Not Much to Celebrate as California’s Economy Grows on Paper

California’s economy has now surpassed that of United Kingdom, making it the fifth-largest in the world if it were its own country. Despite this growth, and in contrast to the perception that all is well in California because the economy looks so robust, the Golden State’s economy is not quite healthy.

In fact, according to a recently updated report, it’s downright dysfunctional.

The study consists of three briefs that Beacon Economics of Los Angeles prepared for Next 10, which calls itself “an independent nonpartisan organization that educates, engages and empowers Californians to improve the state’s future.” The lengthy — and descriptive — title is “Growth Amid Dysfunction: An Analysis of Trends in Housing, Migration, and Employment.”

The three briefs look at the state’s painfully high housing prices, “the highest of any state”; the California exodus in which “from 2006 to 2016, 1,090,600 more people moved out of California to other states than moved from other states to California”; and wage stagnation that is “forcing lower- and middle-income Californians to leave the state in hopes of finding more affordable housing.”

PRI has made a similar observation about the state’s “hour-glass” economy that while fat at the top and bottom is losing its vital middle. We’ve comprehensively documented the negative effects from the housing crisis, the poverty, and the Great California Escape. We‘ve also noticed other problems just beneath the surface, such as the poor state of California’s expensive government services, that indicate things aren’t as rosy as they appear.

There is, as well, the precarious nature of the state’s two-tiered economy, which is dependent on Silicon Valley and Hollywood. Should one of those sectors stumble, California’s economic picture would fade from living color to grainy black-and-white.

The Next 10 report likewise sees an economy on the edge.

“While California’s economy overall is strong, it is only a matter of time before the discrepancies between wages and housing prices could begin to constrain economic growth,” says the executive summary, which calls for “addressing the growing housing gap is a critical piece of the equation.”

“Policies that focus on increasing housing supply, streamlining the permitting process, and ensuring that localities meet their required levels of new housing will be crucial to ensuring that low-wage residents are able to remain in California.”

Seems straightforward enough. The sad reality, though, is the dominant party of California’s political class appears to be wholly incapable of even taking the first step of a legislative agenda that will help correct the housing crisis.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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