Contrarianism is a well-established investment strategy. Be fearful when others are greedy, and greedy when others are fearful is one of Warren Buffetts favorite maxims. During the scariest hours of last years financial plunge, Buffett put lots of money where his mouth was, buying a significant equity position in Goldman Sachs that has already proven extremely lucrative. Of course, if it were easy to make such investment decisions, we would all be as rich as Buffett. Contrarians who made a big bet on Lehman Brothers in the summer of 2008 are now sleeping on friends couches. Sometimes the darkest hour is just before dawn, and other times its just before death.
Contrarianism is not confined to high finance: newspapers and magazines are desperate to offer perspectives that set them apart from their competitors. Time, for example, has decided to make a contrarian play on California. In recent months, other publications have featured articles with titles like Who Killed California?, Sundown for California, End State, Death of the California Dream, and California: Worst Place in the History of the Universe for Multicelled Organisms. (Okay, not the last one, but the others are real.) Convinced that every scrap of negative information has already been priced in to Californias public profile, Time offers a cover story this week titled Despite Its Woes, Californias Dream Still Lives.
The question is whether California is Goldman Sachs or Lehman Brothers. Does the state, despite its current problems, remain a fundamentally sound enterprise whose residual strengths will secure a bright future? Or has this once proud and prosperous endeavor passed a tipping point after too many bad decisions and practices, with no options left except to prolong and mitigate its own decline?
A contrarian investor risks his money. A contrarian publication risks its reputationbut only to the extent that anyone is going to remember, years from now, that its predictions turned out to be wrong. Time hedges its bets anyway. Though it assures us that California will be back because the state continues to have a powerful claim on the future, theres never a hint when California will be back, which means that the storys breathless accounts of all the cool, crucial stuff that the California economy will produce are not just presently but indefinitely unfalsifiable.
The articles strange blend of journalism, futurism, and boosterism is unfalsifiable in another sense. Time arguesto be more precise, it labors to leave the impressionthat California will be rescued and energized by its think-outside-the-box entrepreneurial culture, in which worker creativity inevitably outweighs mundane drawbacks like high taxes and stagnant wages. We only do ideas that challenge the status quo, and California is the only place wed do it, says one innovator, while another tells the magazine, Inventing a better gadget isnt enough anymore. Were trying to reshape the way people live.
But as any Los Angeles Clippers fan will tell you, the essence of deluded optimism is habitually overvaluing every encouraging trend and dismissing the importanceor existenceof every ominous one. Time interrupts its ode to the shimmering future of the mecca of high tech, biotech and now clean tech for a few unavoidable to be sure paragraphs about Californias troubles. Yes, California has legitimate problems that inspire legitimate criticism, such as the acquired inability to manage its public finances or govern itself. These have created some staggering debts and other governance problems that need to be resolved.
Problems arent necessarily going to be resolved just because they need to be, however. General Motors had problemswith quality control, customer satisfaction, and labor coststhat needed to be resolved. Every two or three years, it would announce a sweeping new commitment to get out in front of those problems, right up until it filed for bankruptcy. Without explaining why, Time assumes that Californias mold-breaking entrepreneurial spirit will somehow triumph over the states problems. But the fact that lots of the states innovators came up with important new products and processes in the past no more guarantees that they will do so in the future than GMs 50 percent market share in the distant past ensured the companys self-perpetuating dominance.
And its going to occur to more and more entrepreneurial pathfinders that one of the boxes they can think outside is California itself. Theres no geographic monopoly on creativity. Bright ideas that need to be delivered to customers by employees are rendered untenable when prospective workers cant find affordable housing, stand long commutes, put up with declining public schools and services, or accept rising taxes. As Joel Kotkin of NewGeography.com wrote last year, California can still attract many newcomers, particularly young and ambitious people who dream of a career in Hollywood or Silicon Valley. The problem is that when you grow up and have failed to secure your own dotcom or television series, life in Texas, Arizona, North Carolina, or even Kansas starts looking better.
Time stacks the deck in favor of its rosy scenario by ignoring some critical trends altogether and providing a one-sided account of others. You wouldnt know from the cover story that California even has public-employee unions, much less that they wield immenseeven hegemonicinfluence over the Democratic majority in the state legislature, according to one of the states best political writers, Dan Walters of the Sacramento Bee. Nor would any Time reader have reason to suspect that the states taxpayers are on the hook for $300 billion, according to the governors latest estimate, to close the gap between what California has promised to pay retired public employees and what its pension funds have the ability to pay. The California Foundation for Fiscal Responsibility periodically files Freedom of Information Act requests with CalPERS and CalSTRS, the pension managers for retired civil servants and public educators, respectively. It then posts a list of all those receiving pensions in excess of $100,000 per year. The latest iteration shows 9,223 members in the club. Not all are retirees, exactly; some, taking advantage of a 1999 law that facilitated retirement at age 55 for public workers, are working elsewhere in government or as private-sector consultants to some public entity, drawing six-figure paychecks to supplement their six-figure pensions.
Time applauds Californias voters for approving huge bonds for stem-cell research and a high-speed rail line, and its politicians for adopting first-in-the-nation greenhouse-gas regulations, green building codes and efficiency standards for automobiles and appliances that have rearranged the national energy debate. These expensive innovations are going to pay for themselves, it appears, because California is by far the national leader in green jobs, green patents, supply from renewables and savings from efficiency. Its also leading the way toward electric cars, zero-emission homes, advanced biofuels and a smarter grid. Which is all terribly exciting, unless it turns out that the green economy of the future is always in the future. Kotkin pointed out recently that Californias achievement of creating 10,000 green jobs annually has been overwhelmed by the loss of 700,000 jobs in the state since the start of the recession.
Worse, the states economic policies are based not on environmental planning but on environmental preening, according to Troy Senik, author of the forthcoming California at the Crossroads. The state is committed, by law, to greenhouse-gas emissions in 2020 that are no larger than its emissions in 1990. Since Californias population (like every states) will be much larger 11 years from now than it was 19 years ago, this goal will be impossible without massive economic regression, according to Senik. Such is the fate of Californians: to live in a state where environmentalism is a religion and economics a superstition.
The most unfortunate thing about Times article is that whatever chance California has to reverse its decline depends on voters and leaders coming to grips with its serious problems and alarming prospects. The state is in such bad shape because it has become accustomed to making promises it cant keep or afford, evading hard decisions, placating interest groups by doing long-term damage to the public interest, and telling people what they want to hear instead of what they need to hear. The worst thing for a state trying to sober up is a national magazine article saying that it doesnt need to. For Californias sake, lets hope that the Time story neither reflects nor shapes how Californians think about their states future.