Wealth and Poverty in California and Tennessee

Bill Watkins
Executive Director of the Center for Economic Research and Forecasting at California Lutheran University

Over the past 18 months, I’ve spent a lot of time in East Tennessee, Appalachia if you will. You can’t avoid poverty in East Tennessee. It’s pretty much everywhere. A large, and obviously expensive, home may have a trailer next door, a trailer so dilapidated that you are sure no one lives there. But, someone does live there. You may see a light at the porch, or a car, or a satellite antenna. Sometimes, you run into a pocket of such homes. They call them Hollows.

If you go to an event with a large crowd, you hear language that sounds almost foreign –, things like “Where was you?” or “Them cows ain’t mine.”

A Californian can easily conclude that poverty in East Tennessee is a far worse problem than it is in California. But that’s not true.

By the Census Bureau’s traditional methodology, California’s average poverty rate for the years 2011-2013 inclusive was 16 percent, while Tennessee’s was 17.8 percent. This is hardly enough of a difference to explain what we see.

The traditional methodology fails to take the cost of living into consideration. So the Census Bureau has created the Supplemental Measure. By this measure, California’s poverty rate was the highest in the nation at 23.4 percent average for the years 2011-2013 inclusive. By contrast, Tennessee’s was only 15.6 percent.

California’s poverty problem could be larger than even the Supplemental Measure indicates. In a just-released study, the California United Way estimates that California’s true poverty rate is about 33 percent.

So, why is poverty so much more obvious in Tennessee than California?

One possible answer is that I’ve spent my time in a particularly poverty-inflicted area. I haven’t though. Most of my Tennessee time has been in Sullivan County which has a poverty rate a tad below the state average.

I do have some ideas though. I think wealth, race, demographic inertia, and housing policies explain why poverty is so much more visible in Tennessee than in California.

Wealth

While Tennessee has a lower poverty rate than California after adjustment for cost of living, California is a wealthier place. California’s average median income for the years 2011-2013 inclusive was $57,161. Tennessee’s was only $42,785 over the same period. That is, California’s median income is about a third higher than Tennessee’s. That wealth difference makes a world of difference in what we see.

Wealth results in high-income neighborhoods being a larger piece of the landscape. It also results in more amenities, such as restaurants, golf courses, redeveloped downtowns, and the like. But, there is more to it than that.

California’s wealthy dominate California’s political process, and while they express concern for the poor, California’s wealthy optimize policy for themselves. In Coastal California, where most of California’s wealthy live, we hear about quality of life all the time. That’s code for low-growth or no-growth and more amenities. It completely ignores the fact that jobs, opportunity, and housing are critical components of quality of life for the poor.

In Tennessee, new factories, jobs, and opportunity are celebrated. Chattanooga, for example, is seeing impressive growth in its manufacturing sector, particularly automotive manufacturing. The city is embracing this growth.

In Coastal California, it’s difficult to imagine building a new manufacturing facility. Local opposition, would make it a time consuming and very expensive proposition.

Race

Race plays a part in the difference in poverty’s visibility. California’s poor are mostly minorities. Sullivan County Tennessee’s population, though, is 95.3 percent white, and therefore, whites compromise a large percentage of the poor population.

Sullivan County Tennessee doesn’t have racially segregated neighborhoods. Poverty is pretty much evenly distributed throughout the county. A middle-class Tennessean is much more likely to run into a poor person in a grocery than is a Californian, because California’s poor shop in different stores than California’s middle class.

Wealthy Californians interact with minorities. It’s a good bet that the person mowing any California lawn is Hispanic, as is the case with so many services. But, in a sense, minorities are invisible to California’s elite, mostly because they seldom go where the minorities go.

Wealthy Californians don’t go to the barrios or to the Central Valleys agricultural communities. They may traverse the Valley, but they don’t stay. The seldom go inland, and when they do, they stay on major highways and the islands of wealth that exist for their comfort.

California’s elite won’t let minorities other lower socio-economic groups build a house next door either. After fighting George Lucas’ studio proposal for decades, the good people of Marin County were apoplectic over the prospect the low-income housing occupying a small portion of the property.

California’s elite say that this is not racism or elitism, arguing that their position reflects concern for the environment and the viewshed. Viewshed is what you can see from wherever you happen to be. It’s a big deal in California.

It doesn’t help that California’s minorities vote in low numbers and can’t contribute much cash to the political process.

Demographic Inertia

Eastern Tennessee has a long history of poverty. Appalachia was poverty’s poster child when Lyndon Johnson was marketing his war on poverty. In a sense, poverty is a way of life for some Eastern Tennesseans. Those with the most to gain left for opportunity in other states. Often, the destination was California.

Many of those who remained accepted their poverty and never truly expected to move up the social-economic ladder. Multi-generational poverty is the depressing outcome.

California doesn’t have a history of poverty as a multi-generational lifestyle. High-and-persistent poverty rates are a recent California innovation. Of course, there was always poverty in California, but it wasn’t a way of life. It was mostly transitory. Young people, or new arrivals, might go through a period of poverty, but the opportunity to move up existed. Most poor Californians didn’t expect to remain poor throughout their lives.

After two decades of net negative domestic migration, California is changing. Just as Appalachia saw the mass exodus of its most upwardly-mobile poor, California is seeing its most upwardly-mobile poor moving to Texas, Arizona, and other states with more opportunity.

California still has its world-leading tech and venture capital infrastructure, and they have been phenomenal wealth engines. They don’t do much, though, for most poor Californians, or those without college degrees. California’s most vibrant companies maintain their growth by importing high-human-capital workers from around the world.

It’s likely that California will be left with a growing population that accepts poverty as a lifestyle. This is a terrible outcome. Poverty that persists through generations destroys something in its victims that is extraordinarily difficult to replace. This is California’s most serious policy issue.

Housing Policies

Housing policies in Tennessee and California couldn’t be more different. In California, particularly in Coastal California, everybody has a veto on every project. If you want to build a home in Malibu, for example, you have to put up “story poles,” sticks with strings of flags between them, for 90 days. This is so your new neighbors, or any passerby, can complain about your home’s impact on the viewshed.

This is not the case in Tennessee. While the use of conditions and restrictions on land use, such as restrictions on trailers, is increasing, what you want to do with your land is generally considered your business in Tennessee.

The result is that you can buy a small-but-livable house in Tennessee for less than many Californians pay for cars.

The differences in housing policy result in very different lifestyles for the poor. California’s home ownership rate, the percentage of homes occupied by the home’s owner, is only 55.3 percent. Tennessee’s is 67.8 percent. In California, particularly in wealthy Coastal California, poor people live with many families crammed into a home designed for one family. In Tennessee, most poor live one family to a home.

Low housing prices increase socio-economic diversity in neighborhoods. Besides race, California’s neighborhoods are segregated by wealth. A California doctor is very unlikely to live near a long-haul trucker. I’m familiar with a small, about 15 units, Tennessee development that includes a doctor, a FedEx driver, and a long-haul trucker.

I’ve met a number-two person on lawn-mowing crew in Tennessee who owns his own home. I’ve met a big-box floor person who’s looking to purchase a larger home. It is very unlikely that these people would own a home in California.

Conclusion

California has the nation’s highest poverty rate by measures adjusted for cost of living, but most of us are rarely confronted with that poverty. By those same measures, Tennessee has a much lower poverty rate, but Tennessee’s poverty is unavoidable.

Economic and housing policies are big sources of the differences. California policies are optimized for the wealthy coastal residents who dominate electoral cash. The primary objectives are limited population growth and increased amenities. Tennessee’s policies are dominated by middle- and lower middle-class concerns. The objectives are job growth and economic opportunity.

While California is great place if you can afford it, Tennessee probably provides a better life for its poor.

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