In a recent analysis performed by McKinsey & Company and published by U.S. News, Best States Ranking , California was ranked no. 32 in the “Best States” ranking. I don’t know for a fact, but I expect that there was a time when California was ranked first, or at least in the top 10. But now, California seems to be on a perpetual slide from first to worst. Some of the states ranked higher than California in the “Best States” ranking are Iowa (no.1), Utah (no. 3), North Dakota (no. 4), Nebraska (no. 7), Idaho (no. 12), South Dakota (no. 14), Wyoming (no. 21), Montana (no. 27), Kansas (no. 29), Missouri (no. 30), and Georgia (no. 31). Clearly, there are not a lot of bragging rights associated with being ranked no. 32 out of 50.
For economy, the Golden State was ranked highly (no. 4). That should not be a surprise to anybody. Silicon Valley’s technology; Hollywood’s entertainment; Napa Valley’s wine; the Central Valley’s produce; the federal research grants garnered by word-class universities Stanford, Berkeley, Cal Tech and University of California, San Francisco; and a continual influx of some of the brightest and hardest working immigrants from all over the world are the several reasons why California is still golden.
Wake Up Call
However, the rankings in three categories are alarming and disturbing and should serve as a wake-up call to California’s extraordinarily incompetent legislature. For opportunity?—?the reason most people consider moving to California from other places?—?California ranks an abysmal no. 46. For fiscal stability of the government, California ranks no. 43. And for quality of life, The Golden State ranks no. 50?—?the worst in the United States. (That should come as no surprise to anyone who has ever had to cope with a daily commute in Silicon Valley or the Los Angeles metro area.)
Decimation of the Middle Class is the Problem
The problem in California, of course, is that the middle class has been decimated. California is a state of extremes?—?extreme wealth and extreme poverty?—?and it’s very, very difficult for the middle class to “make ends meet” and provide a desirable quality of life to their families. Many of the middle class discover they just can’t?—?or don’t want?—?to continue in California, and move to other states, even in good economic times. This phenomenon is reflected in the price of U-Haul rentals. The rental price of a 20-foot truck (the size sufficient for a 2-bedroom house) from San Francisco to Dallas, today, is $3,200. The rental price for the same truck in the reverse direction, from Dallas to San Francisco, is $1,100. (You can check that out for yourself here → U-Haul Rental Prices ). I realize that’s just anecdotal evidence, but if you’ve ever lived in the San Francisco Bay area for any length of time, and especially if you’ve tried to raise a family in the San Francisco Bay area, or buy a home in the area, you know this anecdotal evidence is reflective of reality. In the big metro areas of California, the rich keep getting richer, the poor keep getting poorer, and the middle class leave (at least, many of them do).
What’s going on? What’s wrong with California?
The author of this article, California Paradox , blames the problem primarily on immigration?—?specifically illegal immigrants from Mexico. But I disagree with that assessment. I think this author probably has never personally known many immigrants first-hand. In my experience, immigrants?—?both the highly educated ones from India and the poor, uneducated ones from Mexico?—?as a group, tend to work harder and make more of their opportunities than native born Americans. While unrestrained, illegal immigration, especially of criminal gang members, probably is a contributing factor, it’s not the main problem?—?not by a long shot.
Bad State Government is the Problem
The main problem with California is its extremely unhelpful, overbearing and misguided legislature. California’s top tier income tax rate is 13.3%?—?the highest of any state in the nation. And California’s sales tax rate is 7.25%?—?again, the highest in the nation (with another 1% or more added on by local municipalities). Such high taxation, in an already extremely expensive state, is too burdensome for the middle class.
Overly burdensome regulations are also driving up the cost of living and hurting not only the middle class, but also the poor. As the author of this article, California - Poverty Capital of the United States , describes:
“Extensive environmental regulations aimed at reducing carbon dioxide emissions make energy more expensive, also hurting the poor. By some estimates, California energy costs are as much as 50% higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, ‘Less Carbon, Higher Prices,’ found that ‘in 2012, nearly 1 million California households faced … energy expenditures exceeding 10% of household income. In certain California counties, the rate of energy poverty was as high as 15% of all households.’ A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17% of median income in some areas.
“Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022?—?but a higher minimum wage will do nothing for the 60% of Californians who live in poverty and don’t have jobs. And research indicates that it could cause many who do have jobs to lose them. A Harvard University study found evidence that ‘higher minimum wages increase overall exit rates for restaurants’ in the Bay Area, where more than a dozen cities and counties, including San Francisco, have changed their minimum-wage ordinances in the last five years. ‘Estimates suggest that a one-dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),’ the report says. These restaurants are a significant source of employment for low-skilled and entry-level workers.”
The California legislature needs to reduce its extremely heavy tax burden on its people. No society can survive the decimation of its middle class, and California, if it does not take a different path, will demonstrate this axiom of truth again. It’s good to help poor people. We should help them. And it’s good to provide a safety net to those unexpectedly displaced from their jobs. We should provide that safety net. But government welfare and safety nets should be designed to be temporary, with the goal and result of getting people working and being productive. Helping the poor and displaced find work and become productive is much better for them than making them perpetually dependent on government handouts. According to this article, Percent of California Households on Welfare , somewhere between 41% and 55% of immigrant households in California are dependent on government welfare, and at least 24% of native born households in California are dependent on government welfare. That’s way too many. Reform is needed.
Furthermore, the California legislature’s overly aggressive interference in markets?—?like taxing carbon emissions and mandating an unrealistically high minimum wage?—?is hurting the poor, not helping them. As our nation’s Founders understood, and as Nobel Laureate economist, Milton Friedman, reminded us, a fair and free market?—?not government intervention?—?is the best way to create wealth and improve the standard of living for everybody. Governing with a light touch is virtuous and desirable in economic matters (with the caveat, of course, that markets should be fair and free of monopoly power abuse, and government should enforce contractual and ownership rights).
A commonly quoted definition of insanity is “doing the same thing over and over again and expecting different results”. The Golden Sate is on a very bad path. The California legislature needs to wake up and make some dramatic policy changes, to get the Golden State on a better path.