Death of the California Dream


For decades, California has epitomized America's economic strengths: technological excellence, artistic creativity, agricultural fecundity and an intrepid entrepreneurial spirit. Yet lately California has projected a grimmer vision of a politically divided, economically stagnant state. Last week its legislature cut a deal to close its $42 billion budget deficit, but its larger problems remain.

California has returned from the dead before, most recently in the mid-1990s. But the odds that the Golden State can reinvent itself again seem long. The buffoonish current governor and a legislature divided between hysterical greens, public-employee lackeys and Neanderthal Republicans have turned the state into a fiscal laughingstock. Meanwhile, more of its middle class migrates out while a large and undereducated underclass (much of it Latino) faces dim prospects. It sometimes seems the people running the state have little feel for the very things that constitute its essence — and could allow California to reinvent itself, and the American future, once again.

The facts at hand are pretty dreary. California entered the recession early last year, according to the Forecast Project at the University of California, Santa Barbara, and is expected to lag behind the nation well into 2011. Unemployment stands at roughly 10 percent, ahead only of Rust Belt basket cases like Michigan and East Coast calamity Rhode Island. Not surprisingly, people are fleeing this mounting disaster. Net outmigration has been growing every year since about 2003 and should reach well over 200,000 by 2011. This outflow would be far greater, notes demographer Wendell Cox, if not for the fact that many residents can't sell their homes and are essentially held prisoner by their mortgages.

For Californians, this recession has been driven by different elements than the early-1990s downturn, which was largely caused by external forces. The end of the Cold War stripped away hundreds of thousands of well-paid defense-related jobs. Meanwhile, the Japanese economy went into a tailspin, leading to a massive disinvestment here. In South L.A., the huge employment losses helped create the conditions conducive to social unrest. The 1992 Rodney King verdict may have provided the match, but the kindling was dry and plentiful.

This time around, the recession feels like a self-inflicted wound, the result of "bubble dependency." First came the dotcom bubble, centered largely in the Bay Area. The fortunes made there created an enormous surge in wealth, but by 2001 that bust had punched a huge hole in the California budget. Voters, disgusted by the legislature's inability to cope with the crisis, recalled the governor, Gray Davis, and replaced him with a megastar B-grade actor from Austria.

Yet almost as soon as the Internet bubble had evaporated, a new one emerged in housing. As prices soared in coastal enclaves, people fled to the periphery, often buying homes far from traditional suburban job centers. At first, it seemed like a miraculous development: people cheered as their home's "value" increased 20 percent annually. But even against the backdrop of the national housing bubble, California soon became home to gargantuan imbalances between incomes and property prices. The state was also home to such mortgage hawkers as New Century Financial Corp., Countrywide and IndyMac. For a time the whole California economy seemed to revolve around real-estate speculation, with upwards of 50 percent of all new jobs coming from growth in fields like real estate, construction and mortgage brokering.

As a result, when the housing bubble burst, the state's huge real-estate economy evaporated almost overnight. Both parties in the legislature and the governor failed miserably to anticipate the impending fiscal deluge they should have known was all but inevitable.

To many longtime California observers, the inability of the political, business and academic elites to adequately anticipate and address the state's persistent problems has been a source of consternation and wonderment. In my view, the key to understanding California's precipitous decline transcends terms like liberal or conservative, Democratic and Republican. The real culprit lies in the politics of narcissism.

California, like any gorgeously endowed person, has a natural inclination toward self-absorption. It has always been a place of unsurpassed splendor; it has inspired and attracted writers, artists, dreamers, savants and philosophers. That's especially true of the Bay Area—ground zero for California narcissism and arguably the most attractive urban expanse on the continent; Neil Morgan in 1960 described San Francisco as "the narcissus of the West," a place whose fundamental asset was first its own beauty, followed by its own culture of self-regard.

At first this high self-regard inspired some remarkable public achievements. California rebuilt San Francisco from the ashes of the great 1906 fire, and constructed in Los Angeles the world's most far-reaching transit system. These achievements reached a pinnacle under Gov. Pat Brown, who in the 1960s oversaw the expansion of the freeways, the construction of new university, state- and community-college campuses, and the creation of water projects that allowed farming in dry but fertile landscapes.

Yet success also spoiled the state, incubating an ever more inward-looking form of narcissism. Even as the middle class enjoyed "the good life" — high-paying jobs, single-family homes (often with pools), vacations at the beach — there was a growing, palpable sense of threats from rising taxes, a restless youth population and a growing nonwhite demographic. One early expression of this was the late-1970s antitax movement led by Howard Jarvis. The rising cost of government was placing too much of a burden on middle-class homeowners, and the legislature refused to address the problem with reasonable reforms. The result, however, was unreasonable reform, with new and inflexible limits on property and income taxes that made holding the budget together far more difficult.

Middle-class Californians also began to feel inundated by a racial tide. This was not totally based on prejudice; Californians seemed to accept legal immigration. But millions of undocumented newcomers provoked fear that there were no limits on how many people would move into the state, filling emergency rooms with the uninsured and crowding schools with children whose parents neither spoke English nor had the time to prepare their children for school. By 1994, under Gov. Pete Wilson, the anti-immigrant narcissism fueled Proposition 187. It was now OK to deny school and medical services to people because, at the end, they looked different.

Today the politics of narcissism is most evident among "progressives." Although the Republicans can still block massive tax increases, the predominant force in California politics lies with two groups — the gentry liberals and the public sector. The public-sector unions, once relatively poorly paid, now enjoy wages and benefits unavailable to most middle-class Californians, and do so with little regard to the fiscal and overall economic impact. Currently barely 3 percent of the state budget goes to building roads or water systems, compared with nearly 20 percent in the Pat Brown era; instead we're funding gilt-edged pensions and lifetime guaranteed health care. It's often a case of I'm all right, Jack — and the hell with everyone else.

The most recent ascendant group are the gentry liberals, whose base lies in the priciest precincts of San Francisco, the Silicon Valley and the west side of Los Angeles. Gentry liberalism reflects the narcissistic values of successful boomers and their offspring; their politics are all about them. In the past this was tied as much to cultural issues, like gay rights (itself a noble cause) and public support for the arts. More recently, the dominant issue revolves around environmentalism.

Green politics came early to California and for understandable reasons: protecting the resources and beauty of the nation's loveliest landscapes. Yet in recent years, the green agenda has expanded well beyond that of the old conservationists like Theodore Roosevelt, who battled to preserve wilderness but also cared deeply about boosting productivity and living standards for the working classes. In contrast, the modern environmental movement often adopts a largely misanthropic view of humans as a "cancer" that needs to be contained. By their very nature, the greens tend to regard growth as an unalloyed evil, gobbling up resources and spewing planet-heating greenhouse gases.

You can see the effects of the gentry's green politics up close in places like the Salinas Valley, a lovely agricultural region south of San Jose. As community leaders there have tried to construct policies to create new higher-wage jobs in the area (a project on which I've worked as a consultant), local progressives — largely wealthy people living on the Monterey coast — have opposed, for example, the expansion of wineries that might bring new jobs to a predominantly Latino area with persistent double-digit unemployment. As one winegrower told me last year: "They don't want a facility that interferes with their viewshed." For such people, the crusade against global warming makes a convenient foil in arguing against anything that might bring industrial or any other kind of middle-wage growth to the state. Greens here often speak movingly about the earth — but also about their personal redemption. They have engaged a legal and regulatory process that provides the wealthy and their progeny an opportunity to act out their desire to "make a difference" — often without real concern for the outcome. Environmentalism becomes a theater in which the privileged act out their narcissism.

It's even more disturbing that many of the primary apostles of this kind of politics are themselves wealthy high-livers like Hollywood magnates, Silicon Valley billionaires and well-heeled politicians like Arnold Schwarzenegger and Jerry Brown. They might imagine that driving a Prius or blocking a new water system or new suburban housing development serves the planet, but this usually comes at no cost to themselves or their lifestyles.

The best great hope for California's future does not lie with the narcissists of left or right but with the newcomers, largely from abroad. These groups still appreciate the nation of opportunity and aspire to make the California — and American — Dream their own.

Of course, companies like Google and industries like Hollywood remain critical components, but both Silicon Valley and the entertainment complex are now mature, and increasingly dominated by people with access to money or the most elite educations. Neither is likely to produce large numbers of new jobs, particularly for working- and middle-class Californians.

In contrast, the newcomers, who often lack both money and education, continue in the hierarchy-breaking tradition that made California great in the first place. Many of them live and build their businesses not in places like San Francisco or West L.A., but in the increasingly multicultural suburbs on the periphery, places like the San Gabriel Valley, Riverside and Cupertino. Immigrants played a similar role in the recovery from the early-1990s doldrums. In the '90s, for example, the number of Latino-owned businesses already was expanding at four times the rate of Anglo ones, growing from 177,000 to 440,000. Today we see signs of much the same thing, though it often involves immigrants from the Middle East, the former Soviet Union, Mexico or South Korea. One developer, Alethea Hsu, just opened a new shopping center in the San Gabriel Valley this January — and it's fully leased. "We have a great trust in the future," says the Cornell-trained physician.

You see some of the same thing among other California immigrants. More than three decades ago the Cardenas family started slaughtering and selling pigs grown on their two-acre farm near Corona. From there, Jesús Sr. and his wife, Luz, expanded. "We would shoot the hogs through the head and sell them off the truck," says José, their son. "We'd sell the meat to people who liked it fresh: Filipinos, Chinese, Koreans and Hispanics...We would sell to anyone." Their first store, predominantly a carnicería, or meat shop, took advantage of the soaring Latino population. By 2008, they had 20 stores with more than $400 million in sales. In 2005 they started to produce Mexican food, including some inspired by Luz's recipes to distribute through such chains as Costco. Mexican food, notes Jesús Jr., is no longer a niche. "It's a crossover product now."

Despite the current mess in Sacramento, this suggests some hope for the future. Perhaps the gubernatorial candidacy of Silicon Valley folks like former eBay CEO Meg Whitman (a Republican), or her former eBay employee Steve Wesley (a Democrat), could bring some degree of competence and common sense to the farce now taking place in Sacramento. Sen. Dianne Feinstein, who's said to be considering the race, would also be preferable to a green zealot like Jerry Brown or empty suits like Los Angeles Mayor Antonio Villaraigosa or San Francisco's Gavin Newsom.

But if I am looking for hope and inspiration, for California or the country, I would look first and foremost at people like the Cardenas family. They create jobs for people who didn't go to Stanford or whose parents lack a trust fund. They constitute what any place needs to survive: risk takers who are self-confident but rarely selfish. These are people who look at the future, not in the mirror.

This article originally appeared at Newsweek.

Joel Kotkin is executive editor of and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

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California is best place

I love California alot and mainly culture and places. I have came last year in Yosemite in CA to celebrate Christmas party and we have stayed in Yosemitesierrainn Hotel. I am satisfied with their services and Hotel atmosphere and attraction all over there.

California and it's region

California and it's region if one of the places where I would love to live. I think this is because of many movies that shows this area in bright and fancy way. Maybe some other reasons but I still dream to get house by ocean.

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California has epitomized America's economic strengths: technological excellence, artistic creativity, agricultural fecundity and an intrepid entrepreneurial spirit.Thanks for the sharing.

Death Valley National Park

I'm not a citizen of

I'm not a citizen of California, but I'd like to object. Economics shouldn't be considered from metaphysical position. You can't just abstract and give consideration to one state only. The economic and financial state of California obeys objective laws. To compare some financial issues in California and Detroit (for instance), I dare say, Californian leguslation is more loyal to customers. payday lending and other credits, for example, are more profitable for an ordinary customer in California. But that's only one point.

RE: The Disfunctional State Still Dominates New Tech Industries

I am not going to defend the disfunctional politics and leadership of the state (both parties) political culture. And yes, many economic sectors within the state (including more mature technology sectors) are stagnant or declining.

However, it is important to note that the state still maintains critical leadership in new patent generation as well new venture formation and financing. (I agree that it is unclear whether new technology and industries alone can provide enough broad-based prosperity for the overall state.)

The new "sunshine" high-value industries are biotechnology, medical devices/systems, advanced software, clean/alternative energy, new materials and micro-electronics. Advancements in these sectors will enhance our personal lives and transform many existing industries--and these are the sector's that an affluent region, state or nation needs wants to attract or develop.

Due to the present competitive environment, it is simply impossible for a small (but high potential venture) to reach critical mass without large amounts of external financing. In addition to human capital, supremacy in venture financing allows Silicon Valley to arguably dominate in a way it simply did not 20 or even 10 years ago.

In addition to leadership in patents and new venture formation, Silicon Valley-based top-tier firms such as Google, Intel, Oracle, HP, Apple and Cisco are all much stronger market performers (relative to non-CA based competitors) than they were in the past.

Outside of California, most of the other NEW ventures and more established technology leaders are located in places such as the Boston-Wash DC corridor or Seattle--not low cost leaders (and new geography favorites) such as Texas. Also, note that the high profile HQ transfers Hilton Hotels, CSC Corp, Northrup and SAIC all moved to the Wash DC region--hardly a low cost region by middle America standards.

The state of California may still have "potential" and a "future" given the state's continued leadership with broad-based technology generation and new venture formation...

For many the American dream

For many the American dream itself has died but lets not be pessimistic about the way things are today, surely real estate and housing has taken a bad beating but then there will be consumers buying properties sooner than later and with real estate in palm beach gardens is an excellent chance to buy your new home while the prices remain attractive to purchase.


Yet another hymn to 'benefits' from immigration

Joel Kotkin makes the mistake of thinking that there is an abstraction called 'California' that somehow benefits from mass immigration. California is a set of lines on a map, the only thing that matters is the citizenry of the state. And we know that mass immigration is harming them. How? Well, for the past decade or so -- well after California supposedly recovered from the doldrums -- the native born have been fleeing the state, voting with their feet. It isn't because of the weather, it is because mass immigration -- legal and illegal -- has turned the state into an crowded, alien, and now broke. The latter Just like that ever popular whipping boy Pete Wilson said it would. The Cardenas's and Hsu's are more colonists than contributors, simply displacing the population that was in place previously.

And its not just illegal immigration. Contrary to popular wisdom most legal immigration is not based on skills, education, or cultural compatibility. It is based on nepotism, aka 'family reunification'. Even those immigration programs which are supposed to help our economy, such as the H1-B program for the 'best and brightest' workers, have backfired. Four of the top five H1-B users are now Indian-based, Indian-run companies; the H1-Bs that are imported simply serve as a conduit to help offshore the jobs back to India.

Medical Tourism........

Medical tourism is a rapidly growing, multi-billion dollar worldwide industry. Countries like India and Thailand have long been attracting patients from developed countries looking to escape the high prices and long waits at home, providing high-quality health care at a fraction of the price. Planet Hospital is not a theme park, or a giant medical complex. Planet Hospital is a very real company that focuses on medical tourism. Medical tourism is a term for going overseas for medical procedures for a fraction of their domestic cost. Why get an operation for $50,000 when you can get it for $5,000 a few thousand miles away? The industry of medical tourism is a growing one, since the cost of surgery is becoming far too prohibitive for the average person to consider the normal operations. This makes Planet Hospital an inevitable development.

Don't overdo it

The author makes some good points. Yes, there have been speculative bubbles in technology stocks and in California real estate. Yes, some of the latte liberal stuff is a bit hard to stomach sometimes.

But all this talk about the "death of the California dream" and how the state will probably not recover from its current problems is overdoing it a bit.

The economy goes through cycles. It always has and always will. Silicon Valley goes through booms and busts. Real estate is prone to speculative bubbles. We happen to be in a big downturn right now. I agree that real estate prices will come down more and there could be a lot more pain on the way.

Still, all those great things about the state--a critical mass of highly-educated, talented people, some of the best universities in the world, immense natural beauty, great weather, the global centers of the technology and entertainment industries--have existed for decades, and they're not going away anytime soon. People with ambition and talent will always gravitate toward places like California and the other major cosmopolitan centers.

Don't mistake a cyclical downturn for the end of the world.

There's green and green

In this piece, you are a bit more successful than usual in describing what you mean by "green politics" and why you don't like it. The people you call out are just using it (and the regulatory processes that have been built up with good intentions in mind) as a convenient tool to protect their own interests. You correctly identify this as narcissism. But there are also plenty of people you might also call "green" who can tell the difference between selfish opportunism and broad-based policies and practices that advance responsible stewardship of the earth. Many of these people are not particularly spiritual; they see it as a practical matter of keeping one's own house in order and living up to the old adage "waste not, want not." They also like other people and don't by any means view humanity as a cancer. They just want humanity to exercise prudent restraint. These pragmatic greens are more likely to be from post-Boomer generations, and they will have much to contribute in the future (unless they are shouted down in an orgy of reactionary blame-gaming; see a couple of the posts above for thrusts in that unfortunate direction).

The old stereotype of the limousine-liberal Hollywood elitist using environmentalism as a NIMBY way to preserve his privileges is getting tired, but like the welfare queen, it continues to be potent. The reality is more complex.