Your eyes on California Government

SEPT. 28, 2011

By JOHN SEILER

A new economic forecast  released today warns, “California is fast becoming a post-industrial hell for almost everyone except the gentry class, their best servants and the public sector.” The forecast is from the Center for Economic Research and Forecasting at California Lutheran University.

California’s plight stems from four disasters, CERF Executive Director Bill Watkins told me, which can be summed up in the acronym DURT: delay, uncertainty, regulations and taxes.

I asked about Gov. Jerry Brown signing into law many bills that increase regulations on businesses, and his attempts to increase taxes. “The idea that you can tax and regulate yourself into prosperity has been disproved,” Watkins said. Watkins added that he was impressed with the governor’s budget proposal last January, and hoped Brown would try to get some better regulatory policies for the state, but the governor “just hasn’t gone there.”

Watkins said the regulatory reform must start with examining AB 32, the Global Warming Solutions Act of 2006, which mandates a 25 percent reduction in state greenhouse gases by 2020. Unfortunately, Brown remains steadfast in implementing AB 32.

Details of Disaster

The CERF forecast itself provided the details of California’s disastrous economic situation:

* California’s unemployment rate of 12.1 percent in August is “about a third higher than the United States.”

* “Only eight of California’s 58 counties have unemployment rates in single digits.”

* “California has lost jobs in four of the past six months for which we have data, while the United States has gained or had no change in jobs in each month over that period.” That is, even as the country as a whole is holding steady on unemployment, California is getting worse.

* “California’s poverty rate is 16.1 percent compared to the United States’ 15.1 percent.” But that doesn’t take into account the cost of living, which is much higher here. The forecast noted that a PPIC study “estimated that Los Angeles County’s 2007 poverty rate increased 11 percentage points from 15 to 26 percent, when adjusted for cost of living.”

* “Two California cities, Fresno and San Bernardino, are among the 10 poorest American cities with populations over 200,000.” Only perennially depressed Detroit has a poverty rate worse than San Bernardino’s 34.6 percent.

* “Unemployment among college educated is 34 percent higher in California than in the United States, while Los Angeles’ college educated unemployment rate is almost a whopping 80 above the United States’.”

* “According the California Department of Education, California’s public colleges and universities graduate over 150,000 students a year, while California’s Economic Development Department is forecasting less than 50,000 openings a year for jobs that require a college degree.”

Two Californias

Watkins said that the state is divided in two, between prosperous coastal California and impoverished inland California. But even coastal California can be unpleasant to live in — despite the balmy weather — because of the high cost of housing.

The study described the situation: “Just blocks from Santa Barbara’s State Street or Santa Monica’s Third Street Promenade, over-crowded units, packed sometimes by several families, are the norm, because Coastal California’s housing prices are not related to the local economy. Statewide, 28 percent of California’s children live in crowded housing. This is the highest rate in the nation, tied only with Hawaii.”

California’s motto might be: First World to Third World in one generation.

California’s once vaunted state university system, the forecast laments, now is being challenged by the University of  Texas and the University of North Carolina.

The middle class has been hit especially hard. “California’s middle class is leaving, looking for opportunity and affordable housing,” Watkins wrote. “The evidence is in the migration data. Domestic migration has been negative for over a decade. Perhaps even more telling, only 23 percent of U.S. illegal immigrants are coming to California today, down from about 42 percent in 1990. Even the lowest skilled newcomers know there’s shrinking opportunity here.”

It’s pretty bad when even dirt-poor immigrants from the world’s most impoverished countries don’t want to stay in California.

“When I started my career, California was a place of opportunity. One could have a career, own a home, and raise a family,” Watson remembered. “Not any more — not unless you have a trust fund or a secure pensioned public employee job.”

Charting California

The following graphs show where California is headed — into an economic zombie movie.

The first graph shows how Gross Domestic Product growth remains stagnant, but should pick up a little bit next year, growing at about a 2.2 percent annual rate. That’s better than nothing. But economic recoveries commonly see growth rates of 5 percent or higher. China regularly has seen its economy grow at 9 percent a year or higher for three decades now.

Growth as low as the forecast indicates for California means there will be little expansion in the tax base, which means the state budget crises will continue.

Unemployment

Unemployment also will see only slight improvement, down to 11.4 percent in 2013. But that’s not much of an improvement over the 12.1 percent of August 2011.

And compare the yellow bars (California) to the red line (the rest of the United States). California’s 3 percentage-point extra unemployment will continue, with no correction in sight.

Output Per Worker

Next we turn to economic output. This is important because productivity is the essence of economic growth. The more you produce, the faster your economy grows — and the more that can be ploughed back into business and jobs creation.

During the past few years, output per worker went wildly up and down. As companies cut workers to save expenses, productivity went up. But the dismal state of the economy kept pushing output down.

The CERF forecast sees stagnant growth in output per worker of only about 1.6 percent per year. Again, that’s not enough to sustain strong growth in the tax base, once more assuring perpetual budget shortfalls.

Income Growth

Finally, we look at real wage and salary income growth. This is what folks are most interested in because it’s what they need to support their families.

Notice how the numbers dropped sharply as the recession dug in from 2007 through 2009. No wonder recent U.S. Census numbers showed that Californians’ median incomes crashed a shocking 9 percent from 2006 to 2010.

The CERF forecast sees only modest improvement in real incomes in the coming years, meaning that it may be decades before we’re back up to the levels of 2006.

Worse, the U.S. Census numbers showed that median incomes had not improved from about 1996 to 2011 — 15 lost years. If CERF’s forecast proves accurate, we’ll have another five years of stagnant incomes.

That means California will have suffered two ”lost decades,” 1996-2016 — with more perhaps to come.

California Nightmare

The California Dream Watkins recalled has turned into a nightmare for all but a few — the “gentry” of Silicon Valley billionaires, Hollywood moguls, their high-paid servants of various sorts and government workers enjoying massive pay, perks and pensions.

They super-rich “gentry” can enjoy their multi-billion-dollar California fortunes while frolicking in the sun of Silicon Valley, with vacation homes along the coast.

But for the rest of Californians, the high taxes, labyrinthine regulations general hatred of business have turned what was an economic paradise into a zombie economy.

Tags: AB 32, Bill Watkins, Center for Economic Research and Forecasting, CERF, Jerry Brown, John Seiler, regulations, Taxes