has long suffered the nation’s worst cost-adjusted poverty rate and the fourth-highest Gini Inequality index (behind New York, Connecticut, and Louisiana). According to the United Way of California, over 30% of California’s residents lack sufficient income to cover basic living costs even after accounting for public-assistance programs. “People of colour” may be celebrated and promoted in Sacramento, but 52% of Latino and 40% of black residents can barely make ends meet. 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.

This is in no small part due to California’s “progressive” policies; its over-reliance on renewable energy, for instance, has devastated the working-class economy. While the state continues to struggle to create jobs in construction, personal services, and tourism, it aims to bury forever its once-massive, traditionally high-paying oil and gas industries, which still employ more than 300,000 people, roughly half of whom are minorities.

At the other end of the spectrum, Silicon Valley’s once-impressive lock on new tech investment has also been diminishing, something acknowledged by insiders but widely denied in the state’s slavishly progressive media. Firms such as Apple and Meta are now expanding into other metros, including lower-cost areas such as Austin or Raleigh-Durham. Indeed, in 2019 Texas actually passed California in terms of creating new tech jobs. Of course, given its sizeable lead, California will likely continue its pre-eminence in tech and other industries. But that dominance is undeniably fading.

Blessed with a remarkably innovative populace and a wide array of natural resources, presiding over California’s decline is no mean feat — and yet sadly our deluded political class seems determined to guarantee it. One prominent Democrat, moderate and sentient, read some of our Chapman findings and agreed with our conclusions, but tried to persuade us not to report many of them, since his caucus would dismiss our findings as “Republican propaganda”, even though they are based on data from the Census, IRS, and Bureau of Labor Statistics.

Californians themselves are not so unwilling to face reality. The legacy media may see California as a multi-cultural exemplar, but a recent Berkeley poll, showed that 58% of African Americans are interested in leaving the state, more than any ethnic group. So too do 45% of Asians and Latinos. Meanwhile, roughly two in three of its residents also are concerned about their state’s distorted class structure and expect inequality to worsen.

And yet a major shift to the centre, much less to the Right, seems unlikely for now. In fact, bad times, and declining revenues, could push the state further to the Left. There are, for instance, already calls among the huge Democratic majority in Sacramento to raise the state’s income tax, already the nation’s highest, as well as new payroll taxes to pay for universal health care. Worse yet, the prospect of wealth taxes, and plans to force people to pay even if they leave the state, could add to the departure of high-profile billionaires such as Elon Musk and Larry Ellison to other states. There’s even a proposal to reduce the working week to four days, and 32 hours, with all additional work counted as overtime.

For now, however, the more radical proposals will be shelved to make way for Governor Newsom’s reelection in November. Predictably, he has tried to present himself as more moderate — for example by embracing the use of natural gas generators and keeping the state’s last nuclear plant operating to forestall predicted and massive energy shortages. But once reelected, he is unlikely to hold the line.

Still, this isn’t just a Left-wing problem. The lack of effective resistance to such inevitable failure reflects the utter demise of the GOP, particularly its Trumpian wing. Perhaps the much-needed debate surrounding California’s future could be enhanced if Michael Shellenberger, a long-time environmentalist and critic of state homelessness policies, somehow emerges in the non-partisan “jungle primary”. But even then, Shellenberger will lack money, media support and a grassroots operation to compete with the public employee’s effective vote-pulling operation or mass contributions Newsom can expect from the oligarchic class.

And that is a tragedy: those of us who stay in California should not be forced to choose between a tech capitalist dystopia or a redder one. California still has the assets, human and natural, to forge its technological, cultural, and economic future. But this requires the adoption of practical, broad-based improvements in education, infrastructure, regulatory reform, and an end to ever-rising tax rates. It shouldn’t take a recession for our political class to realise this. California can remain a beacon to the world — but only once its current rulers are either removed or finally chastised by reality.


Joel Kotkin is the Hobbs Presidential Fellow in Urban Futures at Chapman University and author, most recently, of The Coming of Neo-Feudalism: A Warning to the Global Middle Class (Encounter)

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J Bryant
J Bryant
2 years ago

Great article but I think it will take more than a standard recession to reset government policies in California. It will take a much harsher shock to the system. And then there’s the problem of the Democrats’ lock on California state government. There is no effective opposition that I can see. Perhaps Mr. Kotkin can write an article about the chances of the Dems ever losing power in California.
Increasingly I believe the US has passed a point of no return with respect to progressive politics. Something has fundamentally changed in America’s self-image and, as always, California leads the way. Maybe a 1930s-style depression will shake us out of our collective fantasy, but Heaven help us if that’s the solution.

Fermented Agave
Fermented Agave
2 years ago
Reply to  J Bryant

I’m optimistic for the US. Let’s see if the Republicans can flush the toilets in 2023 or if they are too corrupt.
California, Washington, New York, Illinois are likely too far gone and will have to find rock bottom.
Nothing quote like home growing your own twisted Neo/Post Marxism to screw up the best thing the world has ever designed….

Brian Villanueva
Brian Villanueva
2 years ago
Reply to  J Bryant

Agreed. It’s hard to quantify yet. On paper both the USA and CA look great (as Peter B below points out), but there has been a distinct qualitative shift in the last 15 years here in CA.

In truth, I’m not even sure a depression would do it. Look at how compliant everyone was during COVID. God is passe. Patriotism is racist. Capitalism is oppressive. Socialism has failed. Leaders are incompetent. Postmodernism and decadence have taken away everything we believed in. To make things better, you must have a “better” (something beyond yourself) to believe in. We don’t.

It turns out that a society built on nothing but “do what thou wilt” ends in hedonism and decadence and futility. Considering the source of that philosophy (20th century Satanist leader Aleister Crowley), the outcome is not surprising.

Bruce Mendrikis
Bruce Mendrikis
2 years ago

California needs to fail for the same reason the Soviet Union needed to fail: so the world can see the undeniable catastrophe that their policies created.

Peter B
Peter B
2 years ago

Which catastrophe has California created ? And for who ? And why is it as bad as the Soviet Union ?
I’m just not seeing it.
Advanced technology from California (mainly Silicon Valley) has improved freedom, education and health for billions of people around the world. People live far better, longer and healthier as a result.
You wouldn’t be able to post on this comment section without Californian technology.
Now show me anything even remotely equivalent that the Soviet Union brought to the world.
The truth surely is that California’s contribution to the world has been something like 70% positive to 30% negative – but still a strong net positive. It is hard to argue that the Soviet Union ever made a net positive contribution. Of course, critics will always cherry pick the US/Californian failures and highlight these. But that’s missing the big picture.

Hardee Hodges
Hardee Hodges
2 years ago
Reply to  Peter B

The happenstance of Silicon Valley was from the California of old, nothing in the valley besides pleasant cheap farmland ti attract. Hollywood had the sun and mild weather but those are abundant elsewhere. Now the beaches and mountains are really nice. But as the one party state evolved it’s inequality is killing the real wealth creators – the middle class.

AC Harper
AC Harper
2 years ago

From Wikipedia:

Two swindlers arrive at the capital city of an emperor who spends lavishly on clothing at the expense of state matters. Posing as weavers, they offer to supply him with magnificent clothes that are invisible to those who are stupid or incompetent. The emperor hires them, and they set up looms and go to work. A succession of officials, and then the emperor himself, visit them to check their progress. Each sees that the looms are empty but pretends otherwise to avoid being thought a fool. Finally, the weavers report that the emperor’s suit is finished. They mime dressing him and he sets off in a procession before the whole city. The townsfolk uncomfortably go along with the pretense, not wanting to appear inept or stupid, until a child blurts out that the emperor is wearing nothing at all. The people then realize that everyone has been fooled. Although startled, the emperor continues the procession, walking more proudly than ever.

The key point is that the emperor continues the procession. It’s going to take an awful shock for the emperor to acknowledge his foolishness.

William Hickey
William Hickey
2 years ago
Reply to  AC Harper

You left out the postmodern twist to the story.

After the little boy told the obvious truth and the onlookers started to laugh and mock their ruler, the emperor stopped and screamed, “You’re hurting my feelings! If you don’t stop assaulting me I’m going to kill myself!”

Chastened, the crowd went back to watching the procession respectfully and in silence.

The little boy was cancelled.

Last edited 2 years ago by William Hickey
R K
R K
2 years ago

Joel: Residents of the “Golden State” for over six decades, my wife and I made a sober and measured decision to depart for saner pastures in 2020.

CA is an oligarchy of delusional miscreants. The brash narcissism of the Governor and sickening fealty of the elite overlords leaves no room for the rest of you to survive there long term.

Ongoing and ever-increasing taxation will ultimately ruin many. Homes will be lost; families will be broken; crime will increase; despair will simmer into a dangerous cauldron of anger.

And nothing at all good will come of this.

Brian Villanueva
Brian Villanueva
2 years ago
Reply to  R K

RK, as a CA resident who has not yet fled, I must ask, where did you go?

Richard Parker
Richard Parker
2 years ago

Quite so: it may be the necessary medicine, but it’d be awful. I worry for family and friends in the States, none more so than my Californian in-laws and nephews.
It does look as if an advanced case of executive capture by a cadre of progressive ideologues is well underway. That may be a mistaken outsider’s view, but I do wonder. After all, the Dead Kennedys were singing about similar concerns in “California Uber Alles”, back in 1979. The Antichrist has been with us a long time and he evidently means business


Betsy Arehart
Betsy Arehart
1 year ago
Reply to  Richard Parker

No, Outsider, you are not mistaken.

Hardee Hodges
Hardee Hodges
2 years ago

No challenges in a one party state. Absolute power corrupts. Sadly many will need to be badly hurt first before demanding change.

R Wright
R Wright
2 years ago

A recession is not enough. California now is a 24/7 repeat of the movie Falling Down. It’d need to become Escape from LA before the locals got convinced it needed reform.

DNY 0
DNY 0
2 years ago

I’m afraid California needs more than a recession. Maybe a combination of earthquake and tsunami that depopulates one or more of the urban centers of “progressive” lunacy.

Jacquie Watson
Jacquie Watson
2 years ago

I’m from Sydney Australia. Recession appears now to be a global problem making it harder to solve. However, bad politics is ALWAYS a problem. We pretty much suffer from the two part problem, periodically disturbed by some Independents who don’t appear to have any particular long term plans, just one or two planks. Unfortunately I believe no matter which party is in power, they are not in power. The power lies with the money, and it doesn’t need to corrupt politicians, because it corrupts absolutely, and nearly everyone. It corrupts so thoroughly that it brings down even the good ideas, the fair ideas, and especially the ideas that move it from the hands of the few to the hands of everyone. How can that be changed? Increasing taxes to take it off those with lots of it, and then let the political parties spend it badly. Where is the accountability? Same thing applies to the rich who call themselves philanthropists? How do they choose where to put their money and does it really help the whole community in the long run? I despair as I write this because it will take another round of pain for some of us (certainly not the rich) and even then I doubt the problem will be solved. We’ve been through this so many times now. When can we get off the merry go round?

Fafa Fafa
Fafa Fafa
2 years ago

Just a little correction: California’s two biggest cities are Los Angeles and San Diego.

Mark Rackham
Mark Rackham
2 years ago

Peter B, the wider tech advances might apply to the Western bubble, but you need to live in any the 100 plus developing countries. Take away their UN funded political elite and many of those nations are twenty plus years behind the West, not for them the latest smart phone, cashless transaction and eco fad, it’s a roof, food and healthcare. Robots and AI are cancelling millions of jobs globally, replaced humans are searching for reinventions in saturated markets and the World population is growing. The West gave away its production to China and others without understanding the wider risk and tech has highlighted the flawed planning. Are we heading towards “The Island” scenario? Seems like it, and the WEF cohorts are steering us that way.

Peter Mateja
Peter Mateja
2 years ago

Californian here… while I agree that there are issues, I don’t believe that the problems here are necessarily due to progressive policies. Rather, the bigger problem seems to be one of effectively one party rule, combined with the typical “do as I say, not as I do” nature of wealthy progressives. Looking around at the usual alternatives seems to trade one set of problems for another. e.g. Texas… yes, lots of Californians have migrated to Texas for a variety of reasons. However, while Texas may be business friendly and has high job growth, it has a raft of problems related to essentially also being run by a single party. The GOP in Texas has shown a willingness to interfere in issues of privacy and personal freedom, has prioritized the adherence to moral codes for a specific religion (evangelical Christianity), and essentially ignored any reaction to increasing gun violence (except to further encourage universal gun carrying, so we can all live in a wild west town).