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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Monterey County Geography

I would be curious to know exactly what winery expansion project in Monterey County Mr. Kotkin is referring to.

As a native of the Monterey Peninsula and knowing Monterey County like the back of my hand, I wonder where exactly the referenced winery expansion was. Since virtually of the people that would be conceivably concerned about their "viewshed" being degraded don't live anywhere near the Salinas Valley--but along the coast surrounding Carmel, and in Carmel Valley--which has a relatively large number of wineries--I am baffled by this reference.

Perhaps Kotkin is referring to a winery expansion in Carmel Valley, where many rich people DO live?

joel kotkin

In the mid 80s Ronald Reagan provided amenesty for a bunch of fine people. I do not begrudge his spirit.

I remember women in the parking lot at Chapmann University in 07 talking about their friends who had used home equity loans to buy nice cars and wondering if that would come back to haunt them.

Ultimately, it is the housing issue, courtesy of Barney Frank, Fannnie and Freddie, Clinton and a bunch of "let's all get the American dream" democrats that caused this mess. I'll admit W deserves some blame for not veteoing any dem spending madness.

Ireland is reeling because of our blindness. She deserves better.
Barak doesn't have a clue and Ahhrnold can't fix it.
Mr. Kotkin- you write like a genius. Don't forget Bill Buckley.

"transcends terms like liberal or conservative..."

Kotkin generously tries to make California's problems bipartisan, but the only example of "narcissism" from the Right seems to be a desire to restrain the constant growth of government and taxation, and trying to halt the tide of illegal immigration. All the rest of the examples--gentry liberals, green politics, anti-development, anti-business--are on the other side.

Pat Brown's freeways, water projects, and other construction are mentioned. Look around the state and think about all the infrastructure already in place that would be impossible to build today. Modern environmentalists would never have let the Golden Gate Bridge get off the drawing board.

The Bay Area, where I live, is indeed the heart of this narcissism. It isn't because there's a surplus of Republicans here.

some ideas for california, illegal immigration

Residents of California should be pushing hard for legalization of marijuana for people who are at least 18 years old. California might be able to make a lot of money selling its brand of marijuana in many states. It could say grown in California.

California could be a major grower of hemp and turn the hemp into papers, ropes, clothing, sneakers, parachutes, and other products.

I recommend people read

"Obama Has The Chance To Be Another FDR - He Can End The Era of Marijuana Prohibition" by Bob Fitrakis and Harvey Wasserman

If California releases most non violent drug offenders from its prisons, California may be able to spend a lot less money on its prisons.

Residents of California should push their elected officials to support the following.

The federal government should pay 100 percent of the cost of providing public k-12 educations to illegal immigrants and the children of illegal immigrants including those children born in our country. The federal government should pay 100 percent of the cost of Medicaid for illegal immigrants and the children of illegal immigrants including those children born in our country. The federal government should pay 100 percent of the cost of food stamps and other anti-poverty programs for illegal immigrants and the children of illegal immigrants including those children born in our country. The federal government should pay 100 percent of the cost of jailing illegal immigrants and the children of illegal immigrants including those children born in our country. Local governments and state governments should send bills to the federal government for the previous things and the federal government should pay them because the federal government is responsible for keeping illegal immigrants out.

An important component of national security is border security. Democrat members of Congress, Republican members of Congress, Republican Presidents, and Democrat Presidents have not cared enough about border security. We need to be worried about illegal immigration, terrorism, crime, diseases, and harm to our food supply.

Our country should significantly increase LEGAL IMMIGRATION in the future especially educated immigration and skilled immigration. Our country should let in more immigrants who are able to create jobs in our country. Our computer industry has benefitted significantly from legal immigration over the years. We might not have much of a computer industry if it were not for people like An Wang and Andy Grove.

I recommend people read

"California budget's higher taxes (ugly) but necessary, experts says" by Dale Kasler

California should increase its gas tax.

California might want to have a lot more casinos. California may want to allow many more restaurants and hotels to have poker matches and other card games with large cash prizes. This may help California obtain more revenues from restaurants and hotels. If more people are employed by casinos, restaurants and hotels, California may be able to spend less money on food stamps and Medicaid.

California would probably attract more businesses and reduce the possibility of capital flight if it reduces its sales taxes and income tax.

It should be easier for LEGAL IMMIGRANTS to become citizens of the United States of America.

Illegal immigrants should have to register with the federal government and the state government of the state they work in to work. If a business hires an illegal immigrant who is NOT registered to work in the United States of America, the federal government and the state government should hit the business with fines. Illegal immigrants should receive photo IDs that include their fingerprints.

Illegal immigrants should pay a higher social security tax and a higher Medicare tax than citizens of the United States of America. Illegal immigrants should pay a higher income tax than citizens of the United States of America. Illegal immigrants should pay a 5 percent WORK IN THE USA tax collected by employers that would be split between the federal government and the state government. Only ILLEGAL IMMIGRANTS should pay the WORK IN THE USA tax.

An illegal immigrant should have to live in the United States of America for at least 10 years after the passage of this law before the person may become a citizen of the United States of America. An illegal immigrant should have to pay social security taxes for at least 25 years after the passage of this law before the person is able to obtain any benefits from Social Security.

The federal sales taxes I mention on my profile illegal immigrants and citizens of the United States of America would pay. Federal sales taxes would tax some of the money being earned in our underground economy by illegal immigrants and others.

I recommend people read

"Hiding in the Shadows

The Growth of the Underground Economy" by Friedrich Schneider and Dominik Enste

I discuss the financial crisis, illegal drugs, and other topics on

My website is


Ken Stremsky