In 1989, I enlisted in the Army, partly because the economy in California was in the dumper. In 1992, I reenlisted for much the same reasons, although the rest of the country had generally recovered from the Reagan-era recession by that time. I thought it was odd that California, a state which by many estimates could be in the top ten countries’ economic stature, would be in such doldrums. California has transportation, tourism, energy production, entertainment, manufacturing, agriculture – in short, everything you need for a robust state. Yet, it continues to be hammered harder and sooner and for a longer period than most of the rest of the country even today. So, the 1980s aerospace collapse isn’t the only reason; there must be some explanation for why California seems incapable of maintaining a healthy economy.
Over the years, as I grew older and more curious, I discovered what seems the most likely explanation: Californians hate taxes but love spending. Since states can’t spend into deficit territory like the federal government can (too bad CA can’t issue money, eh?), they must balance the budget. So, every one of those propositions people vote for has to come from somewhere. I dug around a bit more and discovered the proximate cause of this insane situation: Proposition 13. Whenever someone would talk about how crazy high the housing prices in California were, I would opine about Prop 13 and the caps on property taxes and the 2% limit on valuation increases per annum and the disincentive to selling and friction in the housing market and their eyes would glaze over. When the housing bubble burst and friends and family lost jobs, businesses, and homes, I would think back to the Proposition 13 consequences and commercial properties paying a lower percentage of the taxes every year due to shell corporations and other legal legerdemain. But, I had a hard time tying all the pieces together for my friends who have never lived in California, and I didn’t have a great summary of how far the state has fallen, from the great public schools that my older sister went to in 1974 until the much deprived public schools that my younger sister went to in 1990.
Now, I’ve come across a journalist who writes a very concise and cogent explanation of exactly what went wrong with the California economy. If you’re curious about how the Golden State has become the Gilded State in a mere 30 years, you should read it. I find it interesting that CA had a large budget surplus, and Moonbeam Brown wanted to hoard it, which caused the Governor Ronnie backlash in 1978. Talk about unintended consequences.