April 13, 2022
By Joel Kotkin
Real Clear Investigations
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.
But most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. Parting with the state’s cheerleaders, the New York Times’ Ezra Klein, a reliable progressive and native Californian, says the Golden State’s failures are “making liberals squirm.”
Reality may well be worse than even Klein admits. In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. Despite the state’s myriad advantages, research shows it plagued by economic immobility and inequality, crushing housing and energy costs, and a failing education system. Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism, with the poor and weak trapped by policies subsidized by taxes paid by the rich and powerful.
California may conjure images of Rodeo Drive and Malibu mansions in the public imagination, but today the state suffers the highest cost-adjusted poverty rate in the U.S. The poor and near-poor constitute over one third – well over 10 million – of the state’s residents according to the Public Policy Institute of California. Los Angeles, by far the state’s largest metropolitan area, and once a magnet for middle class aspirations, has one of the highest poverty rates among major U.S. cities. A United Way of California analysis shows that over 30 percent of 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. Some two-thirds of noncitizen Latinos live at or below the poverty line.
“In California, there is this idea of ‘Oh, we care about the poor,’ but on this metric, we are literally the worst,” Stanford’s University’s Mark Duggan, principal author of an economic comparison of California with Texas, told the San Francisco Chronicle.
The state’s poverty and associated dysfunction are on full display in leading cities like Los Angeles and San Francisco, where a large underclass now inhabits the streets – the once-iconic locales having become poster children for urban dysfunction. Beyond massive homeless camps, crime has become so bad that the LAPD has warned tourists it can no longer protect them. San Francisco, meanwhile, suffers the highest property crime rate in the country. Businesses like Walgreens have shut down numerous Bay Area locations due to “rampant burglaries.” Homelessness and crime increasingly dominate the state’s political discourse, particularly in these two deep blue bastions.
California also faces growing inequality. By the Gini index, a measure of the distribution of income across a population, California has the third-highest inequality behind New York and Louisiana, and has experienced the fifth largest expansion of inequality since 2010, according to American Community Survey data. California also suffers the widest gap between middle- and upper-middle-income earners of any state.
Once among the most egalitarian regions in the country, Silicon Valley has become among the most segregated places in the country. CityLab has described the technology hub as “a region of segregated innovation,” a trend becoming more pronounced, according to recent research. Silicon Valley now boasts its own underclass of those who clean its buildings and provide food service. Nearly 30 percent of its residents rely on public or private financial assistance.
Similarly, according to the Brookings Institution, San Francisco, the technology industry’s most important urban center, has experienced the most rapid growth in inequality among the nation’s large cities in the last decade. The California Budget and Policy Center has named the city first in California for economic inequality; the average income of the top one percent of households in the city averages $3.6 million, forty-four times the average income of the bottom 99 percent, which stands at $81,094 in a city and state with a high cost of living.
The situation is worse elsewhere in the state. Over the past decade more than 80 percent of California jobs paid under the median income, and most under $40,000 annually, a poverty wage in California. Worse yet, as demonstrated in our analysis, California lags all peer competitors – Texas, Arizona, Tennessee, Nevada, Washington and Colorado – in creating high wage jobs in fields like business and professional services, as even tech growth begins to shift elsewhere.
The biggest losers in California have been those industries that historically provided the best opportunities for working-class people – manufacturing, construction, energy – as well as agriculture, the state’s historic economic powerhouse. On a per capita basis, California builds only a fraction of the housing compared to its main rivals, while corporate new investment, suggests a new Hoover Institution study, has shriveled to a rate one-tenth Texas and one-sixteenth that of Ohio.
The state’s climate change policies, however well-intentioned, have had a particularly devastating impact on manufacturing. California’s “renewable energy” push has generated high energy prices and the nation’s least-reliable power grid, crippling an industry reliant on fossil fuels and a stable electric supply. The state fell to 44th in the country in manufacturing sector employment growth last year; its industrial new job creation has lagged competitors such as Nevada, Kentucky, Michigan and Florida. Even without adjusting for costs, no California metro ranks in the U.S. top ten in terms of offering well-paying blue-collar jobs, notes The New York Times. But four – Ventura, Los Angeles, San Jose, and San Diego – sit among the bottom ten.
As the environmentalist Breakthrough Institute summarizes it, the state’s climate agenda has created a “new Green Jim Crow era” keeping more people, particularly minorities, in poverty.
Housing policy has also hurt most those who can least afford it. California’s state planning policies aim to reduce urban sprawl – the shift to locales where costs are lower and the state is gaining migrants. The heavily minority Inland Empire, which has little political influence, now has more people than the San Francisco metropolitan area, which dominates state politics, but the former is unable to reverse any of these policies.
Despite expectations by planners that limiting suburban growth would reduce prices for the masses and greenhouse emissions by encouraging density, studies in Vancouver, Canada and several other locations have shown the opposite; they associate densification with higher land and housing prices. California has the highest urban density of any state, yet suffers the second highest housing costs and rents of any state except Hawaii. On this issue, some media coverage appears to have been influenced by the pro-density preferences of tech titans like Mark Zuckerberg.
Striving, largely minority middle- and working-class families bear the brunt of such policies. According to a recent American Enterprise Institute survey, California is home to six of the nation’s worst markets for first-time homebuyers. It would take more than 100 years for the median-income household to save for a mortgage on a median-priced home in San Francisco, Los Angeles or San Jose. The state now ranks 49th in homeownership rate, producing far less new housing than competitive regions like Arizona, Texas or Florida. A recent study by economist John Husing found not one unionized construction worker can afford a median-priced home in any coastal California county.
Unable to buy their own home, many working class families find themselves paying extraordinarily high rents, with more than half of all renters shelling out in excess of 30% of household income, the traditional definition of an outsized housing burden. Nearly four in ten California households meet or exceed this level. Not surprisingly, one quarter are contemplating a move elsewhere. High rents and house prices, along with low wages, also have produced the nation’s highest level of overcrowding.
Nor has densification brought the purported environmental benefits cited by California’s champions at Brookings and in the Biden Administration; the pro-density Terner Center projects that if California’s cities followed the density guidelines, at best the state would see a 1% reduction in emissions.
Manifest Education Failures
Historically education was seen – particularly among traditional liberals – as critical to upward mobility for poor and working-class people. Yet for decades the state’s schools have underperformed national norms, particularly for poor students. Since 1998, California has ranked, on average, 46th in 8th-grade reading and mathematics subject-area performance on the National Assessment for Educational Progress (NAEP), the only comparable assessment between states nationwide. This includes comparisons with demographically similar states like Texas, which spends less money per student.
Today, almost three of five California high schoolers are not prepared for either college or a career; the percentages are far higher for Latinos, African Americans, and the economically disadvantaged. Among the 50 states, California ranked 49th in the performance of poor, largely minority, students. San Francisco, the epicenter of California’s woke culture, and site of the recent recall of several far-left school board members, suffers the worst scores for African Americans of any county in the state.
These students are often unprepared for college. At California State University – where ethnic studies programs are now mandated – the need for remedial courses or 40 percent of freshmen demonstrates a low level of preparedness in such basic skills as reading comprehension, writing and mathematics. Some educators have decided to eliminate this problem by eliminating remedial classes.
California’s model curriculum, which focuses on how to “build new possibilities for post-imperial life that promotes collective narratives of transformative resistance,” may only exacerbate these problems by inculcating attitudes antithetical to those necessary to succeed in a highly competitive capitalist economy.
Many California educators from the highest reaches of academia down to the grade school level champion “equity” in education over developing hard math skills and fostering excellence. Even basic life skills such as being on time are eschewed: The San Diego Unified School District will no longer count such scruples as turning in work on time in grading and evaluation. It may reduce the penalties for cheating. This is justified as a way of redressing racial issues, as many of the malefactors (like most California students) are from disadvantaged minority groups.
Most Californians support charter schools, including nearly half of all Democrats, and three chapters of the Southern California NAACP – San Diego, San Bernardino and Riverside. The state’s powerful teachers unions, and the Democrats they back, oppose such education alternatives.
Tech titans, once focused on improving schools, now seem less engaged. This may make sense given the extent to which tech relies on global talent rather than recruiting locally. In 2018, three-quarters of the tech workforce in the Bay Area was foreign-born, a majority on short-term non-immigrant visas.
The answer to many of the problems plaguing California’s struggling lower classes has been to throw more of the upper class’s money at them. Michael Bernick, a former director of the state’s Employment Development Department, says “The culture for much of California, driven by state politics, is one of benefits (and now guaranteed income), not a jobs strategy or expectation.” California is unlikely to be devoting the state’s surplus –driven largely by stock and property gains among the wealth – as Texas and other states do, to attracting businesses. Instead, as Bernick suggests, the preference has been to boost the welfare state, as it did in initiating record-setting stimulus payments during the pandemic. It is now contemplating handing out debit cards to cope with high energy prices created by the state’s environmental policies.
California’s technology industry consists of staunch funders of the states’ progressive Democrats. They may themselves be obsessed workaholics and living testaments to entrepreneurial capitalism, but Greg Ferenstein, who interviewed 147 digital company founders, says most believe that “an increasingly greater share of economic wealth will be generated by a smaller slice of very talented or original people. Everyone else will increasingly subsist on some combination of part-time entrepreneurial ’gig work ‘and government aid.”
Many prominent business people, including those who made their fortunes in California such as Zuckerberg, Pierre Omidyar, Elon Musk, and Sam Altman, founder of the Y Combinator, have embraced the notion of a “guaranteed wage,” that would cover most critical bills. Democratic Presidential candidate Andrew Yang’s campaign was built around this concept.
In the interim, people are fleeing the state. Demographer Wendell Cox notes that since 2000, California has lost 2.6 million net domestic migrants, more than the current populations of San Diego, San Francisco and Anaheim combined. In 2020, California accounted for 28 percent of all net domestic outmigration in the nation, about 50 percent more than its share of the US population.
California’s population growth has fallen below the national average for the first time, and the state appears to have even possibly lost population the last two years. The pandemic seems to have accelerated this movement. Last year California was home to three of the five large regions over one million with the highest percentage population loss – San Francisco, San Jose and Los Angeles. Both San Francisco and Los Angeles school districts face large decreases in enrollment; the LA district, the state’s largest, projects a 20% cut in this decade.
This outmigration trend cannot be dismissed as “white flight.” An analysis of minority population flows shows that Latinos and African Americans are settling increasingly west of the Sierra, particularly in the south, Texas, and parts of the Midwest. Similarly, the foreign-born population – so critical to the state’s economy – has declined in Los Angeles over the past decade, and stagnated in the Bay Area while swelling in places like Dallas-Ft. Worth, Austin, Houston, Nashville and even midwestern cities like Columbus, Des Moines and Indianapolis.
Simply put, California is in danger of losing its youthful mojo. Many of those leaving, according to IRS data, come from young, middle and working class families. When these people leave, birthrates plummet. Los Angeles and San Francisco rank last and second-to-last in birthrates among the 53 U.S. major metropolitan areas. Among California’s big metros, only Riverside/San Bernardino exceeds the national average in women aged between 15 and 50 with births. California’s total fertility rate, long above the national average, is now the nation’s 10th lowest. Los Angeles County alone has lost three quarters of a million people under 25 over the past twenty years.
California today is as old as the rest of the country and aging 50 percent faster than the national norm.
It is rapidly replacing the surfboard with a walker.