Where California Went Wrong | Mises Institute

(This is based upon a talk I gave at a recent Mises Circle meeting in San Diego.)

I have lived in California for more than four years, having married a lifelong California girl a while back, having come here after retiring from being a college economics professor in Western Maryland at the end of 2021. Presently, we live in Roseville, a city of nearly 150,000 that has been called one of the country’s most livable cities.

In many ways, California has been paradise. The weather is more comfortable for me than any other place where I have lived before. My car windshield isn’t plastered with bugs in warm weather the way it was when I was back East. We can pick fresh oranges and other citrus fruits from our trees, and we have what is by far the nicest house I have had in my life.

Last summer, I took my grandson to San Francisco, saw a Major League Baseball game in Sacramento, then took him north on a road trip to see Mt. Shasta, and the famous redwood trees on the coast. Scenery like that doesn’t exist in the East where I spent all my years before coming to California in early 2022. We have been to Yosemite Park, crossed the Golden Gate Bridge, hiked to the top of Lassen Peak, a 10,500-foot volcano that erupted 64 years before Mt. St. Helens and took a sunset sailing cruise on Monterey Bay.

When I was a child, California was really the Promised Land, something cemented in my mind when we came here on vacation in 1961. We saw mountains, Lake Tahoe, the bridges of San Francisco, the spectacular California Pacific coast, and, of course, we went to Disneyland. As a young adult, I ran track for the University of Tennessee and one of the annual highlights of the season was our dual meet with UCLA at Drake Stadium on the university’s campus. (I ran very well against UCLA’s runners, thank you).

There really was no place that compared with California, a vast land of so many spectacular things. Unfortunately, there is still a vastness of things here, but many of them are spectacularly negative. There are the huge homeless encampments that have expanded despite (or maybe because of) the billions of dollars spent ostensibly to eradicate homelessness. And, yes, many of the state’s roads are glorified pig trails.

On the business side, California is ground zero for the creation of the high-tech industry that has provided the nation with vast wealth and high-paying jobs. Hewlett-Packard was born here; so was Apple Computers, Yahoo, Google, and numerous other companies that coalesced around San Jose in the famed Silicon Valley.

Today, many businesses are leaving, such as H-P, moving their headquarters to states like Texas and Florida, and the wealthy Californians that created these enterprises are leaving, too. And it isn’t just the state’s famed billionaires that are high-tailing it out of California’s taxation maw; regular people, too, are selling their homes and moving east to Montana, Idaho, Florida, and Tennessee. We might be among them in the next year or so, depending on some circumstances not in our control.

What Happened?

Even with so many firms and individuals leaving the state, it produces a fabulous amount of wealth, something the state’s politicians have noticed, and their desire for even more tax revenue is bottomless.

California Governor Gavin Newsom is fond of repeating the line that California has the world’s fourth-largest economy, even outpacing Japan. Although Newsom likes to take credit for the state’s economic performance, there still is a problem. As noted before, people are leaving this state, as scenic and dynamic as it is, because they no longer can tolerate California’s abusive one-party governance that is not limited just to the governor and state legislature, but also to the local governments.

As I pointed out recently, there has been very little rebuilding following last year’s devastating fires in Los Angeles despite the promises from Newsom and LA Mayor Karen Bass, as the state’s legendary state and local bureaucracies are throwing up regulatory roadblocks that guarantee that only a small number of people will ever be able to rebuild the homes they lost. On top of that, the fire started because of the state’s utter disregard for the safety of its citizens.

As noted in my earlier article, firefighters were forbidden to extinguish an arson fire in a nearby state park because part of that park contained “avoidance areas” where regular firefighting techniques are discouraged because they might harm state-designated “endangered” plants. Thus, to keep some plants from being damaged or destroyed, state and LA authorities were willing to sacrifice thousands of homes to enforce their environmentalist ideology.

We need to take all that in. The authorities refused to protect people’s homes from fires, and then after those blazes erupted, the authorities now are keeping those same people from reconstructing their lives and homes—all the while still requiring them to pay ruinous property taxes for the land on which they are kept from rebuilding along with fining them for alleged failure to remove brush—after their homes burned down.

Clearly, California is a state where governments at all levels are at war with taxpaying citizens, and that is not going to change, given the state’s ideological climate. In fact, it is that hard-left ideology that is responsible for the political and economic direction that California is taking, and it only will get worse.

Environmentalism Takes Control

Los Angeles was famous for its smog even in the days when California was the promised land, and there is no doubt it really was bad. Los Angeles sits in a basin surrounded by mountains and the shore, and the area was a natural place for smog to develop. To combat this situation, California began to push clean air standards, especially with automobiles, an understandable reaction given how bad smog really was.

In 1967, Congress allowed California to set clean air standards that were more stringent than what federal law required, which was championed by Gov. Ronald Reagan, and that law would continue to have a major economic impact on the US automotive industry. Because California is such a large state, auto firms wanted to be able to sell their vehicles there, but the only way to do that was to make them so they qualified under California law, which made the state the arbiter of national clean air standards.

An even bigger event occurred in January 1969, when an offshore drilling operation went wrong and ended with a huge oil spill off the coast of Santa Barbara. The backlash was the beginning of the movement against the gasoline-powered vehicle and led to the formation of California’s Coastal Commission, an independent agency that has grabbed power and stifled development of the coastal areas of the state.

All of this occurred at a time when political radicalism was taking hold in the state, especially in the University of California system and the Bay Area became known for its leftist extremism. Add environmentalism into that combustible mixture, and you have not only the growth of government, but the growth of government aimed at destroying free markets in that state.

Not surprisingly, by targeting oil companies and by having the nation’s highest gas tax, California motorists pay some of the highest gasoline and diesel prices in the country. Despite claims from Gov. Newsom that the high prices are due to conspiratorial behavior by oil companies, it is a simple act of supply and demand; California’s government makes it extremely costly to refine crude oil, which forces up fuel prices, and because there are no fuel pipelines serving California (also due to environmental regulations), the state must either refine oil itself or have it imported.

Government Is Driving Capital Out of California

For the past 25 years, California has suffered a net outmigration to other states, which should surprise no one. With the infamous billionaire wealth tax being on the November ballot, many of the state’s 214 billionaires are watching closely. Six already have left and that number surely will increase if the state’s voters approve this new tax.

The larger problem is not how much money these wealthy business owners will take with them, but rather the fact that the open hostility the state’s political elites are showing toward entrepreneurs will surely impact future capital development. At the present time, there is so much wealth in this state that it will take years for the capital drain to become noticeable, but in the future, there will be a tipping point, and the capital losses will become irreversible.

There is precedent for decline. Just about 70 years ago, Detroit, Michigan, was the nation’s wealthiest city, but racial conflicts and the election of leftist politicians slowly but surely drove out the automobile industry, which formed the city’s capital base. A generation that was hostile to private enterprise and capital development came to power, and Detroit declined like no other city had ever done in this country. People moved to its suburbs—which still are wealthy—but the city itself fell into ruin.

It will take a long time for California to become Detroit, and given its stunning coastline and natural beauty, there will always be people wanting to live here. But make no mistake; the state is going to go into decline and as it does, a new generation of socialist politicians will take power and make things even worse. For example, Karen Bass in her younger days took part in the Venceremos Brigade trips to Cuba, where they declared “solidarity” with the nation’s communist government. Perhaps we should not be surprised that her government has done everything it can to prevent families burned out in the Eaton and Palisades fires to rebuild, drowning them in fees and permits instead.

However, apparently Bass is not left wing enough and now she faces a serious political test in the June 2 election from LA City Council member Nithya Raman, who also is a socialist and is dedicated to driving private capital from Los Angeles. However the vote goes next month, it is clear that LA will be led by someone who believes private enterprise is evil and that businesses should be taxed out of existence.

Conclusion

California is in decline and things are not going to change. Politically, it is a one-party state, and the party that runs it is becoming increasingly hostile to capitalism and any kind of private enterprise. More and more socialists are winning local elections in cities dominated by Democrats, and socialists are gaining ground in statehouses and in Congress.

There is no doubt that in the near future, California’s voters will elect a socialist for governor. In the current election for governor, Tom Steyer—a billionaire who now denounces private wealth—has dominated the state’s airwaves with advertising and has the endorsement of most of the state’s municipal unions. At the current time, he is running just behind a Republican in the state’s infamous “jungle primary,” and if he makes the top two, he almost surely will win the election in November, as Democratic voters in California vastly outnumber Republicans.

Steyer has campaigned on an anti-private enterprise platform, calling himself a progressive and vowing to fight the oil companies, utilities, and all other private businesses as well. A Steyer governorship would accelerate the exodus of people and businesses from the state, something he probably would encourage himself.

California still is paradise and Roseville still is a livable city. However, as the socialists become increasingly powerful in state and local government, these things will change for the worse. The socialists have a long track record, and the political irony is that the more damage they do, the more popular they become. They are about to be very popular in the Golden State.