JOEL KOTKIN: In the new year, worry-free California has a lot to worry about.
Propped up by media idolatry, California is moving from denial to delusion. Case in point: A recent AP story claimed that the state “flush with cash from an expanding economy” would consider spending an additional billion dollars on health care for the undocumented, as well as a raft of new subsidies for housing and the working poor.
All this wishful thinking and noble intentions ignores a slowing state economy, and a structural deficit, keyed largely to state worker pensions, that may now be headed towards a trillion dollars. Perhaps the widely celebrated, although poorly distributed “good times” of the past few years, have clouded Sacramento’s judgement.
Jerry Brown, repeatedly lionized in the national press, finally leaves office after next year, he will likely leave his successor both a totally out of control legislature and looming fiscal crisis. Brown’s replacement will also have to deal with a state that, according to the Social Science Research Council, suffers the greatest income inequality in the nation and the third worst economic environment for middle class families. Worse yet — upwards of one-third of the state population subsists near or in poverty.
It’s clear that period of tech-driven rapid growth is coming to an end. In the most recent quarter, BEA reports, California’s GDP growth ranked a meager 35th in the nation; just last year the state’s growth was twice the national average and among the highest in the nation.
Two factors are driving this turnabout — the fading of Silicon Valley’s boom and a hyper-inflated real estate market. After soaring for year, the tech economy has slowed dramatically. The San Jose Mercury recently reported that even as the country overall enjoyed strong job gains, the Bay Area lost 4,700 jobs in the last quarter, at least 1000 in the tech sector.
California has suffered from other tech busts before but this time there’s no suitable alternative — such as manufacturing or homebuilding — to create new source of high wage jobs. Overall blue collar jobs have declined for a decade; the state has lost a net 160,000 manufacturing jobs. In 2015-2016, sadly, near minimum wage jobs for almost two-thirds of the state’s net growth.
The unending housing crisis
California’s other primary driver has been escalating property prices.
It’s not a pretty picture.
