Matt Yglesias on the end of the dream in California:
When I look at California’s historical population growth trajectory and current real estate dynamics, what I see is a state that managed [for many years] to provide a high level of public services on a relatively modest tax burden thanks to a rapidly growing population. . . .
I’m reasonably certain that California’s deteriorating public services aren’t really driving the declining population growth. That’s because if you look at someplace in California where it would be nice to live—Santa Monica, say, or Palo Alto—it turns out to be incredibly expensive. All the best land is occupied and the people in those communities don’t want it to get filled up with more density and California’s environmental legislation gives them powerful tools with which to block new residents.
Part of the price the state needs to pay for this induced slowdown in population growth is a downshift to a much less desirable tax/service tradeoff. But it would certainly be possible to open the floodgates to construction in Silicon Valley and all along the coast which would bring in a huge flood of new tax revenue and create the possibility of lower tax rates and return to more generous levels of public expenditure.
Compare this with Joel Kotkin’s analysis from a few weeks ago:
According to Mr. Kotkin, these upwardly mobile families are fleeing in droves. As a result, California is turning into a two-and-a-half-class society. On top are the “entrenched incumbents” who inherited their wealth or came to California early and made their money. Then there’s a shrunken middle class of public employees and, miles below, a permanent welfare class. . . .
So if California’s no longer the Golden land of opportunity for middle-class dreamers, what is?
Mr. Kotkin lists four “growth corridors”: the Gulf Coast, the Great Plains, the Intermountain West, and the Southeast. All of these regions have lower costs of living, lower taxes, relatively relaxed regulatory environments, and critical natural resources such as oil and natural gas.
Both analysts seem to be writing more out of nostalgia than out of a serious engagement with California’s – and, eventually, the world’s – demographic position. When it’s inexpensive enough to raise a family, you get relatively high fertility in the upwardly-mobile classes, which will give you a steadily expanding tax base that makes for a very favorable investment climate. America has historically done this by marrying cheap land to economic opportunity (economic opportunity facilitated both by relatively light economic regulation and by government investment in what were once called “internal improvements.”) A liberal immigration regime, in the context of rapid job creation, can put this policy on steroids.
But this policy only works until the land is full – and “fullness” involves a subjective judgment. Is California full now? Well, it depends on how you define California. If you just calculate the average density across the state, the state is still pretty empty. If you define it by the traffic on 101, Silicon Valley is pretty darn full. Crowding ever more people into Silicon Valley is not a recipe for sustainable growth; it’s a recipe for making the eventual inversion of California’s demographic pyramid steeper. (Take a look, for example, at the extremely low fertility rates in super-dense Singapore and Hong Kong, not places known for restrictions on development.)
As I argued in my response to Kotkin’s piece, California won’t (or doesn’t have to) turn into a third world country. But it can’t turn into Texas either. It already was Texas. That’s California’s past – and California is Texas’s future, one day. Societies mature. California is a mature society. Mature societies don’t have to be dying ones. Massachusetts has an unemployment rate of 6.5% – well below the national average (and below that of Texas). Late last year, before the recent, acute phase of the Euro crisis, Germany’s unemployment rate was similar – and well below the EU average. And neither Massachusetts nor Germany is exactly a “low tax/low service” jurisdiction. Those are the kinds of places that California should be envying, and analyzing, to find a way forward from its current impasse, not still-pretty-empty Utah or still-really-poor Louisiana.
That’s not to say that zoning regulations or the pensions granted to public employees aren’t worth grappling with and reforming – they emphatically are. A mature society facing competitive pressures, whether from China or from Idaho, needs to constantly seek opportunities to become more efficient merely to keep from falling behind. But rapid population growth is no longer a plausible path to development – because development has already happened. I mean, look at California’s population growth in the 2000s. It slowed substantially from the 1980s – and in the 2000s it was still growing at a rate of 1% per year. Indeed, over the past 20 years California has growth at roughly the same rate as the United States as a whole. If a large, prosperous state like California needs a population growth rate above the national average, and substantially above that of other developed societies, merely to balance its books, well, allow me to suggest that the problem might be California’s development strategy, not a “too law” population growth rate.