Is the California Economy “Rigged”? 

David Kersten

Kersten Institute for Governance and Public Policy

In recent years there has been a dramatic increase in charges and overheated rhetoric, which argues that the United States economy is “rigged” to the benefit of a small minority, particularly the rich.

Far less attention has been given to the California economy in particular, but as the 2018 Governor’s race heats up the economy promises to be a major topic of contention.

If you listen to the Democratic contenders, a similar tune is sung that everything is “golden” here in the Golden State.

Democratic frontrunner Gavin Newsom, the current favorite, has even went so far to suggest that other states should “look West” to the California success story for what Governor Jerry Brown and the Democrats have done with the California economy, according to a recent MSNBC appearance.  

Most California Democrats sing the same tune as well, standing by the story that all is well in the California economy, despite our high taxes and heavy regulatory burden.

California Republicans, on the other hand, argue that the California economy leaves much room for improvement and has become “unaffordable” for average citizens as high taxes and heavy regulations have shipped jobs and economic opportunities elsewhere.

There is lots of conflicting data abound on both sides, and very few objective analysts that are willing to try to settle this question.  Furthermore, far more attention should be given to this topic given the significance it holds for the future of the Golden State.

I have been digging into this topic now for a few years now, and have drawn a series of conclusions, which challenge the conventional wisdom that all is good in the Golden State with regard to our economy.

While a full analysis of this issue would surely take more than a brief column, one  overarching conclusion stand out–if the California economy is indeed “rigged,” it has been “rigged” by the California Democrat Party who has controlled both the Legislature and Governor’s Office since 2010, and the California Legislature for decades before that.

The California Democrats have created or exacerbated several key distortions in the California economy that have led to an increasingly “unfair” and/or “rigged” economy if you prefer.

The examples are endless in this regard, but perhaps the most glaring is the state’s increasingly “unfair” and “unjust” tax burden which is increasingly falling on those with the least ability to pay to the benefit of core Democrat constituencies including public sector unions and the “green” energy sector.

Furthermore, the recent $6 billion increase in the “gas” tax, combined with the multi-billion dollar “cap and trade” tax increases, will raise the price of gasoline and energy in California significantly, and disproportionately impact low-income Californians and the manufacturing and energy sectors of the California economy.

Moreover, the proceeds from these energy tax increases will primarily benefit public employees by funding an “unsustainable” pension system, “road” repairs, public transit workers, and high-speed rail, which will create a new class of highly paid government workers to be subsidized by state taxpayers.

These new strictest in the nation energy standards and tax rates, combined with other generous “green” tax subsidies, have provided huge windfalls to “green” entrepreneurs such as Elon Musk and Tom Steyer.

The housing topic has been a popular topic of discussion lately as Governor Jerry Brown and the Democrats talk about how to “fix” the state’s housing crisis which has led to a dramatic spike in homelessness and serious limitations on companies fielding workers who can afford to live in California, particularly in the Bay Area and the coastal regions.

But as some California Republicans and some analysts point out, it can be argued that the California Democrats are primarily to blame for the state’s current housing crisis due to their overly restrictive taxes, fees and regulations on the construction of new housing in California.

Furthermore, despite surges in demand for housing the number of construction jobs in California has fallen from 935,000 jobs in 2006, to 775,000 jobs in 2016—a decline of 160,000 jobs or 17% decline.

Despite the state’s high housing costs, you would be hard pressed to find any California Democrat, who is talking about the need to reduce the taxes and fees on new housing developments, and streamline overly restrictive environmental regulations.

Ironically, the Brown Administration has advocated for exempting his “high speed rail” pet project from the California environmental quality act (CEQA), due to the near impossibility of building a major statewide construction project that complies with CEQA.

Overall, a closer look at California’s economy shows that there are increasingly real cracks in the Democratic facade, if not serious fractures, which contends that all is golden with the Golden State’s economy.

More objective study of these important issues is needed, but based on my experience most of those capable of such study have either fled to greener pastures or decided to keep quiet due to political considerations.

After all, California is “paradise,” even if only a few are able to enjoy it.

David Kersten is the president of the Kersten Institute for Governance and Public Policy—a Bay Area-based public policy think tank and consulting organization. Kersten is also an adjunct professor of public budgeting at the University of San Francisco. 

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