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Golden State “Brownout”

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Golden State “Brownout”

July 4, 2018
California
Economy, finance, and budgets

Joel Kotkin joins Brian Anderson to discuss California’s economic performance since the Great Recession, the state’s worsening housing crunch, and the impending departure of Governor Jerry Brown, who will leave office in January. After serving four terms (nonconsecutively) since the late 1970s, Brown is one of the longest-serving governors in American history.

While California has seen tremendous growth during Brown’s tenure, the state has big problems: people are moving out in greater numbers than they’re moving in, job creation outside of Silicon Valley is stagnant, and the state’s housing costs are the highest in the country.

Read Joel Kotkin’s story, “Brownout,” in the Spring 2018 Issue of City Journal.

Audio Transcript

Brian Anderson: Hello everyone we're back with another edition of 10 Blocks this is your host Brian Anderson the editor of City Journal. This upcoming January, Democrat Jerry Brown will step down as governor of California after serving four discontinuous terms since the mid 70s. Brown is one of the longest-serving governors in American history and one of the most controversial. His supporters say that he's brought California back from the depths of the great recession which hit the Golden State harder than most of the rest of the country but despite the governor's purported successes and the state's golden reputation residents have been moving out in greater numbers than they're moving in and there are signs that California's problems are not going to go away soon joining us on the show today is Joel Kotkin Joel is a contributing editor to city journal a presidential fellow in urban futures at Chapman University and executive director of the Center for opportunity urbanism you can follow him on twitter @joelkotkin his essay for City Journal called Brownout appeared in the Spring 2018 issue and he writes regularly for us on California you can find all of that material on our web site Joel thanks very much as always for joining us you write in this piece in the spring issue that California was once ground zero for upward mobility in fact you even wrote a book about that some years ago called California Inc. but you say in the this new article that that's no longer the case how are things different now

Joel Kotkin: Well I think there's been several significant changes on one level there's been a huge influx of people from developing countries many of them not documented and that's created a kind of quasi permanent poverty population and even one may even say some of it is an underclass that didn't exist in the in the in the 40s and 50s and 60s. The second thing is that the state's environmental policies and regulatory policies have gotten stricter and so the price of housing the price of energy has gone up this has chased away both particularly middle-class and younger families and is also chased away industry if you're a company that requires a lot of electricity to to build something you're probably not going to be in California we had a I think a very good two-party system that was really competitive and that allowed business in particular to have some leverage um today we're a one-party state I mean it's you know it's closer to the former Soviet Union than the California of the 1960s so maybe you could say a bit more about this demographic question who again is leaving and where are they going they're going to nearby states and and what is the primary driver of them leaving it's it's cost I guess right well there yeah there are several different kinds of migration if you you know the the party line is well it's the dummies leaving the smart people are coming really that's if you look at the IRS numbers which is the best indication we have it's much more complicated where we're losing people seems to be very concentrated first and foremost in the 35 to 54 particularly the 35 to 44 category which are people with young families particularly if they did not buy a house before and they want to buy a house that's that's probably the biggest thing that's going in that group that's leaving is actually more educated and makes more money than the people who are coming in so that seems to be a major factor we are losing some of our working class population and that's driven by cost and also the changing nature of the work opportunities that certainly is happening we're seeing a very significant drop-off in immigration particularly to Southern California so that's certainly had an effect um and of course there are certain groups that are are also leaving uh african-americans the african-american population is is has been a stagnant and even declining and probably the the groups that are coming in are predominantly Asian and many of them are well educated and frankly if it was now for Asian immigration I think California would be at a very significant demographic crisis

Brian Anderson: Do we know where these these people are moving to to to you know other states with better opportunities I guess

Joel Kotkin: Well a better opportunities and or lower prices I think there are several different flows that are going on one is particularly from the Bay Area and from the very educated to places like Portland and Seattle which sort of give you something of the California experience but with with less intense poverty and somewhat lower cost Denver is another place where some of these people are going then there's a a bigger migration which is more middle middle and lower middle class and that population is going to Las Vegas the biggest County to County interstate transfer in the country now is between Los Angeles County and Clark County which is Las Vegas Phoenix a lot of people moving to Texas is just at them not just moving to one city sort of the hipster types and the techies will go to Austin the middle management types may be going to San Antonio or to Dallas um there was one firm that I interviewed in Orange County an architecture firm that had to set up a satellite office a one in actually San Antonio the other one in Dallas because they said they couldn't hold on to their 30s something's um and when I teach and I talk to young people and I say how many of you plan stay in California in the next ten years maybe out of 34 maybe four or five and look there's nobody who's more of a California nationalist than I am I think it's it's definitely the nicest most interesting and certainly has the best weather of any of the states but you know people leave because they can't have a middle-class life here if you if you want to stay in California unless you're making a huge amount of money you have to accept you're a renter for life and you're gonna have very little disposable income some people will make that choice a lot of people won’t.

Brian Anderson: Can we can we discuss that a little bit more the housing costs in California certainly in the Bay Area this has become nationally known just how expensive it is to live anywhere in the vicinity of Silicon Valley but why you know generally our housing costs so high in California and how high are they compared to you know competing states.

Joel Kotkin: Well if you take Wendell Cox's median multiple which is the relationship between income and housing price which i think is a pretty good measure on both the Bay Area and the LA-Orange area are about three times the national average and three times let's say what you might pay in the Dallas-Fort Worth area for instance and I think there are numerous causes now in the case of Silicon Valley you can certainly make the argument you've had rapid economic growth the movement of a large population of largely Asian techno coolies who don't mind having two or three families in an apartment because they're only there for a short time anyway but then you look at Southern California which has had more sort of modest economic growth and not so much growth in high-tech and you still have the problem and I think a lot of that has to do with regulations of the state has basically issued a fatwa against affordable middle-class suburban housing they want high-density which tends to be very expensive to build so you know the so what you end up doing is you say okay historically what we always had is that that that there was always the the urban fringe where housing would be generally less expensive that housing would be not it wouldn't necessarily replace urban housing but it would relieve the pressure if you have let's say like in the Bay Area for instance plans where eighty ninety percent of all development has to be on four percent of the land you don't have to be Milton Friedman to figure out that that's going to increase your land costs the the the issue in California is first and foremost regulation land costs there are other things that play a role any state funded housing of any subsidized housing has to use prevailing wage so you end up with much higher construction costs you have various sort of zero emissions and now mandatory solar or on new houses that raises the price you have many localities all over the state that don't have any money to pay for infrastructure so the the fees are extracted from the developer so that raises the price and then you have the endless environmental lawsuit which can delay the project's ten to twenty years well any developer will tell you that their money is just sitting in the bank it's not being used it's not getting a profit so it's almost impossible for anyone but the very biggest developers to come into a state like California so you constrict what your options are and where you build it's very expensive so you can go to put say here in Orange County you can go to a place where the housing really looks like a Brooklyn brownstone you know very a very dense housing essentially you could touch your neighbor's yard the house might be a significant size but there's no yard at all and that can run you a million million 1 million two and you have association themes and you know what it may look like a Brooklyn brownstone but it's not Brooklyn you know so what so you can walk to block store Quiznos and that's not exactly the same thing right

Brian Anderson: Now the the state has a reputation as a kind of green paradise this has certainly been something that Jerry Brown has emphasized both rhetorically and in his policy approach which has been as green as as any governor in the country I wonder if you could say a bit about whether that idea of California being an environmental utopia is is accurate or not.

Joel Kotkin: Well it all depends on whether you distinguish between intentions and and reality you know in California we do have a tendency to focus on on fantasy as opposed to reality but basically the intentions are very extreme and Brown is you know you know this sort of Torquemada of the of the environmental movement you know he's always warning billions of people gonna die Humanity is going to be extinct we have to brainwash people and use the coercive power of state I mean you know it's sort of like a green version of Mussolini but the reality is really funny California has not reduced its emissions more than most states on a per capita basis it hasn't reduced emissions more than Texas which is of course the considered to be the the center of all evil and a lot of it has to do with the fact that densification are forced densification in a state where the vast majority of people do not use transit and are unlikely to use transit just means more congestion more traffic congestion which you know where you have more emissions the fact that we give driver's license to the undocumented has increased the number of cars you know sort of a you know funny thing you know you you decide that you're going to limit emissions and then you essentially encourage people here illegally to drive cars that sort of strange you also have there was an interesting study recently which showed that the policies of of the state are relative to encouraging what they call track transit-oriented development has meant the construction around transits hubs of expensive housing mostly with people who don't take transit because they're wealthy and basically in most of California transit is really something ridden by the poor and then you forced the poor away from the transit hubs so they've gone out and bought cars so there are all sorts of of unintended consequences to Browns policy the other thing in the new report that we'll be talking about this afternoon on in City Journal is that that one of the things that that's clearly happening in in California is that that the these policies are actually masking the what's being generated in GHG across the world other words Apple can say oh we don't we convert you signal because we use solar in in Cupertino yes but you create the huge amount of emissions in China where you build the iPhones companies in California the tech companies tend to have their servers in states outside of California California now also imports the most energy of any state this is a state that literally is sitting on oil and gas California is fantastically blessed with if you want to use that term with enormous fossil fuel reserves but we're too good to use it so what we do is since we don't want to encourage fracking and and and the the economies and the the country we're importing our energy from that wonderful a hotbed of human rights called Saudi Arabia so fundamentally there's a lot of sort of accounting gimmicks that also hide how straw house strong California's GHG footprint is but again I think under Brown and his regime it's really not about doing anything it's about saying you're doing something you know it's kind of a you know you know sort of virtual climate climate change mitigation as opposed to real climate change and then there's the other issue which Mike Schellenberg who environmentalist who ran for governor as pointed out we're shutting down our nuclear power plants which provide you know more clean energy than virtually any any form it's efficient it's been successful here in California and it's being shut down so the whole thing is really kind of bogus but unfortunately the mass media in California is if anything even more dunderheaded than what you have back east and they won't even discuss these issues because it's not politically correct.

Brian Anderson: you write in this essay brownout that Governor Brown’s departure will ironically remove the last restraint on the far-left in California so that in some ways he's been the sanest of California's elite politicians could you talk about that a little bit.

Joel Kotkin: Once you get outside of climate where you know I'll let my Catholic friends discuss how much this is this is anything to do with Jesuitical mindsets but

Brian Anderson: Jerry Brown being a noted Jesuit and former seminarian.

Joel Kotkin: exactly and you know but outside of that I mean I've known Jerry now for over 40 years he does have an idea that you have that you have budgets and that you do get recessions and that you have you need a rainy day fund has at times constrained the Democratic Party of California that dominates the legislature from going completely nuts unfortunately whereas Jerry has great gravitas and has the ability to say no and the willingness to say no occasionally his successor Gavin news and the Republicans are a joke in California

Brian Anderson: Newsom is highly likely to win.

Joel Kotkin: I would say 95% chance of winning and probably winning by a significant margin a Newsom is is handsome glib not overwhelmingly oppression and weak I mean he's going to get the hell beat out of him by his own party we have to remember what's happening in New York with with the Working Families Party and with the the sort of socialization of if you will of the Democratic Party that's happening here too so you now have a tremendous amount of pressure for a state single-payer health plan which would be basically cost twice the state budget bread rolls is absolutely unworkable excuse me it's it's unworkable the very idea of it well it may be but you know but religion is what it is we also have a huge drive towards rent control I mean this is almost inevitable but I talk to my friends on the left and I have many of them that's what they're talking about now they see an enormous opportunity in in the the fact that as more and more Californians become renters fewer or homeowners that the renters look at it and say well why shouldn't I be for rent control now you can make all the arguments and those of you in New York City know what those are but they they are that's gonna rise I think you're going to see no constraints on issues because there really is no force that's going to push back and I think that that overall the public employee unions who are really the dominant force in this state are just gonna get stronger I mean at least Jerry Brown could occasionally constrain their demands I don't think Gavin Newsom will be capable of doing that

Brian Anderson: That's a good point to end Joel thanks very much don't forget to check out Joel Kotkin’s work on our website he's been writing on California and other issues for us for many years www.city-journal.org you can follow Joel on Twitter at @joelkotkin we'd also love to hear your your comments about today's episode on Twitter at City Journal with the hashtag ten blocks lastly if you like our show and want to hear more please leave ratings and reviews on iTunes thanks for listening and thanks again Joel for joining us.

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