A Tale of Two Californias

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

Charles Dickens, A Tale of Two Cities

Dueling opinion writers have taken to the pages of their respective journals to debate what’s happening in the Golden State. For Paul Krugman a California renaissance is on the horizon:

When the national housing bubble burst, California was hit especially hard, and the combined effects of the plunge in home prices and the economic downturn led to sharply reduced revenue. Once more there were gleeful pronouncements of imminent doom: California, declared one pundit after another, is America’s Greece.

Again, however, reports of the state’s demise proved premature. Unemployment in California remains high, but it’s coming down — and there’s a projected budget surplus, in part because the implosion of the state’s Republican Party finally gave Democrats a big enough political advantage to push through some desperately needed tax increases. Far from presiding over a Greek-style crisis, Gov. Jerry Brown is proclaiming a comeback.

while things don’t look nearly as rosy to California native Victor Davis Hanson:

We don’t know the full effects of the latest hikes in income, sales, and gasoline taxes, or the longer-term aftershocks from such a poorly schooled younger generation, or the ripples from looming bankruptcies among our cities, or the full costs of bailing out pension funds, or whether the fiscal assumptions of the budget really will result in a balance.

Millions of us will stay, but thousands of Californians who have enriched the state may not. Sadly, the California legislature operates on the principle that the climate, hip culture, and beautiful panoramas of California will always keep enough high-earners from leaving, and that Napa Valley, Silicon Valley, Central Valley agriculture, the gas-and-oil industry, our great research universities, and Hollywood will continue to thrive, even with the high taxes, ever more regulations, the failed public-school system, soaring outlays in social services, and problems from years of massive illegal immigration. It is as if the current generation of politicians can extract a premium for something that they did not create, but have done their best to destroy.

I think that RealClearPolitics’s Steve Malanga may have it right. There is more than one California economy and they are heading in different directions. After noting the city of Stockton’s municipal bankruptcy and Jerry Brown’s optimistic proclamation, mentioned in both of the posts above, he remarks:

The woes of California’s Central Valley, or its Inland Empire, where unemployment is about 12 percent, are similarly often obscured by the hotter, more appealing economies of places like Silicon Valley. It’s not surprising that the state’s two big municipal bankruptcies right now, in Stockton and San Bernardino, are located in the valley and the empire.

It’s clear where the policy initiatives come from in both states. Though California and New York have ample energy resources buried beneath the surface, each state has declined to pursue them, in the process missing out on the energy-led revival in blue-collar jobs we have seen in places like Texas, North Dakota, West Virginia and Pennsylvania. One recent study by the University of Southern California schools of engineering and public policy estimated that tapping California’s Monterey Shale, which stretches from Modesto in the north to south of Los Angeles, could generate more than 2 million jobs in California. Much of untapped potential is in places being left behind by the budding California recovery, like Stanislaus and Merced counties.

California is big enough and geographically diverse enough to generate a revival that still leaves behind whole swathes of the state. The state may already be there.

Is that what’s happening in California? Two distinct economies and populations that rarely see each other? Is that’s what’s happening in the United States more generally?

The fact that supports that view is the very large number of individuals who remain unemployed, underemployed, or who are so discouraged about their prospects that they’ve stopped looking. Their numbers run into the tens of millions. Contrast them with those in the financial sector and public employees, both of which groups are getting raises. Wall Street bonuses are higher than they were a decade ago, far outstripping Wall Street performance. Here in Chicago the CPS teachers were just awarded a raise substantially in excess of inflation and beyond anything that the performance of the Chicago Public Schools could possibly warrant. Divergence, indeed.

40 comments… add one
  • Drew

    And to throw gasoline onto the fire:

    http://hotair.com/archives/2013/04/03/obama-administration-to-banks-why-arent-you-making-higher-risk-loans/

    First the Fed, now the Administration………fueling a bubble, in CA and elsewhere.

    I take solace (snicker) in knowing that this simply cannot be true. steve tells me so, and anyway, its just greedy bankers, not government.

  • sam

    “Is that what’s happening in California? Two distinct economies and populations that rarely see each other? Is that’s what’s happening in the United States more generally?”

    I think that’s about right. But it’s important to note that we’re not talking about equal populations, isn’t it? In fact, the populations are profoundly unequal. And if that fact is kept in mind, this seems to me to be less of a problem:

    “California is big enough and geographically diverse enough to generate a revival that still leaves behind whole swathes of the state. The state may already be there.”

    Relative to the rest of the state, there’s not a lot of people in those swathes.

    As for the rest of the US, I think we’re reverting to the antebellum divisions: First Amendment doesn’t apply here: N.C. lawmakers push bill for state religion:

    Republican lawmakers in North Carolina have introduced a bill declaring that the state has the power to establish an official religion — a direct challenge to the First Amendment.

    One professor of politics called the measure “the verge of being neo-secessionist,” and another said it was reminiscent of how Southern states objected to the Supreme Court’s 1954 integration of public schools.

    The bill says that federal courts do not have the power to decide what is constitutional, and says the state does not recognize federal court rulings that prohibit North Carolina and its schools from favoring a religion.

    Of course, those now pushing nullification wouldn’t be qualified to hold Calhoun’s hat, but…

  • PD Shaw

    Part of the California story is no doubt taking place in neighboring states, where Californians migrate to, presumably for lower costs of living. My wife’s family is from Arizona, and California migration is a constant backstory (including family members returning from California themselves, which is good migration). Speculators from California is bad migration.

  • Drew

    “Caring” for the Average Joe:

    “In fact, the populations are profoundly unequal. And if that fact is kept in mind, this seems to me to be less of a problem:”

    I suspect the Malibu crowd is doing fine. Wait…….they will do a charity event. They will sing, then take their limos back to the mansion.

  • PD Shaw

    Drew’s link has a link to a Federal Reserve paper that seems to be in conflict with the policy:

    “Credit for potential home purchasers with lower credit scores–in particular, the first-time homebuyers I discussed earlier–has likely also been affected by capacity constraints of mortgage lenders. As most of you know very well, the mortgage industry has been operating near its capacity.”

    http://www.federalreserve.gov/newsevents/speech/duke20130308a.htm

    No, I didn’t know that.

  • sam

    “I suspect the Malibu crowd is doing fine. Wait…….they will do a charity event. They will sing, then take their limos back to the mansion.”

    Really got your foot on the stupid pedal today. There are far, far more average joes (and I have to say, you as their champion is risible) in the coastal populations than folks (like you) who can afford to live in the Colony.

  • Drew

    You may think is risable, sam, but look at what I do for a living and create for the Average Joe employee, and the Average Joe pensioner, and compare it to just about any policy this administration supports, you support, and is actually effective wrt to the Average Joe.

    Speaking of the stupid pedal…………

    Intent is not enough, sam. Results matter.

  • Drew
  • California has some distinctive problems and some problems in common with the remainder of the country. I don’t have the figures to back this up but I strongly suspect that remittances sent to Mexico are a big economic problem for California. Every year about $50 billion in remittances is transferred from the U. S. to Mexico, effectively decreasing the U. S. GDP and increasing Mexico’s. My guess is that a disproportionate amount of that $50 billion is from California.

    A common problem is that a lot of people receiving pensions from the state don’t live there any more. They’ve taken their pensions to places where they’ll go farther. Distinctive problem for California: a lot of people are moving to Baja. The figures I’ve seen suggest that more than a million U. S. retirees live in Baja. That’s potentially another $15 billion to, say, $50 billion leaving the States for Mexico every year and I suspect that a lot of that is from California.

  • michael reynolds

    Drew:

    I have no idea how tall you are since we’ve never met but you have the worst case of “short man syndrome” I’ve seen in a while. You are so determined to measure yourself against everyone and anyone and proclaim yourself taller. That’s why people laugh at you. You’re that guy at the gym who’s 5’6″ but has to loudly grunt and strain at every lift so everyone knows how strong he is.

    The idea of you as champion for the little guy — or for that matter anyone on earth besides yourself — is, as Sam said, risible. You’re an entitled one percenter devoted solely to becoming an entitled one tenth of one percenter.

    Now, maybe it’s just that you’re artless in portraying yourself. Maybe you’re really a lovely person. I’d like to think that. But that’s not how you read. So when you try to portray yourself as utterly different from and superior to the businessmen who happen to live in Malibu it comes off as ludicrous.

    No wonder you liked Mitt Romney. You’re his clone. And no one could stand the man. Learn from that. Read this: http://en.wikipedia.org/wiki/Noblesse_oblige

    There’s an art to being lucky. It begins with an admission that you’ve been lucky. You know, Jesus may not have been the son of God, but he was ahead of his time and knew a few things, among which was the power of humility. He had a bit of a God complex himself, but he also had some wisdom.

  • michael reynolds

    California is definitely two and probably more like four distinct economies. Farm country has very little contact with LA, Silicon Valley or Weed n’ Wine Country. Things are very tough along the 5 corridor, but that California has never been very prosperous. It’s basically just South Dakota with a lot less snow.

    As for energy exploration in the state it’s wrong to pretend that the environmentalists don’t have a point. We have a big tourist industry, a very tenuous water supply, high property values, a long history of battles with air pollution, all of which make Californians reluctant to go digging giant holes and filling them with toxic chemicals.

    That said, I’d favor exploiting energy resources. But I’d expect to lose.

  • There’s a book that I’d recommend to just about anybody, particularly to anybody who wants to get mad or stay mad: Cadillac Desert. It’s a history of water development in the American West, California in particular.

    There is an intrinsic conflict among California’s real estate boom, farming, and tourism and the conflict can be summarized in one word: water.

    I would add that in the 21st century if there’s one source of conflict between Mexico and the United States it won’t be over immigration. It will be over water.

  • sam

    “There’s a book that I’d recommend to just about anybody, particularly to anybody who wants to get mad or stay mad: Cadillac Desert. ”

    Or bookaphobes can just watch Chinatown.

  • Icepick

    Ignore what they say, watch what they do. It’s perfectly clear that both the Republican Party leadership and the Democratic Party leadership want to turn this nation into a Third World country with a huge underclass. I have no idea what the fuck the Republicans think they’re doing, but Dems love poor people so much they just can’t get enough of them.

    The fact that supports that view is the very large number of individuals who remain unemployed, underemployed, or who are so discouraged about their prospects that they’ve stopped looking. Their numbers run into the tens of millions.

    Yep. But they don’t care because THEY are doing well. When was the last time Reynolds mentioned how bad the unemployment problem is in this country, versus defending the status quo?

  • Icepick

    We have … high property values….

    Note the rich guy supporting high property values – that make it damned near impossible for the poor to ever get ahead. Fuck the little guy, Reynolds has expensive property he wants to keep safe!

  • Icepick

    Reynolds, the idea that you are a champion of the little guy when you’re (a) a natural bully (Bob-in-a-bag is my favorite example), (b) claim that the poor need to kiss your feet because you’re a wealthy Democrat and (c) say that high unemployment is a good thing (B+ economy!) is offensive as Hell. You call high unemployment, declining median income, increased SNAP usage, increased SSDI usage, and increased poverty a success. At least Drew recognizes that these things are a problem. You claim these things don’t even matter because of a high stock market and because you’ve got a high property value. What a disgusting joke.

  • jan

    Dave Schuler has a brought up a good point about water in CA. It’s really an Achilles Heel for this state, having long-standing issues of where to direct what water is available — especially between the north and more highly developed southern regions.

    Also, traveling the I 5 every month one can’t help but notice the landscape of signs denoting the dissatisfaction with water distribution from the farmers, many who have suffered enormously from environmentalists and their successful push to protect a small fish, the Delta Smelt, over hydrating crops. Dead and uprooted trees litter some of the terrain as reminders of the water scarcity in what is considered one of the biggest bread baskets of the country.

    As for CA’s fiscal health, it seems to be doing better on the surface, due to Jerry Brown’s pushing numbers around, and magically created a surplus of sorts. However, whatever kudos can be derived from such accounting schemes are muted by the California State Auditor recently reporting the state’s net worth to be a negative $127.2 billion, with long term obligations reaching upward to a $167.9 billion, plus another $60 billion in unfunded liabilities. Basically, this state is facing an uphill battle of debt, with attempts to pay it down by having the highest tax burden in the nation. Many people (like me) will stay and suck it up, because we are too invested in the area to leave. But, less tied down people will migrate out of here, while others, who may have wanted to come live and do business in California, will ditch that thought altogether, satisfying such a dream by an occasional vacation to the west coast.

    Whether or not the CA shell game continues to be viable, of having richer, economically unfazed coastal populations residing along side larger interior portions of the state, some of whom are sliding into bankruptcy, remains to be seen. However, even Hollywood is showing loyalty-fatigue by filming outside the state in less expensive areas. And, as our unions continue to hold sway over our economics, as the social welfare debt grows, it will be interesting to see if mild weather, a spectacular topography, and a cool reputation can continue to hold this state together, despite it’s sinkhole of massive debt, below it’s attractive surface.

    BTW, Victor Davis Hanson lives in the Central Valley. He knows more about this state, it’s strengths and weaknesses, than Paul Krugman can ever comprehend in his ivory tower world of advanced Keynesian thinking.

  • steve

    “take solace (snicker) in knowing that this simply cannot be true. steve tells me so, and anyway, its just greedy bankers, not government.”

    I know the HotAir (really Drew, HotAir?) article cannot be true. The government just tells the banks to make loans and they do it. Drew told me so. (We will just ignore the finance sector leading just about everyone else in lobbying money spent and donations to politicians.)

    On topic, what states dont have a divided economy? PA certainly does. Illinois does. Indiana does.

    Steve

  • It’s not just that they’re divided, steve. It’s that a) they’re divided; b) they’re going in different directions; and c) people in one of the economies are practically invisible to people in the other economy.

  • michael reynolds

    Ice:

    Needless to point out to people familiar with your loose grip on reality, but nothing you claim I said is true, aside from the Bob In a Bag thing which was 30 years ago and which (obviously) I’m still regretting since I’m your source on that.

  • I find a lot of what’s at HotAir practically unreadable. However, there is something about it that’s worth mentioning. Along with the Huffington Post it’s the only blog I can think of that’s in the highest echelons in terms of traffic among political blogs that was started after 2003.

    As I’ve written before, if you want to have a political blog that gets thousands of readers an hour, one of the critical success factors is starting before 2003.

  • jan

    Ice,

    You’re in the mix of a struggling economy, experiencing it first hand. Reynolds, though, is perched high on a hill, a loud parrot screaming insults to those who dare protest all the BS surrounding the fiscal and social policies being promoted and paraded out by the current politicians in power. In fact, there is such a high degree of partisan blindness, enmeshed with how he thinks the world should be, that it’s literally impossible for such a person to objectively dialogue with differing POVs, without barbs and heavy rounds of noxious judgment.

    Ironically, if the current administration was under the leadership of the opposition party, having the same statistical results we’re experiencing now, there would be an entirely different appraisal being issued in his posts. The enthrallment would cease, and what would be accentuated would be:

    high unemployment, declining median income, increased SNAP usage, increased SSDI usage, and increased poverty.

    Sound familiar?

  • TastyBits

    A lot of conflicts become more understandable once water is included.

  • TastyBits

    @michael reynolds

    I would advise you to not beat up yourself over a 30 year old incident, but the thought of you beating your head with a board (Monty Python) is too much.

  • A lot of conflicts become more understandable once water is included.

    Looking at a hydrology map puts the conflict among the Israelis, Syrians, and Palestinians into a whole new light.

  • Icepick

    Also, traveling the I 5 every month one can’t help but notice the landscape of signs denoting the dissatisfaction with water distribution from the farmers, many who have suffered enormously from environmentalists and their successful push to protect a small fish, the Delta Smelt, over hydrating crops.

    Is that still going on? I remember those signs from my last trip to CA, which was several years ago now.

  • Icepick

    Reynolds, you told that story as a humblebrag. “See what a caring guy I am now?” Spare me that crap. What you do matters, how you feel about it later much less so.

  • TastyBits

    I suspect that the areas doing worse are a lot darker than those doing well. I also suspect that the number of gated communities and liberals is higher.

    @Icepick

    Poor people must be saved, and where there are no poor people, poor people will be created. Many of the “do-gooders” are trying to atone for some sin – real or not. In order to atone, they must do good deeds, and if needed, the conditions for doing good deeds will be created.

    It is narcissistic, but it is the spirit of the age.

  • Drew

    Michael

    Do you have any idea how ironic your “short man” comment sounds? Do you read or comprehend anything I write? I couldn’t give a damn what people think of me. In my business you’d better have your own view and stand by it. That said, when I find anything here that anyone here writes, you, Dave, jan, PD, steve anyone that seems correct I acknowledge it. And if I think wrong, I say it. Its quality of ideas and arguments, not people or ideology. Period. I would not be a good investor otherwise. And believe it or not, I take all the feedback in.

    For the record, 6ft 3in. Sorry.

  • jan

    Is that still going on? I remember those signs from my last trip to CA, which was several years ago now.

    Ice,

    There are still signs, some are outmoded and referring to previous elections. Others are current, addressing present-day political dissent. There are also new crops being planted that are more drought resistent, compensating for continuing water shortages. But, unemployment is still high. And now with Brown’s rail fantasy hitting the Central Valley, there is increased aggitation about what land is going to be bought up and what kind of disruption this is going to cause the farmers.

    For the record, 6ft 3in. Sorry.

    Drew, perhaps Michael might have inadventently been talking about his own lack of height, in scoffing at what he imagined your’s to be.

    FWIW, I’ve found your comments worthwhile, especially as they are from the perspective from someone who has been in the financial sector a long time. Also, my POV is that you don’t have to necessarily agree with someone to at least give them a civil listen.

  • PD Shaw

    I’m 6’4″, irresistibly attractive, and excellent at econometrics.

    What? Did I go too far?

    I also second Cadillac Desert as excellent, not just for water issues, but understanding how regulatory agencies work.

  • jan

    Tasty

    Poor people must be saved, and where there are no poor people, poor people will be created. Many of the “do-gooders” are trying to atone for some sin – real or not. In order to atone, they must do good deeds, and if needed, the conditions for doing good deeds will be created.

    You definitely have some unique insights into the political theater going on today…

    Poverty, race, gender are all tools of the left used to create and then exploit issues. There are few reasonable solutions employed, only hyperventilating a crisis that will then be repositioned onto a political foe, helping to secure future party ‘wins’ for that party.

  • steve

    Dave- We are covering a small hospital in coal country. Unemployment in the area has been in double digits for years, well before the Great Recession. People in Philadelphia and Pittsburgh have no idea what things are like in the area. Besides the poverty, alcoholism and drug addiction is rampant. While the tech corridor around Philly, and my own area have grown, the coal area has been going in the opposite direction. Their kids are moving out. I think this is pretty much the norm in the Rust Belt.

    I know what Florida was like when I lived there. Affluence on the coasts and Orlando. Not so much for the rest of the state. I dont know if every state has these dynamics, but the ones I know best certainly do.

    Steve

  • Drew

    steve

    HotAir is just an article aggregator. If you have an issue with the actual article you should state it, not just appeal to bias.

    PD

    I, too, am irresistably attractive. All the ladies tell me so…..Oh, wait…………I just awoke from a dream.

    nyuk, nyuk, nyuk

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