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California 'Comeback'
No Laurels Yet for California

California has pulled itself back from the brink of bankruptcy, but it’s not out of the woods yet. In an update on the state of the Golden State, The Economist gives Governor Jerry Brown partial credit for that recovery: for the first time in a long time, California’s budget boasts a surplus, politics in Sacramento aren’t as dysfunctional as they are in Washington D.C., and Standard & Poor’s recently upgraded the state’s outlook from ‘stable’ to ‘positive’. All of that is good news for one of the largest economies in the world, but California must do more to protect itself against dangerous vulnerabilities. The Economist points out that the recovery is shakier than it looks:

More than most people realise, California’s fortunes depend on the stockmarket. The state relies heavily on individual income taxes – this year they are expected to be two-thirds of general-fund revenues – and in particular, the capital gains of the rich.

But those sources of revenue are threatened over the longer term by Brown’s popular but perilous anti-business legislation. In fact, critics of his policies were quick to point out that the budget surplus is likely to be a one-off, the result of wealthy residents selling off investments before the Bush-era tax cuts expired. In its Schumpeter column, The Economist elaborates on these concerns:

Those observing from afar the [Silicon Valley’s] burgeoning entrepreneurial scene could be forgiven for concluding that California must truly be a Golden State for business. But beyond the gilded strip of land between San Francisco and San Jose is another California, an inhospitable place plagued by over-regulation, mindless bureaucracy, high taxes and endless lawsuits. […] So whereas venture-capitalists and coders may be rushing to California, others cannot wait to leave.

America’s federal system has provided us with fifty laboratories for democracy. States like California—or Kansas, or North Carolina—can test the efficacy of new policies without the US having to implement them at the national level. Their success or failure inevitably reverberates beyond their borders. These latest indicators in California are positive, but legislators should not be tempted into tinkering with the rudiments of the state’s recovery too soon. We’ll be watching.

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  • Jacksonian_Libertarian

    Let’s face facts, the Blue Model is dying, California raised taxes increasing the Burden leviathan places on the economy. An economy so burdened will not be able to grow, and stagnation and decay will come to represent the California economy, like Detroit the foundations will rot.

    • centerroad

      The blue model will be dying the day the red states stop being subsidized by the blue states.

      It will die the day the most successful economies in the world are not built on the blue model and the third world is not built on the red model.

      There are ZERO red state model successes, without oil you’re all Alabama.

      • Nick Bidler

        Except Texas, which is home to silicon valley’s less glamorous but equally valuable cousin, keeping-ecommerce-functioning-and-secure gulch.

        • centerroad

          Oil related industry is 20% of the Texas gnp, everything else is window dressing. Even with hundred dollar a barrel oil you can barely grow your gnp faster than the blue states, hell CA is almost growing their’s as fast.

          • Tom

            By “almost as fast,” you mean not quite 3/4 as fast?

      • Tom

        Yes…those parasitical red states, which provide the blue states with oil, food, troops, military bases, mineral resources, etc., etc.
        Those successful economies, which got their capital on the red model and have been spending it on the blue model.
        Those third world countries, which have never actually tried the red model.

        • centerroad

          You failed to address the key issue, the blue states subsidize the failed red state model through tax transfers, the blue states have much higher per capita income.

          Anecdotes about how important you are don’t cut it windbag.

          Still waiting for you to point to one red model in the whole f-ing world that has done better than the blue model.

          Don’t let reality bite you in the @ss.

          • Tom

            It’s called exchange of money for goods and services. You give us money, we give you all those things. So, yes, I did address the key issue of “subsidization.”
            The red model, that of free market capitalism, is what got the advanced economies of the world to the point where they could adopt the blue model, which is when they started spending rather than accumulating all kinds of social capital.
            Furthermore, the third world has never really been allowed to try the red model, due to being messed with by everyone.

  • Marty Keller

    “[P]olitics in Sacramento aren’t as dysfunctional as they are in Washington D.C”: well, that’s because we’ve achieved Tom Friedman’s wet dream of being a one-party state. I would suggest that’s far worse than the national situation. At least, as you imply, we are still free to move away.

  • TommyTwo

    “California must do more to protect itself against dangerous vulnerabilities”

    Foremost among them the grievous gentrification caused by Big Tech.


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