Anonymous
By Sonia Fernandez, UC Santa Barbara
California, for so long a beacon of prosperity and fortune, is flagging in its ability to deliver on the promises that have attracted multitudes since the early 20th century. After decades of expansive growth, changes in priorities and governance have led to conditions that have become untenable for businesses and individuals, leading many to leave the Golden State, and causing others to reconsider their residency. On top of that, investment in the state’s infrastructure has been poor as the population has grown, leading to costlier measures down the line.
That was some perspective from Lee E. Ohanian, professor of economics at UCLA, senior fellow at the Hoover Institution at Stanford University, UC Santa Barbara alumnus and guest speaker at the recent installment of EFP Informs, a webinar series presented by the UC Santa Barbara Economic Forecast Project (EFP).
What was a smaller, investment-oriented California government in the mid-20th century has become large and inefficient, with plenty of room for reform, according to Ohanian. How did we get here?
To answer that question, EFP director and UCSB professor of economics Peter Rupert began with a snapshot of the current state of the economy.
“The economy is still fighting to get where it was pre-pandemic,” he said. According to the latest information from the Bureau of Labor Statistics, people continue to join the workforce, with a “robust” 850,000 reported for June. That optimism was offset for Rupert by a slight drop in average weekly hours worked, from 34.8 in May to 34.7 in June. It may look like a tiny difference, he said, but more workers working fewer hours in this case translated to only slightly more than 15 million additional hours, or the equivalent of 432,395 new workers.
“The point is that yes, it was a pretty good report for most people; I think it was a disappointing report, to be honest,” said Rupert, who also pointed to an uptick in people filing new unemployment claims.
The numbers for Santa Barbara County reflect the nationwide struggle, with about 185,000 employees in the workforce as opposed to the high of about 200,000 before the pandemic. The same performance was seen in the leisure and hospitality sectors, the county’s largest economic engines. The unemployment rate, at about 6%, remains elevated. Despite the disappointing numbers, we’re “still on the upswing,” according to Rupert.
“Things are looking good overall in terms of growth,” he said.
Meanwhile, recent data reveals California’s population declined in 2020 by about 182,083 people. It’s a large number, but one largely attributable to rare, “one-off” causes, including COVID-19 (51,000) and suspension of immigrant visas (100,000), as well as ongoing factors such as declining birth rates and an aging population. Additionally, more people have been leaving the state than coming in from other states, a decade-long trend.
The present situation is a far cry from the California of the 1950s and 60s, when it went from being a “sleepy” state of about 2 million to hosting 16 million by 1960. Back then, Ohanian said, it was the height of the baby boom generation, the population was exploding and about half were under 24 years old. Despite the relatively small number of taxpayers, the California government responded with a tide of infrastructure projects.
“The state government found a way to build schools and hospitals, and invest in water, roads and highways, utilities and state colleges,” Ohanian said. “They found a way to do that despite a budget that was one fifth the size of today’s.” The success of the California Dream, he said, was due to effective governance: investment, efficient use of resources, as well as an “incredibly effective public-private partnerships.”
In comparison, he said, today the state government spends five times more per capita, “but a lot of basic government functions are just not getting done. Investment is inadequate.”
The effects of this lack of investment (4% these days versus 25% during the immigration heyday) are perhaps most evident in the current state of California’s infrastructure, rated D+ by the American Society of Civil Engineers. The Oroville Dam in Northern California, for instance, built in 1968, could have undergone recommended retrofits for an estimated $40 million in 2005, Ohanian said, instead of the $1.1 billion it cost in 2017 after spillways failed, threatening a nearby population of 188,000 people. More recently, the lack of investment showed itself with the state’s Employment Development Department’s (EDD) antiquated computer systems, which faltered repeatedly in 2020 and 2021, causing delays in processing claims during the last two years, in addition to failing to protect against fraudulent claims.
The tipping point, to Ohanian, was the 1969 Santa Barbara oil spill, an event that became a flashpoint in the growing concern over environmental degradation.
“It received remarkable coverage throughout the media,” he said. “It really shone the spotlight on the environmental consequences of economic growth.” It also turned the nascent environmental movement into a much broader political movement.
“It was, what I would say, a political approach to do whatever it takes,” Ohanian explained. Thus, government was incentivized to take on more than it should have, he said, which would result in more regulation, more spending, higher taxes and higher housing costs.
“From my standpoint the remarkable politicization of environmental movement eschewed the standard application of common sense economic thinking … we could have protected the environment and maintained our previous focus and model of governance,” Ohanian said. The California Environmental Quality Act (CEQA), for instance, requires state and local government agencies to reduce the environmental impacts of proposed projects to the extent feasible, but, said Ohanian, “feasible doesn’t mean practical.” The result was reduced housing supply and increased construction costs, leading to some of the most expensive real estate in the country.
Increased costs are also to blame for the flight of several major companies, including Bank of America, Hewlett Packard, Tesla, Charles Schwab and Toyota, all of whom have left California for lower-cost states.
“All we need to do is go back to the governing principles of limited, focused government that uses tax dollars wisely, that applies — even just informally — cost-benefit analysis, that invests, and that puts the interests of a broad group of people ahead of smaller, politically favored constituents,” Ohanian said.
It’s easier said than done, especially in terms of housing in Santa Barbara.
“I almost think that the genie might already be out of the bottle,” Ohanian said, “And I think this might be true of a lot of coastal California cities.” People invest disproportionately large amounts of their income into their homes to the exclusion of other assets, he said.
“Is that a sensible portfolio of assets from the standpoint of everything we know about financial theory? No, no, it’s not,” Ohanian said. “Housing was never meant to be an investment, but it’s become that.” As a result, people become protective of their investments by opposing new development, which perpetuates the low availability and high cost of housing.
Money for infrastructure could be easier to come by, Ohanian said, if reforms could be made in three areas that are “rife with inefficiencies”: state prisons, K-12 education, and health and human services. These areas take two-thirds of the state’s budget.
“I don’t see how we get from here to having a functional California in 10 or 15 years without making reforms in those three areas,” he said.
Hoover Institution says it all. Trickle down voodoo economics.
Ohanian is absurdly right wing in his analysis. Hard to take him seriously much less call him an academic. Start with this: California’s population in 1950 was nearly 11 million…not the 2M he suggests. And, yes, I grew up in that CA which promised/provided free college education to its students and “prospered.” But that prosperity was bought on the backs of future generations by selling out our open spaces, our water supply, our air quality. Had the state remained somewhat population controlled these things could have been sorted. Instead corporate greed and a sort of Chamber of Commerce boosterism led us to bad places. We now need to actually reduce the population and control commercial/corporate takeover of our resources. Maybe we can get back to a nicer place if we act.
He refused to address the HUGE cost of Social Welfare programs that the State funds like there is no budget… Social Service recipients in the State continue to grow annually with no end in sight, especially considering the Open Border policy that is now in affect… Our crumbling infrastructure is paying the price, just drive on our Third World roadways that were once the envy of all….
Imagine the sheer nerve required to name an economics institution after Herbert Hoover, populate it with con hacks, then act like it has any credibility.
Agreed we need to reduce the population. But how can that be done?
Government is the largest employer in Santa Barbra. The explosion of government employee compensation packages and defined-benefit pension obligations is why there is no money left over for infrastructure maintenance, repair or let alone improvements; absent increased numbers of bond issues and higher taxes. This spiral started after JFK allowed government employees to unionize. Once hired, government employees are rarely fired, so the workforce simply keeps growing every year as the government mission creep grows every year along with it.. Growing up in California in the 1940’s, we took our lunches to school that were fixed at home. Now the SBUSD provides two “free” meals a day year round, and the expansive and unsupervised cafeteria staff is a major money losing part of the SBUSD budget. Multiply this situation by the thousands of different versions of thee same thing, and that is how you lose control of the state over these past decades. Very easy to go back to kids bringing their own lunches to school, but this is no longer even discussed as a viable option. So why complain – it is all a matter of trade offs – two free meals a day for all minors year round vs. repairing classrooms and upgrading learning facilities? No, we can’t do both because the unfunded teacher pension promise devour more of the school budget every single year regardless. When comparing different decades in this state be sure to put all variables on the table. Yes, in the 1940’s ,this was a sleepy backwater state. The post WWII expansion into the vast new suburbs was a daily occurences to watch for those of us alive back then. Freeways, water supplies and rapid transit pushed the new Calif population out even farther, so the author’s claim of only 2 million in the early 1950s’s might well be valid. That this state was built out for 20 million. but now holds over 40 million with few to no infrastructure improvements since the 1960’s conforms with my own observations. Open borders, high birth rates and longer lifespans of retirees created pressures of internal growth. Torch has been handed to a new generation to resolve. More of the same and growth of more government is not the answer but curiously the only one now being put on the table. Run the numbers before you commit to even more failure.
Makes sense to me. CA is going downhill fast and it’s largely attributable to an oversized populous and oversized (wasteful) governance – schools, prisons, and social services are bloated and wasting taxpayer dollars hand over fist. Say what you want about Herbert Hoover, that’s obviously beside the point.
The anti-vaxxers are answering that question for you.
Between their devotion to Trumpism and their obsession with Fox News – they are taking themselves out of the gene pool by the hundreds every day.
On the upside, the Renaissance came after the Black Death – with fewer stupid people clogging up the works, society advances.
It might be happening again with Covid.
I thought it was named after the vacuum….
So RHS you think our schools are doing poorly because of hedge founders and Silicon Valley entrepreneurs siphoning off our resources? Laughable.
California’s fertility rate is on the order of 1.6. A rate of 2.1 is necessary to maintain the existing population, and california has been below that for many years. However, california has a huge amount of immigration. Over 1/4 of our state’s population, 11 million people, were born in another country. Immigration is the primary source of our state’s population growth in recent decades, and immigration policy is the only viable way to stop California’s rapid population growth of that is your goal.
Fertility rate: https://en.m.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_fertility_rate
Immigration: https://www.ppic.org/publication/immigrants-in-california/
Parvo: The post-Plague Renaissance did not come with a built in mega-trillion dollar debt the post-Covid world is facing. The younger generation today needs to be more engaged with the free-spending habits of their “progressive” betters since they are stuck paying off their past due bills and inheriting little to show for it. A little more pragmatism and cost accounting awareness is good medicine for today’s younger generation because you are now responsible for the profligacy of your elders, whom I recall you are still enthusiastically supporting, with your own hands well-outstretched for even more of your “fair share” of someone else’s productivity.
Byzantium, You are absolutely correct about the impact of public employee unions, which Ohanian ignored. More and more of our ever-increasing taxes are going to pay for increasing salaries, benefits and lifetime pensions leaving little to pay for services and infrastructure. And the sad thing is that voters keep electing law makers that want to perpetuate this situation so we’ll never get out from under the cloud of tax and spend on bureaucracies and social programs.
RHS, as a fellow native Californian, I agree with you wholeheartedly. SPOT ON. I’m always happy to read that people are leaving the state.
BENE, we can start by NOT limiting reproductive freedoms and rights. The wacko zealot fringe of the right wing has been adeptly chipping away at women’s reproductive rights for decades. Putting the anti-abortion plank in GOP politics was one of the worst things to happen to that party. We should also get birth control out there FREE to poor people and anyone who wants it. Birth control for ALL! I have spent the better part of my life volunteering and fighting for women’s reproductive rights, and let me tell you, we have NOT “come a long way, baby”.
Byzantium, Gosh I hate to get sucked into the eddy of stuff you post but this one got me. The California you and I grew up in was not the free enterprise model you fantasize. It was hugely dependent on Federal government contracts with the defense industry. These companies were paid on a cost plus basis and faced a shortage of labor during WWII so paid well and provided things like child care to the women raising children while the fathers were overseas. Then came major post war boom based on things like the GI Bill and federally and subsidized low home loans and huge infrastructure stuff like the Interstate Highway funding and the California Water Project. Labor unions were strong enough to give working people a decent salary and they moved ahead in our society. Somewhere along the way, unfortunately, private pirates figured out how to siphon off the profits and get the product made on the cheap. Class warfare politicians figured out how to blame the unions instead of the management for problems. The middle class withered and the lower income population grew while most of the money went to the clever people with MBAs, hedge funds and grasping motives. This is where we are today.
RHS. 100% TRUE FACTS.
Bigugly – it’s funny, it’s actually the only real reason to support governor newsome… he keeps making such horrible choices that people keep leaving, and yeah we do need less people here!
Sure, I can look at the pensions for the top managers in the system and they will be over 100K. But I posted the link to the Calpers pensions for 2019 and the average is way less than that.
You can either post some links or keep restating your erroneous opinion, the choice is yours.
Except for water usage, ag land policies, house property taxes, business property taxes, oil extraction tax rates, police confidentiality laws, and a whole host of other conservative policies in our State. The Cons aren’t doing as badly as their whining indicates.
Sail, is that why my neighbor pays $300/yr in property taxes, so brought her out of state family to live with her, to collect welfare and a low cost education at City College? Seems like my neighbor should be paying more of the benefits we are giving her family.
And, even if you think that is a great situation, please explain to me why the Jarvis folks also included commercial real estate in Prop 13? LA Times has stories on how businesspeople create deals so it only looks like 49% of the property has changed hands, thus keeping the historically low tax rate. The percent of state taxes paid by commercial real estate has dropped dramatically since 1976, and we homeowners are now paying for them.
You wrote: “A good daily habit is to check Pension Tsunami which will keep you up to speed on the very important topic -public sector pensions”. Check it daily? A “good habit”? This is beyond strange…
Senior Fellow at the Hoover Institute. Is anything he said a surprise?
Look no further than UCSB for a bloated top heavy administration, where a new associate dean position is created at the drop of a hat. Couple that with the fact that it would take twelve grand juries and sixteen trials at the international court of justice, to fire incompetent employees, you have a rotten system. I can only imagine what it is like statewide. No single party (R or D) should be allowed to stay in power in perpetuity. This folks, is the problem.
Pitmix and Bene, The “average” pension is highly misleading, which has long been disclosed- That number includes workers whose original salaries were lower from decades ago, hd fewer years of service, part time vested employees whose overall earnings were lower, non-vested spouses taking reduced amounts of their working spouses retirement after their death, etc. Transparent California lets you know what current retirees are pulling down in pensions for life. The big change in public employee compensation packaged pensions came about 20 years ago, so those are the only ones to use when calculating the “average” pensions because those are the ones you, your kids and your grandkids now have to pay out. For life. Your party line claim about “average” public employee pensions has long been debunked and anyone can easily fact check what I just wrote. Where are you coming from by stating this tired old public sector defense? You are engaging in a deliberate misinformation campaign. Why is that.
Liberals control California
Sail, I’ve been paying taxes on my full assessed property value for the last 14 years. Maybe this year I might finally get a small break on property taxes. But in the main I’ve been subsidizing the properties put into trust by people that owned them in the 70s. They are now commercial rentals but still paying almost nothing in property taxes, while I’m paying 8000/yr.
Keep Prop 13 for residences with seniors on fixed income, eliminate it for commercial properties. They tried to do that in the last election but the fearmongerers carried the day.
Prop 98, passed very shortly after Prop 13, guaranteed and automatic 50% of state general revenues to be dedicated to K-14 – (90% to K-12 and 10% to community colleges). So when you have “the 5th largest economy in the world”, that is no small chunk of change willingly dedicated by the state voters to just public K-14 education. Open borders, a huge numbers of non-english speaking students, the multi-volume long state Education Code and the teachers unions grip on the educational agenda have killed K-12 education in this state. Just think what the per pupil spending would be if Prop 98 guaranteed education funds were dedicated to only legal residents and we were not tasked with educating so many undocumented, non-English speaking foreign citizens in our US public education system. No, Prop 13 was never the cause of the decline of our state’s once great K-12 system. Prop 13 gets erroneously trotted out only when the teachers unions are yet again demanding even more than their guaranteed 50% of the state general revenues. The Vegara case against Los Angeles Unified, overturned at the appeals court level after teacher union protests, best sets out the root causes for the decline of public schools in this state . It was internal policy decisions and lack of teacher union reform that ruined the quality of education in this state; not lack of funding. You cannot institutionalize the “dance of the lemons” and then claim you need more money. You need to enact the reforms set out in the Vegara case.