Is California the next Detroit?

Aug. 14, 2012

By Robert J Cristiano, Ph.D.

Most Californians live within about 50 miles of its majestic coastline — for good reason. The California coastline is blessed with arguably the most desirable climate on Earth, magnificent beaches, a backdrop of snow-capped mountains and natural harbors in San Diego, Long Beach and San Francisco. There is no mystery why California’s population and economy boomed after the Second World War.

The Golden State was aptly named. Its Gold Rush of 1849 was followed a century later by massive growth in the 1950s and 60s. Education in California became the envy of the world. Stanford became the Harvard of the West. A college education at the University of California and California State University systems was inexpensive. The Community College system that fed its universities was ostensibly free.

California’s public school system led the nation in innovation and almost all of its classrooms were new. The highway system that moved California’s automobile-driven commerce eliminated the need for public transportation systems like New York and Chicago. The fertile soil of the Central Valley became the breadbasket of the world.

The next golden wave in the 1980s grew from former orchards south of San Francisco known as Silicon Valley. Intel and other companies led the world’s computer and software revolution. In the 1990s, the dot-com revolution brought immense wealth to more Californians. Its innovators, Google, Apple and others, ushered in the Internet Era. The 2000s brought the greatest housing and mortgage boom in the nation’s history, with innovation centered in Orange County. California was truly the Golden State.

Why then would the author have the temerity to ask, “When did Californians become Stupid?” And: Is California the next Detroit?

Unique oblivion

Californians, due to their golden history, live in unique oblivion. When the Tea Party movement caused a political tsunami that swept more than 60 incumbents from political office in 2010, the wave petered out at California’s state line. There was no effect on the 2010 election that saw Democrats take every elected office in the state.

California voters rejected Meg Whitman, the billionaire founder of Ebay, in favor of Jerry Brown. Gov. Brown signed into law a “high-speed rail” bill that will spend $6 billion (the state does not have) to build a train between Fresno and Bakersfield — not Los Angeles and San Francisco, as promised. There was little outcry.

California has a $16 billion deficit that no one seems to notice. Brown’s budget “assumes” that California voters will pass massive tax increases on themselves. If they do not, the 2013 deficit becomes a mind-numbing $20 billion. The budget, mandated to balance by the Calfornia Constitution, has been billions in the red for 10 straight years. How could Californians re-elect the same politicians year after year that produce budgets with multi-billion dollar deficits?

To protect the endangered Delta Smelt, a fish known better as bait, water has been diverted from the Central Valley to the Pacific Ocean. Orchards in the Central Valley have been allowed to wither and die, resulting in unemployment in the Central Valley as high as 40 percent. Imagine Californians living in what was the breadbasket of American now living on food stamps. California voters rejected Republican Carly Fiorina for U.S. Senator in 2010. She ran Hewlett Packard. Instead, they re-elected Democratic Sen. Barbara Boxer ,who vowed to protect the Delta Smelt at the expense of the Central Valley.

California has 519 state agencies, like the state Blueberry Commission, that pay each of their commissioners more than $100,000 per year. State politicians, when asked to make cuts, fire teachers and fire fighters to inflict maximum pain on its citizens, while leaving these patronage commissions intact. State politicians have elevator operators in the state capital to push the buttons for them. Their solution for the overcrowding of the state’s prisons is to release inmates or transfer them to local facilities in already bankrupt cities. Yet, they are re-elected by California voters in numbers consistently higher than the old Soviet Politburo.

California’s public education system, once the envy of the world, now ranks 49th in the nation. Its business climate, according to 650 CEOs measured by Chief Executive Magazine, ranked dead last. Apple will take 3,600 new jobs to Austin, Tex. at its $280,000,000 new facility. Texas ranked first in the same survey.

California unemployment is consistently higher than 10 percent of its workforce, but it’s under-employed, according to a Gallup poll, is 20 percent. There are few jobs for college students who graduate with as much as $100,000 in student loans. Despite the overwhelming evidence that bad public policy is chasing away jobs, the same state politicians are sent back to Sacramento every two years.

In the last two months, three California cities have declared bankruptcy. Compton is next. More will follow. Some cities will simply cease to exist due to $500 million in unfunded pension obligations they simply cannot meet.

The unfunded pension obligations, now swamping California cities, were approved by these same politicians whose re-elections are financed by the unions they serve. Nine years ago, outraged Californians recalled Gov. Gray Davis from office for excessive spending and crony capitalism. Nothing has changed a decade later. Its residents believe the golden state will be golden forever. It may not be the case.

Detroit

History has an unpleasant precedent known as Detroit. In the 1950s, Detroit was a major American city with a dynamic labor force built on the manufacturing miracle that won World War II. Its factories quickly converted tanks, planes and artillery shells into trucks, automobiles and refrigerators that baby boom families demanded. Everyone had a good paying job. Detroit Iron had no competition. Its burgeoning middle class was the model of the world with excellent public schools and universities. It was the 4th largest city in America with 2 million inhabitants, with the world’s most dominant industry — the automobile.

Detroit in 2012 is a shadow of that once great metropolis. Its population has shrunk to 714,000. There are 200,000 abandoned buildings in the derelict city. The average price of a home has fallen to $5,700, unthinkable in California terms. Unemployment stands at 28.9 percent. It has a $300 million deficit. Its public education system, in receivership, is a disgrace, producing more inmates than graduates. The jobs have long ago abandoned Detroit for places like South Carolina and Alabama, far hungrier than Detroit’s leaders who believed the gravy train would never end.

In 2006, the teacher’s union forced the politicians to reject a $200 million offer from a Detroit philanthropist to build 15 new charter schools. The mayor has proposed razing 40 square miles of the 138 square miles of this once great American city, returning it to farmland. Even such a draconian plan may not be enough to save the city from itself.

If a hurricane hit Detroit, more of us would know of this tragedy in our midst, but this fate was man-made and not wrought by nature. Detroit has had one party rule for more than 50 years. Louis C. Miriani served from September 12, 1957 to January 2, 1962 as Detroit’s last Republican mayor. Since that time, the Democrats have ruled the Motor City.

John Dingell, Democrat congressman for the 15th District outside Detroit, has served since 1956. His father was the congressman there from 1930 to 1956. Despite the disastrous decline of their city, Detroit voters send him back to Congress every two years.

One-party rule

Similarly, California now has one-party rule. The Democrats of California did not need a single Republican vote to pass their budget. They now own the Golden State’s fate. The politicians’ plan to address the nation’s largest deficit is to raise taxes instead of cutting spending. If the Proposition 30 tax increase passes, the deficit would drop from $20 billion to a mere $12 billion.

Democrats have done nothing to cure the systemic problems of a bloated bureaucracy. Brown, referring to the state’s highway system, once said, “If we do not build it, they will not come.” Caltrans stopped building highways under Brown, but the people kept coming. Now 37 million Californians are locked in traffic jams each day.

Brown was rewarded for such prescience with re-election as Governor. California’s egotistical politicians passed AB 32, the Global Warming Solutions Act in 2006. Dan Sperling, an appointee to the California Air Resources Board, and a professor of engineering and environmental science at UC Davis, is the lead advocate on the board for a “low carbon fuel standard.” The powerful state agency charged with implementing AB 32 and other climate control measures claims the low carbon fuel standard will “only” raise gasoline prices $.30 gallon in 2013. But The California Political Review reported implementation of these the policies will raise prices by $1.00 per gallon.

Detroit was once the most prosperous manufacturing city in the world.  Will California follow Detroit down a tragic path to ruin? In 1950, no one fathomed the Detroit of 2010. In 1970, when foreign imports started to make a foothold, the unions and their bought and paid for politicians resisted any change.

In the 1990’s, as manufacturers fled to Alabama and South Carolina, the unions and their political lackeys held firm even as good jobs slipped away. No one in Detroit envisioned their future, even as schools declined, the jobs withered and the once proud city deteriorated in front of their own eyes.

No longer golden

California was once the Golden State. Today, it is no longer so golden. Its schools are in decline. Its business climate is equally dismal. Its cities are facing economic ruin, with exploding pension obligations and a declining tax base. Housing prices have fallen 30 to 60 percent across the state, evaporating trillions of dollars of equity. Unemployment remains stubbornly high and under-employment is rife. The Central Valley is in a depression, with 40 percent unemployment. Do our politicians need any more signs?

Brown’s budget will first slash money to schools and raise tuition on its students, while leaving all 519 state agencies intact. He apparently will protect political patronage at all costs. Jobs, and job creators, are fleeing the state. Intel, Apple, Google and others are expanding out of the state. The best and brightest minds are leaving for Texas and North Carolina. The signs are everywhere. State revenues are declining during many years. Meanwhile, the voters sleep and blindly send the same cast of misfits back to Sacramento each year — just as Detroit did before them.

The beaches are still beautiful. The mountains are still snow capped and the climate is still the envy of the world. Detroit never had that. But will California’s physical attributes be enough? If the people of California want to glimpse their future, they need look no farther than once proud City of Detroit. It can happen here.

Robert J. Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA, a senior Fellow at the Pacific Research Institute in San Francisco, CA and President of the international investment firm, L88 Investments LLC in Denver — Newport Beach — Washington DC. He has been a successful real estate developer for 30 years and resides in Newport Beach California.

26 comments

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  1. Queeg
    Queeg 14 August, 2012, 09:04

    Why worry? Poodle and Donkey have all the answers and NEVER SOLUTIONS.

    Why do we waste our eyes on their droning drivel….a continual pity party stoked by red meat articles of gloom and doom.

    Something gotta be right in California or 38 mil of residents would not live here.

    You pray at the altar of change…well you got it in D.C. You elect bottom feeder attornies and military rejects in Sacramento. Your the problem as much as any other Californian.

    Reply this comment
  2. us citizen
    us citizen 14 August, 2012, 10:07

    How true this article is. Again I will say it………..the illegals are killing this state. It is time to make them go home. They have BROKEN the law. We ran this state years ago without them, we can do it again. You cant even speak English in parts of this state now.

    What has really changed in this state are the number on welfare. This is why we cant vote the liberal idiots in this state out! When the welfare takers out number the tax payers, all hell will break out and we dont have the majority to vote out the liberals anymore.

    Reply this comment
  3. Tax Target
    Tax Target 14 August, 2012, 10:57

    Why do 38 million Californians live here? Because they are economically cemented to Kalifornsky. It is rather difficult for many to leave because they can’t afford it. And, in fact, many of them choose to live here because of the largess of the welfare state.

    For those that think life is so wonderful in Kalifornsky I hope you’re looking forward to life in the gulag. You deserve it.

    Reply this comment
  4. jimmydeeoc
    jimmydeeoc 14 August, 2012, 11:31

    We’ve pretty much all heard this before, and most of it s true, of course.

    If I had one bone to pick: Cristiano brings his “Golden Age” timeline nearly to the present, which I think far too generous. Personally I think the scales began tipping in the early 1990s. True we had the Silicon Valley internet era and the housing and mortgage “boom” in the past two decades, but those were either very localized (the former) or turned out to be a bust (the latter).

    The early 1990s had the gigantic aerospace recession, from which manufacturing has never recovered, and the LA Riots/Northridge earthquake double whammy in ’92 and early ’94.

    And it was in the early 90s that domestic in-migration turned negative for the first time in, well, forever. A trend that has continued, except for a couple minor blips, for two full decades. What is the number now? 3.5 million or 4.0 million – something like that. When a state loses well over 10% of its residents – the vast of whom were middle-class – there’s a problem. A BIG problem.

    Reply this comment
  5. Deanne
    Deanne 14 August, 2012, 11:40

    There are so many different reasons we could investigate as to why our populace is sleeping…the educational system failed them in teaching them to think for themselves, the media (still the primary outlet for most news soundbites) supports the liberal agenda–not bothering to look deeper b/c of deadlines, Hollywood engages in television that is uneducational and imbecilic, etc. While preferencial treatment is given to illegals, we once had an economy that could sustain their needs as well, and they were an important part of our economy. We cannot blame it just on them; they too are suffering for the decision made in Sacramento. When I talk to someone liberal thinking they are either one-sided (Republicans hate gays) or blinded by the lies they see on ABC, CBS and NBC news. I just feel hopeless that Californians just continue to support politicians that pad their pockets with union dollars. My household is underemployed and has been since Obama took office in ’08. My grown and college-education children are underemployed working in jobs not in their field of study. And then, there is the uncounted–the self-employed. They too have lost their homes, their way of life, and are suffering. However, they are not on the unemployment rolls because they cannot declare unemployment. What would the “unemployment” statistic really be if they were counted?

    Reply this comment
  6. Queeg
    Queeg 14 August, 2012, 12:49

    You will not vote out the liberals…demographics gotcha while you were stuffing your face with big box store wine and cheese.

    It is interesting reading the posts of those who watched the world turn and pass them by.

    Reply this comment
  7. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 August, 2012, 13:00

    John is from Michigan he knows that ths pic in this article is ver accurtae and a very good example of many parts of Detroit

    Teddy, glad to see you brought your sock puppet Queeg back with you from your so called vacation!

    Reply this comment
  8. jimmydeeoc
    jimmydeeoc 14 August, 2012, 13:32

    “It is interesting reading the posts of those who watched the world turn and pass them by.”

    Just WTH is THAT supposed to mean, Queeger?

    Taken in toto, they are simply observations. Some more accurate than others, perhaps, but just the same as you post.

    If I have to put in the most simplistic terms for you, here goes. What site are you on now? Yes, Calwatchdog. Very good. Here’s a scooby-snack for you. Pat pat. And what do “watchdogs” do? They observe. And me, you, and everyone else who posts is simply commenting on those observations.

    I’ve never gone for ad hominem attacks before, Queeg, but that was just a silly, nonsensical post.

    Reply this comment
  9. Hondo
    Hondo 14 August, 2012, 13:32

    Kalifornia has more ways to create jobs and grow the economy than anyplace on earth. The greatest coastline on earth, mountians, desert. Tourism alone could float the states economy. Then there is the breadbasket central valley, Hollywood, silicon valley, the oil industry, the ports and harbors on the pacific rim. Then there is the ocean with its commercial and sport fishing. And lumber. The redwood trees, which run from Santa Cruz to the Oregon border is the largest biomass on earth. Not counting the sequioas in the Sierras. Or the huge ponderosa’s near Quincy.
    Texas is hot and flat and ugly. I used to live and work there. It has a fraction of the ways to make money and jobs that Kali has. Yet is out jobs Kali easily.
    Ahhh my golden youth spent in Kali. Hitchhiking up the golden coast of Santa Barbara, chasing those California girls while singing that Beach boy song. ‘The west coast has the sunshine and the girls all get so tanned’. It was all so true, as true as the song said it was. Living near Big Bear in the cool mountains and hitching down to San Onofre state beach in a few hours to go body surfing.
    What happened? How could ugly Texas possibly beat out California.
    Hondo……

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 August, 2012, 13:34

    Queeg says:
    Why worry? Poodle and Donkey have all the answers and NEVER SOLUTIONS.

    Teddy, why are you so testy today???? an you please go back on vacation, thank you- The Readership 🙂

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 August, 2012, 13:35

    I’ve never gone for ad hominem attacks before, Queeg, but that was just a silly, nonsensical post.
    lol…JimmyDee you’re new here…..”Queeg” is a sock puppet of Teddy Steal, his comments are not serious, they are gimmick comments!

    Reply this comment
  12. Queeg
    Queeg 14 August, 2012, 15:21

    Beating on Queeg, the trumpter of your reality is to be expected….the truth hurts.

    Sorry!

    Reply this comment
  13. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 August, 2012, 02:20

    Teddy-go back on vacation!’

    Reply this comment
  14. Queeg
    Queeg 15 August, 2012, 09:50

    Queeg keeps those who dislike any authority placated….beat on Queeg…..get it all out…..ahhhhhh…..feel better?

    Reply this comment
  15. John
    John 15 August, 2012, 11:54

    All of the greatness of California illustrated by the author was the result of citizens paying taxes at levels that make some people’s head explode today. Capital gains taxes at the end of the 1960s stood at close to 50%. Income tax on the top one percent stood at 70% and that was down from the 1950s when it stood at more than 90%. There were property taxes that were much higher than the capped Prop 13 level taxes we have seen for over 30 years. What does anyone expect when you stop funding everything? State government funding for programs and services has not been this low since the 1960s, but the gap in wages between the bottom and the top earning groups has gone off the charts since that decade when it had the smallest recorded differential. While the author would like to blame all democrats for this mess, truth is the super majority needed to pass most budgets and spending initiatives has been thoroughly controlled by the anti-tax republicans for the last 25 years. Most governors of this state have been Republicans for the past forty-four years. If you want great schools, great roads, great public transportation, safe levees and bridges you have to chip in a lot more than we have these past thirty years.

    Reply this comment
  16. Sean Morham
    Sean Morham 15 August, 2012, 12:51

    In the central valley(new appalachia), in its urban and suburban settings there is worry about drive by shootings. I know that is the case in other places in Kalifornis,….Oakland, LA. Great climate turning into an absolute dump. My ten year nieghborhood has a house, overgrown yard, one car on blocks in the driveway, another parked in the weeds of the yard. Cops don’t enforce the existing code. Outside I carry protection and prepare for the inevitable confronation with a scumbag. I don t plan on finishing in second. I am not alone.

    Reply this comment
  17. Bob
    Bob 15 August, 2012, 13:42

    Hey, with Jerry Brown, Johnny Perez and Darrell Steinbug running things what could possibly go wront? Right, Stealey?

    Reply this comment
  18. Bubba Gump
    Bubba Gump 15 August, 2012, 13:46

    Just wait until the welfare runs out if you think it’s bad now.

    Reply this comment
  19. BobA
    BobA 16 August, 2012, 08:47

    John:

    What’s you point? Are you implying that higher across board taxes will solve California’s problems? What assurances can you offer the rest of us that the politicians won’t just increase their spending levels and bury the state in a deeper fiscal hole?

    Reply this comment
  20. jimmydeeoc
    jimmydeeoc 16 August, 2012, 10:54

    “All of the greatness of California illustrated by the author was the result of citizens paying taxes at levels that make some people’s head explode today.”

    JOHN – You are making MY head explode. First off you mix in Federal and state rates willy-nilly, like a three-bong-hit drooling Occupier.

    Look at it this way…….What were state receipts during the 1960s, and what was the level of spending. Compare those same figures to the present, accounting for population and inflation, of course. Go ahead. Look at the per capita numbers. I dare you.

    THOSE numbers will make taxpayers’ heads explode. I’ve looked at the numbers, plenty of other people have, and it is truly jaw dropping. We are getting so little in return for paying so much.

    Reply this comment
  21. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 August, 2012, 11:35

    All of the greatness of California illustrated by the author was the result of citizens paying taxes at levels that make some people’s head explode today. Capital gains taxes at the end of the 1960s stood at close to 50%. Income tax on the top one percent stood at 70% and that was down from the 1950s when it stood at more than 90%. There were property taxes that were much higher than the capped Prop 13 level taxes we have seen for over 30 years. What does anyone expect when you stop funding everything? State government funding for programs and services has not been this low since the 1960s, but the gap in wages between the bottom and the top earning groups has gone off the charts since that decade when it had the smallest recorded differential. While the author would like to blame all democrats for this mess, truth is the super majority needed to pass most budgets and spending initiatives has been thoroughly controlled by the anti-tax republicans for the last 25 years. Most governors of this state have been Republicans for the past forty-four years. If you want great schools, great roads, great public transportation, safe levees and bridges you have to chip in a lot more than we have these past thirty years.

    Wow, what a load of talking points!

    #1- EFFECTIVE tax rates were never 50% nor, 70% or 90%-EVER, the write offs were 100 times what they are today.

    #2- “Funding” never stopped after Prop 13, the only thing that happened is “fees” were raised through the roof on EVERYTHING besides “taxes”. The amount of tax revenue went UP after Prop 13, so your argument that funding went down is a big fat whopper lie.

    #3- State funding for state employees has NEVER ever been this high in the history of the world. The AVERAGE San Jose public employee comps $175K per year, AVERAGE. That is 800% HIGHER than the states median private sector income of $31K.

    #4-The gap between GED and HS educated gov employees and the private sector is the highest it has ever been in the history of the world. And it keeps growing with the average San Jose public employee being in the top 5% in the nation.

    #5- If we want great schools, roads, libraries, levies and bridges we need to start clawing back the gold plated top 5% we are comping our HS educated public work force, because cops, FF’s and prison guards do not deserve and should not be comping more than private sector brain surgeons, CPA accountants and lawyers.

    Hope this helps John!

    Reply this comment
  22. CalWatchdog
    CalWatchdog Author 16 August, 2012, 11:45

    Rex: After WWII, taxes and spending were cut sharply in 1946:
    http://econstories.tv/wp-content/uploads/2011/05/The-Great-Depression-of-1946.pdf

    Also, after WWII, America had the only major economy that wasn’t bombed out.

    In the late 1950s, the 91 percent top tax rate was dragging down the economy. The Kennedy-Johnson tax cuts of 1964, dropping the top income tax rate from 91 percent to 70 percent, produced a tremendous boom in the mid-1960s, until LBJ’s surtax of 1968.

    In the mid-1960s, Michigan Gov. George Romney, father of Mitt, imposed the state’s first income tax and more than doubled state spending in just 6 years. That really started hurting after the economic collapse of 1974, actually a Depression in Michigan. I remember it. I was there.

    If U.S. top income tax rates were jacked up to 50 percent, let alone 70 or 91 percent, the economy would collapse under the weight more than it already has.

    — John Seiler

    Reply this comment
  23. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 August, 2012, 22:12

    Yes, tax rates that high are so preposterous it is a joke, and it would HARM the economy so much it would cause a failure. I agree totally.

    Reply this comment
  24. BobA
    BobA 17 August, 2012, 08:35

    Rex:

    There are certain groups within California that emphatically believe that we are under-taxed and taxes should be higher. They throw out the canard that high taxes works well in Europe and we should do the same.

    Of course those same people are oblivious to the fact that Europeans are being crushed by the weight and girth of their tax system and that several European countries are near total collapse because of it.

    It astonishes me that they think that those same failed solutions can somehow be made to work in America. My only conclusion is that they have a myopic view of facts that distorts their perception of reality.

    Reply this comment
  25. Rex the Wonder Dog!
    Rex the Wonder Dog! 17 August, 2012, 14:53

    We ned a basic level of taxation to keep essential services goimg. A sales tax of 4-6% would be OK, an income tax of 5%-20% is OK, excise fees of 5% max is OK. But when you start exceeding those levels you ae going past basic gov needs. The sales tax has nearly doubled in the last 30 years.

    Reply this comment
  26. David Travers
    David Travers 18 August, 2012, 21:14

    It looks as though some things are changing. Cities are working on cutting future pension costs. There have been layoffs and unpaid days off but not near enough at the state level.

    Cities are filing bankruptcy to get out of the horrible bond obligations. Maybe that will slow the borrow machine down a bit. Kluckafornia consumes 20% of the muni bonds in the country.

    School costs are going up for post secondary and that might slow the newcomers getting a cheap education with one Kluckafornia tax return.

    I dont think the tax increase will pass but even if it did it just a drop in the bucket. Even so, there are many more boondogles left in the Dems pockets to payoff their friends.

    The Dem Party in Cluckafornia was built by the old KGB. They trained their now gone leaders and we are left with their twisted sisters and brothers.

    Its not all bad but its going to get worse and it will be generations before it turns around. Someday the young will wake up to find their future has been robbed.

    Reply this comment

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