Economist outlines CA road to prosperity

Dec. 20, 2012

By Katy Grimes

SACRAMENTO — California’s economy isn’t dead — yet.

With a few smart, pro-growth policy changes, California could get back in the game and be the economic leader it once was, Jonathan Williams told me in a visit to our state capitol to analyze the Golden State. He is one of the authors of the 2012 report “Rich States, Poor States” published by the American Legislative Exchange Council. It compares the 50 states on 15 economic variables, such as tax rates and regulations.

But Williams warned that, if California’s leaders do not make some immediate, dramatic structural moves, the dismal economic forecast will overshadow the stunning weather forecast, and could eventually turn California into the least desirable state in the union.

The report’s co-authors are Stephen Moore of the Wall Street Journal and Arthur Laffer, who helped design Calfiornia’s Proposition 13 and Ronald Reagan’s tax cuts. Laffer also heads the new Laffer Center at the Pacific Research Institute, CalWatchdog.com’s parent think tank, and this year authored “Eureka! How to Fix California.”

“Be more like Texas and less like California”

“Texas versus California has become the most stark example,” Williams continued. “The left wing tries to impune Texas, but the job creation, low unemployment, income growth and GDP growth is undeniable.”

So what should California do?

If Brown merely adopted the tax reform policies of Kansas, California would see immediate improvement in the business sector, job growth and unemployment rate. Williams said that this year Kansas flattened its income tax, dropped three tax brackets to two, lowered the top income tax rate from 6.45 percent to 4.9 percent and eliminated the personal income tax for small business owners.

“This pro-growth policy would put California back in play and jump start the economy,” Williams said. “It would tell the entire country that the private sector still matters — that competition matters.” Unlike the federal government, he added, “You can’t print money, so the state must do pro-growth at some point.”

His words confirmed what Intel CEO Paul Otellini recently told the Wall Street Journal. The microchip giant hasn’t added a job in California more than 10 years and closed its last factory in the state around six years ago. “Oh God. I was born and raised here. I’m fifth or sixth generation. It’s one of the nicest pieces of real estate on the planet, and we’re so close to screwing it up, it’s pathetic,” Otellini said. “I’d like to be bullish, but I worry that we have to hit the abyss before we can fix things, and I worry that the abyss will be more like Greece.”

Good weather is not enough

“Over the last 20 years, 3.6 million more Americans have moved out of California than have moved in, and 130,000 more Americans have moved from Hawaii than to it,” “Rich States, Poor States” reported.

Yet every year California legislators brag openly about how the good weather trumps economic policy and low taxes.

“This is too stark to deny, particularly as it relates to regulatory policy in states,” Williams said. “And, we will never know how many people and businesses decided not to move to California.”

Beautiful weather may attract tourists, but if the economic policy isn’t sound, even the beautiful states can’t keep or attract residents. “California charges a premium for nice weather,” Williams said.

Residents of California’s coastal communities may turn their noses up at North and South Dakota, and mock anyone wanting to move there. But Williams said that, with the strong economic policies, the Dakotas have a 2.9 percent unemployment rate. This has led to a new house building market that can’t keep up with the rising demand. “Capital is blind to weather. The numbers don’t lie,” Williams added.

Alaska has one of the harshest climates in the entire Western Hemisphere, but it’s performing better economically than California.

The authors of “Rich States, Poor States” found that, over the last 10 years, more than 4.2 million people have moved out of the highest income tax states and states with the highest local tax burdens.

“A state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country,” said U.S. Supreme Court Justice Louis D. Brandeis.

California’s laboratory eventually will have to switch from experiments that fail to those known to succeed.