California Ponders Suicide - Texas Offers A Knife

Col. Nick Rowe has written several posts lamenting the foolish - nay, even self-destructive - choices made by California politicos and special interest groups. Now Forbes has highlighted this trend, and by contrasting it with the path that Texas has taken shown it for the dead-end road it truly is.

California Suggests Suicide; Texas Asks: Can I Lend You a Knife?

In the future, historians may likely mark the 2010 midterm elections as the end of the California era and the beginning of the Texas one. In one stunning stroke, amid a national conservative tide, California voters essentially ratified a political and regulatory regime that has left much of the state unemployed and many others looking for the exits.

California  has become a cautionary tale of mismanagement of what by all rights should be the country’s most prosperous big state. Its poverty rate is at least two points above the national average; its unemployment rate nearly three points above the national average.  On Friday Gov. Arnold Schwarzenegger was forced yet again to call an emergency session in order to deal with the state’s enormous budget problems.

This state of crisis is likely to become the norm for the Golden State. In contrast to other hard-hit states like Pennsylvania, Ohio and Nevada, which all opted for pro-business, fiscally responsible candidates, California voters decisively handed virtually total power to a motley coalition of Democratic-machine politicians, public employee unions, green activists and rent-seeking special interests.

Texas’ trajectory, however, looks quite the opposite. California was recently ranked by Chief Executive magazine as having the worst business climate in the nation, while Texas’ was considered the best. Both Democrats and Republicans in the Lone State State generally embrace the gospel of economic growth and limited public sector expenditure.

Since 1998, California’s economy has not produced a single new net job, notes economist John Husing. Public employment has swelled, but private jobs have declined.  Critically, as Texas grew its middle-income jobs by 16%, one of the highest rates in the nation, California, at 2.1% growth, ranked near the bottom. In the year ending September, Texas accounted for roughly half of all the new jobs created in the country.

Even more revealing is California’s diminishing preeminence in high-tech and science-based (or STEM–Science, Technology, Engineering and Mathematics) jobs. Over the past decade California’s supposed bulwark grew a mere 2%–less than half the national rate. In contrast, Texas’ tech-related employment surged 14%. Since 2002 the Lone Star state added 80,000 STEM jobs; California, a mere 17,000.

Hollywood too is shifting frames, with more and more film production going to Michigan, New Mexico, New York and other states. In 2002, 82% of all film production took place in California–now it’s down to roughly 30%. And plans by Los Angeles County, the epicenter of the film industry, to double permit fees for film, television and commercial productions certainly won’t help.

What on earth is LA thinking? An entire industry is moving production outside the city, and their solution is to double fees for the remainder?

International trade, the third linchpin of the California economy, is also under assault. Tough environmental regulations and the anticipated widening in 2014 of the Panama Canal are emboldening competitors, particularly across the entire southern tier of the country, most notably in Houston ... to lure high-paid blue collar jobs away from California’s ports.

Most worrisome of all, these telltale signs of palpable economic decline seem to escape most of the state’s top leaders. The newly minted Lieutenant Governor, San Francisco Mayor Gavin Newsom, insists “there’s nothing wrong with California” and claims other states “would love to have the problems of California.”

Newsom does a pretty good ostrich imitation: "There's nothing wrong here that more taxes and regulations can't fix."

But it’s not only the flaky Newsom who is out of sync with reality. Jerry Brown, a far savvier politician, maintains “green jobs,” up to 500,000 of them, will turn the state around. Theoretically, these jobs might make up for losses created by ever stronger controls on traditional productive businesses like agriculture, warehousing and manufacturing. But its highly unlikely.

Construction will be particularly hard hit, since Brown also aims to force Californians, four-fifths of whom prefer single-family houses, into dense urban apartment districts. Over time, this approach will send home prices soaring and drive even more middle-class Californians to the exits.

Ultimately the “green jobs” strategy, effective as a campaign plank, represents a cruel delusion. Given the likely direction of the new GOP-dominated House of Representatives in Washington, massive federal subsidies for the solar and wind industries, as well as such boondoggles as high-speed rail, are likely to be scaled back significantly.  Without subsidies, federal loans or draconian national regulations, many green-related ventures will cut as oppose to add jobs, as is already beginning to occur. The survivors, increasingly forced to compete on a market basis, will likely move to China, Arizona or even Texas, already the nation’s leader in wind energy production.

Tom Hayden, a ’60s radical turned environmental zealot, admits that given the current national climate the only way California can maintain Brown’s “green vision” will be to impose “some combination of rate hikes and tax revenues.”  Such an approach may help bail out green investors, but seems likely to drive even more businesses out of the state.

My God. If even Tom Hayden can figure it out, why can't the rest of the politicians?

California’s decline is particularly tragic, as it is unnecessary and largely unforced. The state still possesses the basic assets–energy, fertile land, remarkable entrepreneurial talent–to restore its luster. But given its current political trajectory, you can count on Texans, and others, to keep picking up both the state’s jobs and skilled workers. If California wishes to commit economic suicide, Texas and other competitors will gladly lend them a knife.

A recent list of jobs and businesses fleeing California is staggering.  

By pure coincidence, the headline in today's San Antonio newspaper announced that San Diego-based Petco (the pet store people) is moving a portion of its corporate headquarters, and 400 high-paying financial, accounting, and management jobs, from San Diego to San Antonio. Anyone want to bet that there's another Petco shoe out there getting ready to drop?

San Antonio also snagged the Toyota Tacoma production line from CA when Toyota shut down its Fremont CA plant last spring.

However, the purpose of this post is not to blow San Antonio's horn. It's rather to express the concern that CA will eventually become another member of the PIGS club. (The PIGS are Portugal, Ireland, Greece, and Spain, all of whom have mismanaged their economy to the point where massive bailouts are necessary.) If this happens in CA, guess who'll get stuck with the tab?

That's right, the U.S. taxpayer.

After all, California is too big to fail...