Study confirms exodus from Golden State

Sept. 27, 2012

By Steven Greenhut

Anyone who has lived in California for some time realizes that middle- and upper-income Californians frequently talk about where they are going when they leave California. Most people never actually leave, of course, and birth rates and immigration mostly from Latin America and the Pacific Rim assure that our state’s population keeps growing. But it’s still wise to figure out the root of Californians’ very real angst.

The liberal Democrats who run California mock the idea that people would leave this beautiful state simply because of its tax and regulatory climate. Then again, these people who “run” the state government and make these policies are almost entirely creatures of state government. They tend to have been lifelong government employees and union activists, or attorneys and lobbyists who feed off of the government. They don’t understand or like the private sector and they have no understanding of incentives.

Some researchers insis that businesses are not fleeing the state in large numbers and that whatever business loss California has experienced is not the cause of the state’s enduring job problems.

Such arguments conveniently ignore that most businesses do not actually shut down their brick-and-mortar operations and move to Nevada and Texas. Instead, they stay put but expand in other states. CEOs and their spouses rather live in Newport Beach than Fort Worth, for some odd reason. Apologists for big government ignore that people respond to incentives and disincentives. They don’t think about all the jobs that never were created because of California’s governmental hostility to private enterprise.

Sure, lawyers and lobbyists and even people such as me, journalists writing about the state government, would be foolish to trade California’s beauty for the Nevada desert or the Georgia humidity. But it’s a different story for entrepreneurs. The sad thing is California, known as a worldwide magnet for energy and creativity, is only such a magnet in localized areas, such as in Silicon Valley. Even there, businesses are outsourcing and expanding their operations elsewhere. Even there, executives seem to spend as much time finding tax loopholes as inventing new products.

New study

A new study by the Manhattan Institute, called “The Great California Exodus: A Closer Look,” does indeed take a closer look at the migration numbers and concludes that people really are leaving in droves and businesses are fleeing to lower-cost locales.

Per the study:

“What has caused California’s transformation from a ‘pull in’ to a ‘push out’ state? The data have revealed several crucial drivers. One is chronic economic adversity (in most years, California unemployment is above the national average). Another is density: the Los Angeles and Orange County region now has a population density of 6,999.3 per square mile—well ahead of New York or Chicago. Dense coastal areas are a source of internal migration, as people seek more space in California’s interior, as well as migration to other states. A third factor is state and local governments’ constant fiscal instability, which sends at least two discouraging messages to businesses and individuals. One is that they cannot count on state and local governments to provide essential services—much less, tax breaks or other incentives. Second, chronically out-of-balance budgets can be seen as tax hikes waiting to happen.”

The first factor is the direct result of government intervention. Compare California’s economy to the economies of states with friendlier business climates. No doubt, the third point is true. Thanks to massive pensions and misspending by local governments, the public services in cities here have suffered and it’s only a matter of time before taxpayers will be forced to pay lots more.

Congestion

The second factor, congestion, is not entirely related to public policy, of course. I know from my years in Orange County and the San Gabriel Valley, that many people just get tired of the traffic and the urban problems and head for quieter places. That’s natural. But this would be far less of a problem had policy makers done better transportation planning. In Texas, Colorado and other pro-growth states where Californians tend to move, transportation planners are far more likely to construct roads and freeways. Here, road construction is viewed as an evil, and planners have been more success than in many other places in enforcing a strict New Urbanism that emphasizes light rail and bike lanes over asphalt. Thanks to our global-warming law, high-density land use is the in thing and the high-speed rail boondoggle will supposedly lure us out of our cars. Other states pursue this nonsense, too, but California takes it to a more aggressive level.

One of the great aspects of federalism is that like-minded people tend to move to places that best reflect their values. Californians who value freedom, low taxes, limited government and private enterprise realize that they aren’t particularly welcome here any more. That’s why Nevada — despite having a terrain that looks more like Hades than the Garden of Eden — has been attracting many of California’s best and most energetic people.

Immigration

I’ve always been a fan of immigration, which has put me at odds with some of my newspaper readers in Southern California. As I see it, the people who pull up roots from, say, some hovel in rural Mexico and move to California to better their lives tend to be the most industrious people in their society. Likewise, Texas, Nevada and Utah are receiving some of the most industrious Californians (along with many of its indolent government retirees, who prefer to spend their large pensions in cheaper places, so it is a mixed bag).

When I first moved to California in 1998, Republicans still had hope of winning statewide office. In 1988, George H.W. Bush actually carried the state. Currently, President Obama — who is running a tight race nationwide with Mitt Romney — is ahead by 24 points in California. This is becoming self-selecting, with those who work for government or dependent on government (through contracts or welfare) staying here and those who are more entrepreneurial heading to places that welcome them rather than torment them with endless regulations and increasingly surly regulators.

Soon enough, California Democrats will have two-thirds control of both houses of the Legislature, and they can then raise taxes as much as they choose and as often as they want. Think about that while you browse through Movoto looking for real estate in the Carson Valley.

I love California and take every opportunity to explore its wonderful culture and geography. I’ve traveled to 56 of its 58 counties (I’m still missing Del Norte and Modoc) and even my family has some back-up plans elsewhere if taxes keep getting worse and freedoms continue to erode. Many of my friends and neighbors are far less enamored of the state (mainly because they are from here and haven’t spent the winters I’ve spent in Ohio, Iowa and Pennsylvania), and so many of them are at least actively exploring their options. Do an informal poll of your friends and neighbors and it’s likely that most of them have at least considered moving to another state.

This is a tragedy, the result, as Manhattan Institute’s report explains, of politics. The state can be put “back on track,” the authors wrote. “All it takes is political will.”

Unfortunately, political changes can be among the toughest to create. I’m all for staying put in this magnificent place and working to change the economic trajectory, but it’s wrong to hold any illusions. The exodus is as real as it is understandable.