Denying CA’s Plight Won’t Ease It

Jan. 23, 2012

Years ago, after starting to report and editorialize on news events in an old factory city in Ohio, I was quickly dubbed a “negative” for pointing out the disastrous government spending, housing and tax policies embraced by city leaders — policies that were keeping a nice place wretched. Anyone who made similar criticisms was dismissed as a nattering nabob who didn’t care about the future of the city.

I’ve come to expect local officials to treat their critics this way, but was surprised to see Gov. Jerry Brown embrace this approach this week in his State of the State speech. Brown referred to the growing chorus of Californians complaining about a brain drain to Texas and other states with more favorable tax and regulatory climates as “declinists” with dark visions of the future.

“Every decade since the ’60s, dystopian journalists write stories on the impending decline of our economy, our culture and our politics,” he said. As he then explained, a lack of regulation caused the housing bubble, which slowed California’s recovery. But that’s over, and the state is roaring back.

“Contrary to those declinists, who sing of Texas and bemoan our woes, California is still the land of dreams. … It’s home to more Nobel laureates and venture capital investment than any other state. … California has problems but rumors of its demise are greatly exaggerated.”

Tech Sector

There’s no doubt that the tech sector remains strong, a testament to the word “despite.” Despite California legislators’ and regulators’ efforts to strangle the economy, investors and creative people still rather live in Silicon Valley than in Des Moines or El Paso. But one thriving tech industry does not reflect the overall economic situation, which is far less optimistic.

And it’s hard to see how his solutions — massive tax increases and big new infrastructure spending programs — will revive the state.

First, a point of correction: The housing bust had more to do with government policy that promoted the granting of mortgages to people who couldn’t afford them than it did with a lack of regulation.

Ironically, the policies the governor has most strongly embraced exacerbated that situation. Throughout his career, Brown has championed stringent land-use regulations designed to combat urban sprawl.

Real Estate

When the housing market heated up, in less-regulated markets in Texas and other places, developers were able to fairly quickly build new homes to meet the surging demand. In California’s excessively regulated markets, the lead time for building new houses was so long that prices for existing houses soared, and then they came crashing down with a vengeance. In cities where the market rather than planners called the shots, prices went up and came down in a far less extreme manner thanks to supply and demand. Brown’s misunderstanding of the housing market echoes his misunderstanding of what ails California.

The state’s persistent double-digit unemployment rate is not just the result of a housing bust, but of a toxic business climate that regulates the heck out of everyone and everything. It’s a result of a tax climate that sends people to other, less-attractive states, such as Texas. Those who point to Texas generally don’t do so out of a particular love of that place, but because it is the nation’s other megastate, and its officials take a more business-friendly approach, which has created a more dynamic and growing economy.

The state’s ruling Democrats respond to such comparisons by making fun of Texas culture and pointing to the many reasons no self-respecting Californian would move there. They are purposefully avoiding the point.

California Dream

Of course, California remains the land of dreams. Of course, most of us would never want to live anywhere else. But when people can’t earn a living here, they move to where they can, even if the new place is less appealing.

California is suffering from the same problems found in any number of advanced social-welfare states, where wealth creation is punished and getting a job in the government is rewarded. California’s officials don’t believe in the private sector. They are representatives of the government class, and Brown is that group’s highest-ranking member, which explains why government officials and government retirees don’t want any change. They are doing quite well under the current system, thank you very much.

“California is still the Gold Mountain that Chinese immigrants in 1848 came across the Pacific to find,” the governor said. “The wealth is different, derived as it is, not from the Sierras but from the creative imagination of those who invent and build and generate the ideas that drive our economy forward.”

He then championed the proposed high-speed rail system as a key to California’s future, apparently seeing government as the new source of gold. He then derided rail critics as declinists who would have opposed everything from the Interstate Highway System in the 1950s to the Suez Canal. Yet Reuters recently reported that lawmakers “are gagging at the rail system’s projected cost … and are anxious about the uncertain outlook for federal and private-sector dollars.”

Surely, these critics aren’t all Luddites.

Sorry, but the true declinists are the ones who believe that California’s health is dependent on spending tens of billions of dollars on a government rail project that looks a lot like a boondoggle. The true declinists are the ones who stick to the same path of taxing, spending, regulating and suing the life out of the productive and entrepreneurial class. Brown is not just a declinist but a denialist, who believes that the same old policies that led to the current mess will lead us to a bright new future. Yet it’s far better to point out the decline in the hopes of arresting it than to be party to it, regardless of what Brown calls us.

— Steven Greenhut