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California’s Broken Economy

Originally published at BunkBlog. You can comment here or there.

In 1989, I enlisted in the Army, partly because the economy in California was in the dumper. In 1992, I reenlisted for much the same reasons, although the rest of the country had generally recovered from the Reagan-era recession by that time. I thought it was odd that California, a state which by many estimates could be in the top ten countries’ economic stature, would be in such doldrums. California has transportation, tourism, energy production, entertainment, manufacturing, agriculture – in short, everything you need for a robust state. Yet, it continues to be hammered harder and sooner and for a longer period than most of the rest of the country even today. So, the 1980s aerospace collapse isn’t the only reason; there must be some explanation for why California seems incapable of maintaining a healthy economy.

Over the years, as I grew older and more curious, I discovered what seems the most likely explanation: Californians hate taxes but love spending. Since states can’t spend into deficit territory like the federal government can (too bad CA can’t issue money, eh?), they must balance the budget. So, every one of those propositions people vote for has to come from somewhere. I dug around a bit more and discovered the proximate cause of this insane situation: Proposition 13. Whenever someone would talk about how crazy high the housing prices in California were, I would opine about Prop 13 and the caps on property taxes and the 2% limit on valuation increases per annum and the disincentive to selling and friction in the housing market and their eyes would glaze over. When the housing bubble burst and friends and family lost jobs, businesses, and homes, I would think back to the Proposition 13 consequences and commercial properties paying a lower percentage of the taxes every year due to shell corporations and other legal legerdemain. But, I had a hard time tying all the pieces together for my friends who have never lived in California, and I didn’t have a great summary of how far the state has fallen, from the great public schools that my older sister went to in 1974 until the much deprived public schools that my younger sister went to in 1990.

Now, I’ve come across a journalist who writes a very concise and cogent explanation of exactly what went wrong with the California economy. If you’re curious about how the Golden State has become the Gilded State in a mere 30 years, you should read it. I find it interesting that CA had a large budget surplus, and Moonbeam Brown wanted to hoard it, which caused the Governor Ronnie backlash in 1978. Talk about unintended consequences.


( 2 comments — Leave a comment )
(Deleted comment)
Nov. 30th, 2009 07:00 pm (UTC)
That's relatively easy: New York State is still paying off the huge debts incurred by NYC in the Seventies under Mayor Abe Beam. Subsequent problems under Koch, Dinkins, and Guiliani haven't exactly lowered the capital still owed on the debt. (I used to live in Saratoga Springs, and I had the same exact question as you.)
Nov. 30th, 2009 06:57 pm (UTC)
Yeah, we had a roughly similar situation in Texas. The big difference is that Texas has never had a state income tax due to oil and gas revenues, and we have some four separate state Constitutional amendments to prevent one from ever getting in. Ann Richards lost her position as Governor in 1994 for a lot of sleazy, underhanded reasons, but one of the biggest reasons why she lost to George W. Bush was that she noted that we couldn't continue to spend on massive tax writeoffs for attracting new businesses without at least considering a state income tax to pay for them. Shrub refused to discuss even the possibility, which is why we're close to $5 billion in the hole under Bush and Rick Perry at a time when oil and gas revenues are going right into the toilet. (Oh, the recent Barnett Shale gas boom made a lot of money, all right...for a very few people, and those people promptly blew it all on campaigning for McCain/Palin.)
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