Does California Prove that Liberal Economics Works?

Authored by: Matt Palumbo

California continues to hemorrhage residents every year, and the most popular destination for arrivals is Texas (which is interesting, given the immense ideological divide between the populations of those States).

If California is the future, you’d think so many people wouldn’t be running from it.

Disputing the reality of the situation is the famous liberal economist Robert Reich, who doesn’t actually have a real economics degree, and has never published a single economics paper. According to him, “California just became the world’s 5th largest economy, surpassing the United Kingdom.” And why? Because their “success has depended on bottom-up economics — putting tax revenues into public investments, and regulations that protect the environment and public health, not trickle-down economics.”

To prove his point, Reich cites Texas and Kansas as states with the “lowest taxes, least regulations, and lowest wages.” By contrast, we’re told that California has high taxes on the wealthy, strong regulations, and high wages. Only near the end of the video does Reich acknowledge that low oil prices have damaged the economies of Kansas and Texas, but then chastises them for not doing enough to diversify their economies.

It’s truly incredible that someone who whines about income inequality as much as Reich thinks the fact that California has the “biggest” economy means anything. And it’s even more incredible that an economist like Reich can’t grasp concepts like the “cost of living” when talking about wages.

Consider the following.

The Cost of Living Makes Californians Earn Less than the National Average – And Puts them #1 in Poverty and #3 in Homelessness

Californians earn 11 percent more than the national average – so Reich is right, they’re killing it when it comes to wages. What Reich excludes is the fact that the average mortgage costs 44 percent more in California, while rents cost 37 percent more on average. Unless one wants to go homeless, those cost of living differences more than erase any nominal wage gains that Californians can boast.

Ironically, it’s regulation that’s responsible for those high home and rent prices, as it’s thwarted the ability of developers to build at a pace to keep up with demand. To give just one example, nearly half of all housing in San Francisco was built prior to 1940. Five times as many housing units were built from 1940-1949 than from 2010-2014.  To little surprise, California ranks third nationwide in the number of homeless per-capita.

And of poverty, while California appears to have a poverty rate of toughly 15 percent (measured by the Census Bureau’s official poverty measure), that only defines poverty for a family of four as $24,036 (in 2015), without any considering for the cost of living. If the cost of living were adjusted for, California’s poverty rate comes out to 20.6% (as measured by the Census’ Supplemental Poverty Measure), compared to a national average of 15.1%. Texas ranked just below average, with a cost-of-living adjusted poverty rate of 14.9%

So for all the emphasis Reich made on how California’s economy is the “biggest” (what is he, Trump?) with the “highest wages,” they also boasts a real poverty rate 38% higher than Texas, which Reich claimed had among the “lowest wages.” .

The Public Investments that California Has Made Are Not As Reich Advertises 

Reich touted all kinds of “public investments” that Californians tax dollars have gone towards. How is that working out?

  • Even though 43 percent of California’s general-fund budget is earmarked for K-14 education, California students under-perform the national average on reading and math scores (source: pages 24 and 25).
  • The percentage of Californians attending a four year college hasn’t changed in fifty years, despite the trend nationally being upward.
  • During a time period when California’s prison population declined 12%, spending on prison guards increased by $500 million.
  • California only builds 44% of the housing it needs annually, costing the State $140 billion a year in economic output due to people who can’t afford to live and work in California (source: page 17).
  • Electricity prices in California rose five times faster than the national average between 2011-2017, and Californians pay 60% higher than the national average for electricity. This is despite California having the highest output of hydroelectricity, which is the State’s cheapest source of electricity (source: page 39).
  • According to the American Society of Civil Engineers “report card,” California earns a D+.  Texas wasn’t much better with a C-, but you’d expect them to have an F- if you listened to Reich.
  • And for all Reich said about environmental regulations, CO2 emissions rose in California from 2011-2015, while they fell in the rest of the country during the same period (source: page 26).

If this is what a healthy society looks like to liberals like Reich, it’s no wonder Venezuela could seem like Nirvana.

P.S. For anyone interested in an extended analysis of the economies of Texas and California, John Stossel devoted an episode of his former Fox News show to the topic.

Additionally, I’ve covered myths regarding Kansas and their tax cuts *here*, and shown that States run exclusively by Democrat legislatures have racked up debt burdens 15 times higher than those run exclusively by Republicans *here.*

June 12, 2018: Ep. 740 A New Low For The Media
June 13, 2018: Ep. 741 The Two Questions Everyone Wants Answered