The Fall of California

Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.

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30 Responses

  1. Not unrelated; but cities, regions, and states that come to over rely on a single industry have a very poor track record when that one industry either downturns, moves elsewhere, or is rendered technologically obsolete. California is a bit more diversified than some historical examples, but they are not immune to time & tide, and the tech boom will not last forever.Report

    • One of the things we learned in the downturn of 2008 is that a lot of California’s economy is wrapped up in its real estate. Possibly more than oil industry is to Texas (though there are a lot of confounding variables). Which is precarious, it turns out. The real estate bubble seemed to do the state considerably more damage than the dot-com bubble.Report

      • Doctor Jay in reply to Will Truman says:

        As an interesting sidelight, the Santa Clara County Assessor said, during that period, that Prop 13 had turned into something of a boon to them, since it created so much daylight between assessed value and actual value that when actual values went down, it didn’t erode the property tax base much at all.

        Sales tax, on the other hand, was much more of a problem.

        So, that’s the tax base, which is not the same as the economy. I’m not particularly certain I agree or disagree with the overall assertion about CA’s economy. Property values and home sales are pretty clearly a leading indicator and an important factor everywhere. Are they moreso here? Not sure about that.Report

    • J_A in reply to Andrew Donaldson says:

      There’s an important difference between single industry towns, like Youngstown, and industrial clusters, like Norther Italy.

      Clusters are ecosystems where different but related industries interact and create relationships which allow for new, related, derived industries to appear. The newer industries replace the existing ones but the balanced system continues. Clusters tend to be quite resilient *think the Flemish/Dutch Netherlands from the 12th to the 17th century, where English wool was processed into textile manufacturing, which fostered the development of an ecosystem involving: seafaring and transportation (which evolved into transporting many other commodities), pigments manufacturing (and from here, oil based pigments and modern painting), banking, improved textile machinery, lace making, etc., making the region a powerhouse for centuries, even when wool cloth manufacturing production itself decayed.

      I would think IT in California is closer to a cluster than a single industry town. If anything is going to stop it is the exorbitant real state costs which makes it very difficult for new agents to evolve within the ecosystemReport

      • LeeEsq in reply to J_A says:

        Seconding this. The IT industry in California covers everything from companies trying to work in artificial intelligence and autonomous vehicles to dating and delivery apps. We aren’t talking about a town entirely built on textiles or steel but a big diverse industry. The IT industry also supports a lot of other industries like immigration law firms and services for people in tech.Report

  2. Mike Schilling says:

    we need to cut taxes to the bone to become the same success as Kansas and Louisiana.Report

  3. Aaron David says:

    On my author bio, it says I am a fourth generation Californian, and my son is a fifth. He fled the state as soon as he graduated from college. Indeed, all of my immediate family has left at this point. Because even though we were centered around the bay area/ northern CA, the state really isn’t doing so hot outside that tech area.

    Here is a map of the state by county, and though it only goes to 2013, it gives a good idea of what one major issue is for the state at this time. Outside the tech zone there are very few jobs and inside that zone, it is prohibitively expensive.

    • J_A in reply to Aaron David says:

      I’m not disputing what you are saying, but I’m concerned when I see maps with big areas where bad things happen, and i wonder how many people are there to be affected by those bad things?

      As someone always say at the time of the elections when confronted with those big red maps: Acres don’t voteReport

    • Doctor Jay in reply to Aaron David says:

      I think what that graphic shows is that agriculture is fading as a means of employment and way of life. This is true in other parts of the country as well. Merced County is a big agricultural county. Even Siskiyou County has agriculture (of a very different sort) after tourism. The robots are now getting into these businesses and having an impact on prices and employment. I know that to be true in Kansas, and it seems likely to be true in central CA as well.

      I have no answer.Report

      • Aaron David in reply to Doctor Jay says:

        Well, I lived in Merced for a few years, and yes, the ag component is dropping there along with much of the rest of the state, but at the same time UC Merced is growing. In other words job replacement and development are taking place. And that is kind of my point. Many of those hinterlands are being ignored, which leads to other problems. Problems of distrust, alienation, and anger.

        But this is papered over with claims about Cali being such a large economy.Report

    • Burt Likko in reply to Aaron David says:

      Dude that map is from 2013.Report

  4. Aaron David says:

    Could you go into more detail with Bad Things? I am not sure what exactly you mean.Report

    • J_A in reply to Aaron David says:

      In your particular graph, unemployment. The areas of the state with high unemployment cover more than half the state. If I just look at the map, I see dystopia,California being a land where underemployment dwarfs that of the Great Recession. However, I wonder how many people do live there, compared to those areas with low unemployment.

      If you look at a map of the counties Trump won, you’d conclude than barely anybody voted for Clinton. However, those small blue spots include more than half the populationReport

      • Aaron David in reply to J_A says:

        Well, the unemployment rate is based on per capita. And yes, they are comparatively sparse as far as density goes, but they are still part of the state, and thus need to be accounted for. In my estimation, this failure to look beyond the central regions is a huge factor driving Brexit, the Yellow Vests and various other international pushbacks on neoliberalism.

        Though it is a different question than what Will is talking about here, yes, going by counties it was a sea of red with little blue islands. I happen to live on one of those islands, but I do appreciate the vastness of that sea.Report

  5. Doctor Jay says:

    The employers that dominate here in Santa Clara County are Google and Apple. There is also a continuing strong presence for Intel. Expanding to the larger Bay Area, you have Facebook and Uber. So this is the sort of thing that leads to investors and property owners getting most of the upside. I don’t think that’s terribly wrong.

    I would concur that it isn’t a great place for a startup, since office rents are very high and space hard to find. HOWEVER, the thing that exists here that doesn’t exist elsewhere is the VC community. Much as I and others might hate them, they are qualitatively different than the investment community elsewhere, in that they embrace bigger risk. That may change in time as well, but there’s no sign of it changing soon.

    I’m sort of skeptical about “crash”. Though Apple is probably past its peak, it can take a long time to fall.

    I would be delighted if we moved a lot of that activity out of the South Bay and into the rest of California or the country. I see signs that that’s happening. That’s welcome, and it isn’t a sign of a “crash” or a fall.

    I can think of maybe four technological waves that have passed through here, maybe there’s more. If the social media boom is about played out, then the question is what will emerge next.

    There have always been boom and bust cycles. When I moved back here in 1991 we were in a severe bust, and workstations pulled us out of it, and then the Internet came a long. Then there was the dot com crash, and things got really really bad. But they pulled out of it, powered by Google and another wave of internet businesses. We’ll have another bust cycle here at some point, and something else will pull us out of it.

    But when it comes to predictions of collapse of the state’s economy and government, I laugh. This is what humans do when data that contradicts their worldview is staring them in the face.Report

  6. Chip Daniels says:

    Is Hobart’s view an outlier, or is it accepted by other economists and professionals?

    Because without diving deep into his weeds, I’m just not seeing how California is somehow more precarious than say, Washington State or Florida or Minnesota.

    Are the industries there less human-capital centered, less prone to moving away? What do Brooklyn, Austin, Denver or Seattle do differently that causes California businesses to move there?Report

    • I think his argument is that those are simply earlier in the process. (Though Brooklyn’s presence is a surprise.)Report

      • Chip Daniels in reply to Will Truman says:

        That was my thought when I read his article, which was that the things he describes- the mobility of capital and labor chasing after illusive cheap real estat, all the while ignoring investment in social welfare things like schools and health care, just sounds like the problem that is plaguing all of America.

        And sadly, all problems have solutions. They just have solutions we don’t like. One solution to the problems he describes is a sort of feudal world where capital reigns sovereign and the landless serfs trudge along behind.

        Another solution is citizens to stop the race to the bottom of who can offer the most barren and impoverished setting in which to nurture enterprise.

        I think it is noteworthy that the tech startups in California were created in a world where college was free and the price for failure was a reassuring social safety net, not debtors prison.Report

    • I can’t speak to the others, but I suspect the big selling points in Denver are (a) there are nice places to live at reasonable (for California values of reasonable) cost within 30-35 minutes of most of the major amenities, and (b) there’s an established start-up infrastructure.

      I’ve never been able to describe start-up infrastructure very well, but the basic idea is that you can buy/lease small amounts of almost any goods/services. Need ten of something made? Someone’s in the business of doing that. Need to hire six months of an expert in some exotic bit of software? Yep. And locally, so you can talk to them and look over their shoulder as needed.

      I met a guy a few months ago whose job is hand-holding start-ups through printed circuit boards. From getting a small lot built quickly and reliably, to scaling up to tens of thousands. In particular, knowing what changes as you go through when you do that scaling up.Report

      • DensityDuck in reply to Michael Cain says:

        Denver also has millions of square miles of ranchland to the southeast that’s easily reachable by car (no inconvenient mountains or bays). It can be (and is rapidly being) converted to residential property.

        The SF Bay Area hasn’t got any of that. The best you’ve got is the Central Valley, that’s a long way away and only a couple of roads go there; next best is down south of San Jose, and people would already be building there if it weren’t a poison swamp (runoff from the IBM’s fab plant and the rocket-booster factory).Report

  7. Doctor Jay says:

    Ok, I’m digging deeper and reading the piece. I came across this quote:

    A California landlord is generally not much more skilled or talented than other landlords; they just happened to own property in a place with a high concentration of engineers (thanks to good schools) and hippies (thanks to those schools’ liberal arts programs, as well as the fact that you can sleep outdoors in SF year-round). The engineers ensure that there’s growing demand for property; the hippies conspire with landlords to limit supply.

    That reads to me like a reason to ignore or suspect an agenda in this piece. Not that the non-tech people aren’t making land use decisions harder here. No, it’s the casual swipe at “hippies” that gives the game away. Because they are “hippies” we don’t have to take their concerns or wants seriously. We find the most egregious instance of land use review and use that as our standard bearer.

    This is not a good look.Report

    • Doctor Jay in reply to Doctor Jay says:

      I wish to go on to say that I think SF’s land-use and (non-ethnic) immigrant hate is accurate. I don’t endorse it, even if I understand it. The City is going through massive changes, and there will always be pushback from people who don’t want things to change.

      Thus it ever is. People never want change. Things always change.Report

    • Doctor Jay in reply to Doctor Jay says:

      My last critique of the piece is that he says he focuses on the Bay Area, but in fact, he’s focused on SF, where he lives. It is the most expensive part of the Bay Area. It’s probably had the most wrenching changes. It probably has the most restrictive housing policy.

      I’ve never thought of SF as a good place to launch a company, but for a time, some companies did the SOMA thing especially, because then the property wasn’t that expensive, and it was a fantastic way to recruit young talent.

      It will flow differently now. This is all adaptable. And yeah, we have to figure out how to fund pensions. This is not one of those problems with no solution. Things that require money never have no solution, they just have solutions that people don’t especially like.Report

    • North in reply to Doctor Jay says:

      I dunno, it’s very harshly written and uncharitable but it does technically outline the NIMBY dynamic which is to say there is an alliance between home owners who provide the money and poor, economically-illiterate, emotion driven liberals who provide the votes to block up-zoning and density and there are the tech folks who can afford to pay the escalated rents and thus keep the system running. It’s mean but it’s not inaccurate.Report

  8. Jaybird says:

    I’m old enough to remember when we called this “White Flight”.Report

  9. Oscar Gordon says:

    I’m in Austin, TX today and tomorrow for work, and my Uber driver last night was telling me how rapidly Austin is growing (and that it’s a problem for infrastructure), and that probably half of San Francisco lives in Austin now. I’m sure that is something of an exaggeration, but the tech sector is looking to grow and relocate outside of that singular hub.Report