California is in real trouble. Its governments, from the state to many local governments, have refused to deal with the rapidly deteriorating fiscal situation. California’s regulatory burden is routinely rated as among the worst or even the worst in the nation.
And things are likely to get even worse. An already-weak economy could be further burdened by expanding regulations under California’s climate change law (AB 32). Voters will have an opportunity on November 2 to suspend that law until the state’s seriously high unemployment rate drops to 5.5 percent.
It is no wonder that businesses are leaving or avoiding expansion within California. Business relocation expert Joseph Vranich (http://thebusinessrelocationcoach.blogspot.com/) reports there have been at least 158 “disinvestment” events, in which California firms have either left the state or expanded their operations elsewhere, in 2010. After only nine months, this is more than triple the entire 2009 pace. California’s leading export may well be businesses and the jobs they take with them.
People are leaving, too. Between 2000 and 2009, a net 1.5 million people moved from California to other parts of the nation. This is as many people as live in Alameda County. It nearly equals the population of Idaho, one of the states to which Californians are fleeing.
The latest IRS data indicate that from 2000 to 2008, Arizona, Nevada, and Texas attracted the most people from California. But who would have thought the day would come that more people would move to Kansas, South Dakota or West Virginia from California than moved here? Yet that is the reality. In fact, California lost domestic migrants to 39 states and the District of Columbia, while gaining domestic migrants from only 10 states.
When people leave, they take their economic activity with them. Based upon IRS data, it is estimated that annual lost economic activity (from 2000) is more than $40 billion. This is a substantial amount, representing more than 2 percent of the state’s gross domestic product. It is 1.5 times the gross domestic product of the Fresno metropolitan area, with its nearly 1,000,000 people. Indeed, the entire agriculture industry in California is one-third smaller than the annual lost economic activity from outward domestic migration
This may be just the beginning. A report by economist Benjamin Zycher, formerly senior staff economist for the president’s Council of Economic Advisors, indicates the climate change law could reduce employment by 1.3 million jobs in California by 2020. With their related economic activity, this could easily result in a further loss of from $100 billion to $150 billion in California’s 2020 gross domestic product compared to the growth that could occur if Proposition 23 passes. This could have the same effect as exporting the entire economy of the San Jose metropolitan area to other states and nations.
With these dismal prospects, it might be thought that the state of California would be dedicated to resolute action not only to keep, but to start attracting both jobs and people. But the contrary is true. The climate change law , defended by much of the state’s political establishment, could amplify the job destruction and business disinvestments that already have been intensified by California’s taxation and over-regulation.
It also might be thought the state is seeking to reduce the cost of living, which according to a U.S. Department of Commerce report was third-highest in the nation in 2006 and higher than all but one of the states attracting people from California. Again, the opposite is true. The state’s climate change law will raise the price of energy. The consequences will not be seen only on household utility bills. The price increases would extend to many products and services, because their production requires energy. Households that must spend more on energy will have less to spend on other needs, and the standard of living can be expected to suffer.
Those opposed to Proposition 23 claim California will prosper from the creation of “green jobs.” But what is the incentive for investors to create green jobs (or any other jobs) in the worst business climate in the world? Why would California investors gamble their own billions to create a large number of green jobs in the state, when the potential for profits is so much greater in Austin, Sioux Falls, Bangalore, or Shenzhen?
A decade from now, citizens of a much-less-competitive California could wake up to the reality that has dawned in Spain, where the government’s green jobs initiative was a net job-destroyer.
It is not as though California’s tough greenhouse gas emissions standards will “save the planet.” Not even close. China alone can be expected to increase its greenhouse gas emissions each year by 12 times California’s target reduction.
The purpose of the AB 32 job-killing initiative seems to be nothing more than to set an example. But in a free country and a globalized world, neither people nor businesses must willingly submit to being the guinea pigs of social engineering. All of this is likely to erode California’s competitiveness even further and to intensify the exodus of employers, jobs, and people.
Of course, California will always have good weather, and that appeals to many. But good weather cannot nullify the effects of policies that drive away people and jobs. California’s catwalk-strutting could produce an even-more stuttering economy, while contributing virtually nothing to the reduction of greenhouse gas emissions. Proposition 23 could begin to restore economic opportunity to the state, and none too soon.
Wendell Cox ([email protected]), a policy advisor to The Heartland Institute, is a native of Los Angeles and was appointed by Mayor Tom Bradley to three terms on the Los Angeles County Transportation Commission. He is principal of Demographia, a St. Louis-based international public policy consultancy, and also serves as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris. He has a BA in government from California State University, Los Angeles and an MBA from Pepperdine University.