Texas vs. California

Ryan Streeter:

New Geography, the online magazine created by Joel Kotkin and others with a special focus on demographics and trends, has been tracking the implosion of California in an interesting way: by comparing it to Texas.

Texas and California are America’s two most populous states, together numbering approximately 55 million people, which is only about 6 million less than the United Kingdom, where I live. California, as everyone knows, has a coolness factor that Texas cannot match. Hollywood, Silicon Valley, and wine. Say no more. But, unless one has been living in a cave, everyone knows that the cool state is also the broke state. If Hollywood turned California’s budget and fiscal position into a movie, it would be a blockbuster horror film indeed.

Texas, on the other hand, is growing, creating wealth, and attracting the entrepreneurial and creative classes that too many people think only go to places like New York and California. This interesting post by Tory Gattis at New Geography explains why. He shares a four-point analysis from Trends magazine:

First, Texans on average believe in laissez-faire markets with an emphasis on individual responsibility. Since the ’80s, California’s policy-makers have favored central planning solutions and a reliance on a government social safety net. This unrelenting commitment to big government has led to a huge tax burden and triggered a mass exodus of jobs. The Trends Editors examined the resulting migration in “Voting with Our Feet,” in the April 2008 issue of Trends.

Second, Californians have largely treated environmentalism as a “religious sacrament” rather than as one component among many in maximizing people’s quality of life. As we explained in “The Road Ahead for Housing,” in the June 2009 issue of Trends, environmentally-based land-use restriction centered in California played a huge role in inflating the recent housing bubble. Similarly, an unwillingness to manage ecology proactively for man’s benefit has been behind the recent epidemic of wildfires.

Third, California has placed “ethnic diversity” above “assimilation,” while Texas has done the opposite. “Identity politics” has created psychological ghettos that have prevented many of California’s diverse ethnic groups and subcultures from integrating fully into the mainstream. Texas, on the other hand, has proactively encouraged all the state’s residents to join the mainstream.

Fourth, beyond taxes, diversity, and the environment, Texas has focused on streamlining the regulatory and litigation burden on its residents. Meanwhile, California’s government has attempted to use regulation and litigation to transfer wealth from its creators to various special-interest constituencies.

I wrote an article for New Geography related to the second point last spring. The role played by housing regulations in the housing bubble is one of the most under-reported and under-analyzed factors contributing to the 2008 financial crisis, and nowhere was its destructive force more evident than in California. Regulators lathered on rule after rule to construction requirements, escalating costs so dramatically that lenders had to design “exotic” mortgages so even relatively affluent people could afford homes. One of Texas’s attractions, meanwhile, was the opportunity of much more affordable homeownership.

Perhaps the analysis above falls a bit short, though, in not giving enough attention to role that the tax structure in California has played in driving people away, and the parallel problem of the state’s hemorrhaging public sector workforce. Kotkin has written in Forbes that California’s government workforce has saddled the state’s budget with $200 billion in unfunded pension liabilities. Kotkin also points out that California has been losing high-tech jobs to the Southwest and elsewhere because of its increasingly hostile tax and regulatory environment.

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He goes on to point out that Obama has chosen the failed California model. It is a theme I have hit before, but now even international recognition is focusing on the issue. California has let its infrastructure crumble as it continues to spend money on sink hole social programs that pull it further toward an abyss. The UK has also chosen the California model of control freak government as oppose to the freedom agenda of Texas.