by Joel Kotkin
Monday, 17
January 2022
Analysis
18:12

California’s economy is weaker than it looks

An over-reliance on a small number of companies won't work in the long term
by Joel Kotkin
Credit: Getty

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.

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J Bryant
J Bryant
6 months ago

Only a course correction, and change of consciousness, can restore the state to its former greatness.
I’d suggest that’s a considerable understatement. The destruction of California has gone so far it would require a massive political shift to much more fiscally conservative policies, not to mention a fairly hard-nosed approach to illegal immigration. That would require that Republicans once again take control of the state legislature. I’d like to see Mr. Kotkin write about the feasibility of that kind of political change in California.
I’d also like to see Mr. Kotkin write about the tech culture in the Bay Area. Why do the major tech companies still maintain such a big footprint in California? He hints in his article that they might be increasing their presence in other states such as Texas. Is that a real trend in the IT sector? Are the big tech companies in some way tied to the Bay Area, perhaps because it has a lot of programming talent? Is there a willingness among young IT professionals to move to places like Austin, TX, to escape the dysfunction of California? I know Mr. Kotkin has written before on the exodus of certain companies, and quite a lot of people, from California but I’d like to learn about the chances of the core IT economy relocating.

Francis MacGabhann
Francis MacGabhann
6 months ago
Reply to  J Bryant

That’s the great fear in the US — that all these young IT and similar professionals will up sticks and move to Texas because California is a midden, but they’ll be too stupid to see that it’s people like them who’ve made it so. Consequently, they’ll crap on their new doorstep just like they did on the old and take down states which WERE livable before they arrived. That’s what happened to Oregon.

Samuel Ross
Samuel Ross
6 months ago
Reply to  J Bryant

I’d certainly hope that most of these people will put 2 and 2 together and come up with 4. Some will, some won’t, and some will take many years to decide. Age sometimes has a maturing impact. They left because of the bad effects of bad policies. Do they see that bad policies (causes) lead to bad effects? I’d hope so. We need more common sense here in the U.S.

Noel Chiappa
Noel Chiappa
6 months ago
Reply to  Samuel Ross

I’d certainly hope that most of these people will put 2 and 2 together and come up with 4. Some will, some won’t”
I used to really like the Benjamin Franklin line “Experience is a dear master, but fools will learn at no other.” I have decided that he was too optimistic. “None so blind”, and all that.
Noel

Galeti Tavas
Galeti Tavas
6 months ago

Anyone who thinks this is not “Going Exactly To Plan’ is a fool.

To bring about the ‘Great Reset’ and create the Brave New World of Neo-Feudalism and global poverty and all controlled by the Global Elites (mentioned above), all which is needed is to destroy the Middle Class, wreck the economy, and bring out the CBDCs (Central Bank Digital Currencies).

Klaus Schwab and his team of Zuckerberg, Dorsey, Bezos, Gates, and their ilk, with the Global elites like Rothschild, Adnan Khashoggi,, Soros, and most we never heard of (Davos People), are managing all this intentionally.

Do you believe any person not wishing to destroy the West would be running things like California, and the Democrat Party, and the Liberal/Left, the Universities, schools, Pharma, and the Swamp?

Justin Clark
Justin Clark
6 months ago
Reply to  Galeti Tavas

How do you follow the money, and destroy the hoard? They’re untouchable.
Reminds me so much of what I read in this (excellent) book – https://www.goodreads.com/book/show/52199304-the-world-for-sale

Russell Hamilton
Russell Hamilton
6 months ago

When California is mentioned I always think of Jeanette MacDonald – isn’t California due for a big earthquake? A good chunk of California falling into the Pacific Ocean could trigger another Great Depression, or tip the power balance further in China’s direction. Unless the state is spending its temporary surpluses on creating really resilient infrastructure … but are they?