Prescription for an Ailing California


Only a fool, or perhaps a politician or media pundit, would say California is not in trouble, despite some modest recent improvements in employment and a decline in migration out of the state. Yet the patient, if still very sick, is curable, if the right medicine is taken, followed by the proper change in lifestyle regimen.

The first thing necessary: Identify the root cause of California's maladies. The biggest challenge facing our state is not climate change, or immigration, corporate greed, globalization or even corruption. It's the demise of upward mobility for the vast majority of Californians, and the rise of an increasingly class-ridden, bifurcated society.

California's class problem spills into virtually every aspect of our malaise. It is reflected in both the nation's highest poverty rate, above 23 percent, and a leviathan welfare state; California, with roughly 12 percent of the population, now accounts for roughly one-third of the nation's welfare recipients. This burgeoning underclass exacerbates the demand for public services, deprives the state of potential taxpayers and puts enormous pressure on the private sector middle-class to come up with revenue.

The growing class chasm also distorts state priorities, creating an inordinate demand for public sector employment – and related jobs in health and education – while inculcating deep-seated resentment among private-sector entrepreneurs and professionals toward a state that asks much of them, but gives increasingly little.

Conservatives generally have recoiled from a class-based analysis, hoping to play on ethnic or cultural fears to advance their agenda of lower taxes and less regulation. Their incoherence and inability to adjust to changing demographics have left them increasingly irrelevant.

On the other hand, progressives feel comfortable with class as an issue, but see more regulation and ever higher taxes on the private sector as the solution. Yet the experience of the past decade has shown their folly, as California's middle class has continued to shrink, and poverty has worsened, particularly in the state's interior. The dangers of a large permanent underclass of unemployed and underemployed should be clear even to the most dreamy progressive.

Essentially, there is only one practical solution to this dilemma: a program that promotes economic growth. This strategy would transcend the recent reliance on asset-based bubbles that have boosted property markets and technology stocks. Another bubble, whether an investor-driven spike in property values in Newport Beach or a stock mania in Silicon Valley, may provide a temporary boost in revenue but will do very little to improve employment for the vast majority or to stabilize long-term finances.

The recent surge in tech employment in places like Silicon Valley is neither likely to persist or improve conditions for many Californians. The days of huge employment gains in Silicon Valley – where jobs more than tripled from 1970-2000 – are over. Even in the current boom, the Valley's employment remains down from a decade ago, and the rest of the state is doing decidedly worse. Social media simply will never be a major job producer or productivity enhancer; Facebook has 4,300 American employees, while old-line firms, like Intel, which have been shifting employment out of the state, have 10 times as many.

Other proposed bromides, like Gov. Jerry Brown's promised 500,000 "green jobs," need to be dismissed for what they are – stories we tell our children so they will fall asleep. High-speed rail, another modern-day Moonbeam program, is seen, even by many progressives, such as Mother Jones' Kevin Drum, as an "ever more ridiculous" boondoggle based on "jaw-droppingly shameless" assumptions.

Instead of delusion, California needs policies that can boost economic growth in precisely those areas – construction, agriculture, manufacturing and energy – with the best prospects for creating good, high-paying jobs for both blue- and white-collar Californians. Yet, right now the Legislature and, even more so, the empowered state apparat, seem determined to do everything they can to strangle an incipient recovery in these industries.

Sadly, much of this is done in the name of the environment, but often based on dubious assumptions. Laws that seek to reduce water allocations to the Central Valley are justified as protecting a bait fish, but create windswept new deserts, along with shocking poverty, in the state hinterland. It is no longer enough to protect the still-wild environment; mankind itself must be pushed away from areas that, in some cases, for generations, has provided food for the world, income for families and revenue to the state.

Concerns over climate change have justified much of the state's regulatory tsunami. Yet it is absurd to assert that California by itself can change global climate conditions in any meaningful way, given that the big increases of carbon emissions are all coming from the developing world; overall, America's emissions already are dropping far more quickly than in other high-income parts of the world, largely due to the natural gas boom.

Yet such mundanities matter little when our greatest policy goal seems to be to make the regulatory apparat, Hollywood and Silicon Valley moguls and their favored nonprofits feel better about themselves; if it provides job opportunity for zealots or the rent-seeking kind for favored venture capitalists and companies like Google, all the better.

Worse, the consequences of these policies, such as soaring energy prices, likely will not be felt in Portola Valley, Corona del Mar or Pacific Palisades, but, rather, in Santa Ana, Modesto and Oakland. Our regulatory regime already has cost California the opportunity to cash in on two significant booms – in manufacturing and in fossil fuel energy – that are creating middle-income job opportunities and upward mobility in other parts of the country.

On the environmental side, these policies could have an overall negative effect by driving both people and industries to areas that, because of climate and regulatory environment in their new homes, likely will expand their carbon footprint. Arguably the best thing California can do to reduce global carbon emissions would be to boost its industrial profile. The state also should be leading the shift to natural gas, which California, a potentially big player, so far largely has refused to join.

Another great opportunity lies in housing, a key source of both white- and blue-collar jobs. Population growth may have slowed, but the pent-up demand, largely from immigrants and millennials, for single-family homes, remains potentially strong. If the supply was increased, and prices moderated, homebuying would become more attractive for families with children. Emissions could be cut in more family-friendly ways, by encouraging more fuel-efficient cars, the dispersion of industry and, most particularly, telecommuting.

Sparking the revival of these basic industries and higher-wage employment would enhance California's budget situation over time far more than increasing taxes on the remaining residue of entrepreneurs and professionals. Energy work, in particular, pays high wages, often more than for many tech jobs, and both manufacturing and construction generally provide higher incomes than the low-wage service work that has become the only option for millions of Californians.

Getting kids from the Central Valley or East Los Angeles working on housing sites, factories and energy facilities is both the most humane, and practical, way to right our fiscal ship. Growth in these industries would also spur the knowledge sector of the economy; many of the strongest gains in STEM (science, technology, engineering and mathematics) jobs in recent years have occurred in manufacturing regions, such as Detroit, or in the energy belt, notably Houston. California's technical know-how should not be expended simply on developing computer games and social networks; resuscitating the tangible economy would also diversify employment opportunities for the highly skilled.

Government can play a critical, even determinative, role here. But it needs to shift priorities from redistribution and wealth suppression to providing the basic infrastructure essential for a growth economy. It means transforming our education system from a jobs and pension program for public sector workers and corporate rent-seekers to a focus on providing our economy with the skills – including those used in basic industries – needed for a revived California. It means spending money on the kind of infrastructure, such as gas pipelines, roads, urban bus lines, water and energy systems, that can spur growth instead of misallocations such as high-speed rail and subsidized green energy boondoggles.

This back-to-basics approach could restore California's aspirational promise, and not only for a favored few in a handful of favored places, but for the majority of our people, from the mountains to the sea.

Joel Kotkin is executive editor of and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.

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USA's "Uncool" cities the wave of the future of Western Civ

My comment HERE is directly relevant to this discussion too:

As a geographer & historian

As a geographer & historian myself, peer-reviewed and peer reviewer, not to mention urban & land use planner and involved in economic development analysis for many years, I find the meta-assumptions of this piece to be the root cause of the author's misunderstanding about why Calif. is heading into the abyss. The author clearly is not up to speed on the primary sources of the problem: over-population and over-consumption. These causes have been documented for decades, so what gives with the prescription for more of the cancer as a cure for the disease? It's called denialism. No. Sorry. Neo-Malthusianism was never refuted, just booed off the stage by academics and interest groups benefiting from evasion. And as for the global context, notice that The Limits to Growth quantitative forecasts of decades ago are right on the money: things will get a lot worse. Does Kotkin even know about the net energy cliff? Is he completely oblivious to the absurdity of the GDP as a measure of well-being? He is not a "new" geographer. He is peddling the old Ponzi scheme as if....

The incoherence of "save the planet, ban growth in California"

Did you even read Kotkin's article? Have you read Ed Glaeser's "Triumph of the City"?

The core point is that California is the best location for urban growth of the "sustainable" higher-density, transit-friendly type. It is incoherent to talk about existential crises at the planetary level, and to celebrate mass transit usage in Japan and Hong Kong and Manhattan and Singapore and some parts of Europe, and ban population growth in Calfornia. The people who DON'T go to California end up in Phoenix or Houston where they will use cars and airconditioning intensively.

Meanwhile, California COULD have had a population similar to Japan on the other side of the Pacific, AND similar outcomes for urban form and transport; and most of the additional people would have been "saved" from an automobile dependent existence somewhere else. But California has stiff-armed all the potential immigrants, EXCEPT the recent immigrants from the third world who are prepared to live in appalling overcrowded conditions as a consequence of relentless housing unaffordability.

It is also madness for California to be building HSR without Japan-level population to make it fiscally viable.

More of the same?

As I read through your article, I'm reminded of so much contradiction taking place.

Much of your writing leans toward smaller government, less artificial intervention in market forces, which makes some level of sense. Yet your love/admiration for massive suburban expansion, IS a market intervention, and requires additional government inputs. Much of the maladies that California is suffering from, related to massive subsidies that suburban expansion requires. From Transfer payments, to tax abatements, expansions of water/sewer systems, and fire/police services are required, in order to make suburban development possible. This doesn't come close to covering the massive subsidies that the petroleum industry receives, and how the fuel(user fees)taxes, only cover a small portion of road building, and maintenance.

In essence, in a realm of tiny, less interventionist government, suburbia wouldn't really exist at all. It would simply be too expensive for a vast majority of residents. This fact is really damaging your credibility.

If you're going to go libertarian, go all the way. Make suburban residents pay for the roads, sewers, police/fire in cash on hand. Make them pay for it themselves, rather than using tax transfer payments from core urban areas. Stop the petroleum subsidies, so that people have to pay the real cost of gasoline. The real cost, would be around $7.50 per gallon today. What you advocate in much of your writing, is actually a socialist-type of paradigm, that enriches property developers, owners of homebuilding companies, and the petroleum industry, at the expense of everyone else.

You are also propagating the least conservative methodology imaginable. You're endorsing the growth ponzi scheme, that is ruining many places in this country today. I have a suggestion, Check out Charles Marone's Strong Towns. His advocation, is for the Creation of Value in place, as a conservative model, that is economically sustainable, over the long term, rather than "suburbia as stimulus" as you're advocating in this article.

"Subsidies", economic land rent, and urban evolution

Sure, end the subsidies to road users. But end the subsidies to mass transit too.

Note that in Germany and many other European countries, the taxes on petrol, and other impositions on motorists, are so high that the cost of roads, and all externalities, are more than covered. Yet the great majority of people keep driving. AND mass transit is subsidised to the extent of 50% to 90% of DIRECT costs, yet if the subsidy was cut, no-one would use it.

So yes, let's "go all the way" with ending subsidies, it is time mass transit was made to compete on a level playing field against automobility.

You are completely wrong about the existence of suburbia. The evolutionary trend will always be to urban dispersion, because economic land rent builds up to such levels in established areas that there is always incentive for businesses and households to move to where economic land rent is lower, and congestion is lower too, incidentally. The cost of transport, whether subsidised or not, capitalises into "location advantage" premiums in real estate markets, so the dispersionary incentive effect is the same regardless of whether the transport is subsidised or not.

Rural land is only worth about $10,000 per acre. Until this rises because of actual food shortages, urban dispersion will always be an inevitable urban economic paradigm.

It is blunt containment regulations that are a gross distortion of economic systems; these inflate economic land rent to far greater amounts than the "cost of transport" saved. It is the young buying first homes, and new business startups, who are doing all the "paying" while the older generations make all the savings. Robert Bruegmann rightly calls this "the greatest inter-generational wealth transfer in history".

See THIS comment:

I don't believe you understand the paradigm

This comes up often in planning, and anti-planning circles. Suburban housing is not Rural housing. It's also not Urban housing. All three are completely different. Converting urban space to suburban space is extremely rare. Detroit is doing this to some extent, but it extremely rare. What most often happens, is rural space (farmland, pasture, and wild lands) are converted into suburban space. This requires initial investment. A hundred years ago, that investment often came from streetcar companies, to drive ridership. In the area where I'm currently at, it was places like Sellwood, ORegon, or Estecada, Oregon. They were called Streetcar suburbs. The automobile wasn't quite ready for prime time yet, and "organic transport" may not have been reliable enough for daily use. Later on, as Motor vehicles came into widespread use, suburbs were connected by roads, paid for by the public. THAT is a transfer payment. In most cases, developers can lobby local government to build new roads, sewers and such, on the belief that "if you build it, they will come". And for nearly fifty years, this has been true. Unfortunately, this new infrastructure requires maintenance. The property taxes derived from most of this suburban stock does not cover the cost of maintenance at all. This causes a "growth Ponzi scheme" to take place. Debt builds up until there is a "market correction". Or housing market failure. In my town, there are entire communities, that were advanced tax advantages, infrastructure was build, but the houses may never be built, because of the "market correction". The difficulty, with what the article's author is writing, is that he's building for five year intervals, rather than considering the one hundred year ramifications of suburban development. All that it takes is a fuel shock, and his suburban developments become "instant multi family housing for the poor" or get recycled.

Unfortunately, nothing you can can write, would dissuade that reality. Municipalities with reliable mass transit, and sensible growth vs taxation models are most reliably succeeding. The article's author, and you as we'll, are attempting to cherry pick data, to create a reality, that simply is not there. I've travelled the world, and seen many places. Places that have put into place measures that make automobiles use Optional, have been most successful at maintaining a reliable economic outlook, and a reliable economy. That, is reality.

"Smart" growth: a little knowledge is a dangerous thing

You are making the classic error of comparing "the cost of roads" and who bears it; with "the cost of the total mass transit system" and who bears it.

The correct comparison is "the cost of the total system of automobility and who bears it", with "the cost of the total mass transit system" and who bears it.

Motorists bear the entire capital cost of their vehicles and depreciation, repairs, fuel, and insurance. The proportion of the total cost of the system of automobility NOT borne by them, IN THE USA, is between 5% and 15% depending whose figures you rely on. That is, roads and externalities.

However, most of the people bearing the COSTS of roads and externalities, via other taxes and the inconvenience of congestion and accidents, ARE THEMSELVES motorists. There is no such "fit" between the bearers of the costs and the imposers of the costs in the case of mass public transit. The DIRECT costs of subsidies are at LEAST 50% of total system costs (and are up to 95% in many US cities) - and no-one has even started to try and make the sort of "case against mass transit" externalities that gallons of ink has been devoted to in the case of automobility.

In the case of Germany and most European countries, the taxes levied directly on petrol are so much greater than the cost of roads and externalities, that the motorist is a source of net government revenue. Yes, the cost of "the total system of automobility" might be higher per person mile than riding mass transit (and even this is arguable in many cities, mass transit now being so inefficient) yet there are good reasons why most people choose automobility in spite of its higher costs and MUCH LOWER subsidies.

It is the same reason people choose to use cellphones rather than relying on cheaper public telephone booths. Theories of "consumer surplus" are useful here. There is obviously a lot in the case of automobility, and none at all with mass transit - because if the cost of fares were increased to reflect true costs, NOBODY would use it. But plenty of people keep using cars regardless of the costs, even in super-punitive Germany.

You are a classic case of a little knowledge being a dangerous thing; you understand the difference between "streetcar suburbs" and "automobile based development", but you know nothing about the effects of each system on economic land rent and economic cyclical volatility. House price median multiples bear a remarkable similarity in both "pre automobile" urban economies and modern "growth containment planned" ones. That is, they are 6 and over regardless of how much space per person is sacrificed. The difference is entirely economic land rent; and the difference in economic land rent is literally hundreds of percent (concealed by the median multiples only being "double" or "triple", when space per person is in fact much lower).

It was well understood nearly 100 years ago by economists, "urban planners" (such as Ebenezer Howard), and even social reformers, that "democratised" improvements in social conditions were not possible unless the level of economic rent associated with urban land could be diminished by a dramatic increase in its "supply". (Karl Marx's famous solution was nationalisation - but no-one disputed that the problem existed, of economic land rent enriching the land owners and impoverishing everyone else as productivity rose and incomes rose; this insight was not in the least original to Marx).

The frantic building of streetcar suburbs and commuter rail based suburbs was as much an effort along these lines as anything else. But it failed because the narrow ribbons of land supply were always captured by the same rentier interests as who owned most of the existing urban land area. Ebenezer Howard spent his entire career trying to break this impasse - it is a shame that he is not remembered for this (however much he is remembered for his "new towns" proposals).

But the amount of land brought into "supply" in the urban economy by automobile based development is massive and unable to be cornered by the rentiers. This is the only way median multiples of 3 have become a norm in the cities where they have become a norm. This is in spite of the increased consumption of land per person as incomes have risen.

The cost of "economic rent" (zero sum wealth transfers to initial land owners) that households and businesses are spared from, is many times as great as the costs of infrastructure provision, maintenance and renewal under conditions of urban dispersal. In any case there is little conclusive proof that the cost of maintaining infrastructure of all kinds under conditions of higher urban density, is lower at all.

These problems are entirely political; the solution is that people ultimately have to pay for the infrastructure. The "solution" is NOT making them pay vastly GREATER sums for absolutely NOTHING in the form of wealth transfers to the recipients of economic land rent. "Smart growth" is NOT "smart"; it involves choosing to pay a whole lot MORE for NOTHING, because people were unwilling to pay a whole lot LESS to get "something"; i.e. infrastructure. And the "whole lot MORE" paid out in economic land rent, is paid out by first home buyers and new business start-ups; a gross social inequity. But persisted in for long enough (as in the UK), every generation ends up paying and the economy is slowly strangled by the costs.

Growth containment advocates need to be made to face the working example of the UK's cities, as outcomes of the same sort of policies they are advocating. The world's WORST average trip to work times, along with grossly unaffordable housing of the smallest size and poorest quality and the oldest average age and poorest average condition, is NOT something for the UK's policy makers to be proud of or something for other countries advocates to be working towards, and it is certainly NOT "smart".

You have the subsidies way off

at least for the United States. Gasoline itself has massive subsidies, the average fuel tax covers only 22% of only the Interstate Freeway System. It covers nearly none of the other roadways. That all comes from either debt (growth ponzi scheme) or from property/sales/income taxes. Yes, public transit is subsidized. Not nearly as much.

You're also still only focusing on the financials of decisions of where to live. Those are only a tiny portion of why people relocate. For one, at least in my case, I'd rather have a two bedroom 800 square feet house in a place like Portland, than a 50,000 square feet mansion in Houston. Yes, I've been to Houston, it was terrible. Austin isn't bad, but Houston is a place that I'd spend all my time trying to get out of.

There's a lot you still don't "get"

"...Yes, public transit is subsidized. Not nearly as much...."

You just don't get the point. Motorists do NOT have their capital costs (cars) paid for, or their insurance, or their petrol, or their repairs, or sevaral other things they do pay for. The proportion of the system-wide cost of "automobility" covered by motorists paying their own way, is FAR HIGHER than the proportion of the system-wide cost of mass transit paid by mass transit riders.

It is dishonest use of data to compare "the cost of roads not covered by motorists", with "the cost of the whole transit system not covered by transit riders". If transit riders fares covered everything except some part of the cost of replacing the steel rails, it would be a fairer comparison. This would mean transit fares would have to be double to triple what they mostly are.

The figures that people like you rely on to show that roads are so heavily subsidised, are highly suspect anyway. Have a look at "Highway Subsidies 2012: a New Look at an Old Issue" by Jack Mallinckrodt:


Or "The Best Investment a Nation Ever Made" by Wendell Cox:

In Germany and many European countries, motorists are a substantial net cash cow to public revenue, even before the benefits of automobility are looked at. Actually, the benefits are so substantial that a subsidy is entirely justified.

There is scarcely a more dishonest claim than the one that mass transit "creates economic value" and cars and roads do not, or that cars and roads create a lot less. Mass transit does FOCUS value on the points where routes terminate and converge, but that is a totally different thing to the widely DEMOCRATISED value that automobility creates. The "economic land rent" involved in mass transit is high, whereas automobility works to LOWER economic land rent (i.e. zero sum or negative sum wealth transfers).

"......You're also still only focusing on the financials of decisions of where to live. Those are only a tiny portion of why people relocate....."

Houston grew from 4 million people to 5 million people from 2000 to 2010. Atlanta grew from 3.5 million people to 4.5 million people.

Have a look at:

If "financials" are only a tiny portion of the reason why people relocate, you have a lot of explaining to do, about why Houston and Atlanta are so popular with internal migrants. Especially seeing you and so many other people regard Houston as so unattractive.

Still in Denial

Any discussion of California's welfare problem has to focus on who exactly is in the underclass. There is no way to get around California's huge Hispanic population's membership in it. One of the most frustrating things in reading about California's problems is the utter inability of people in the state to acknowledge this.

Once a white, predominantly European majority loses control, as is the case in California, you are dead and not ever going to recover. Obama is trying to do the same thing on a national scale through illegal amnesty and ignoring welfare rules.

Wake up!