California Governor Jerry Brown delivered his annual state of the state address on January 22. According to Gov. Brown, California has staged a “comeback” with, “A million new jobs since 2010, a budgetary surplus in the billions and a minimum wage rising to $10 an hour!”
But, the picture in the Golden State isn’t as rosy as Gov. Brown’s verbal palette suggests.
California may have added a million nonfarm jobs since 2010—well, 902,700 since January 2010—but California is still down a net of 465,300 jobs from its employment peak in July 2007 with job growth in the past year lagging behind the national average at only 1.6 percent.
A budgetary surplus? Yes, but two points about a state surplus. First, it only represents state government cash flow and, as such, is not fully reflective of the health of the economy as a whole; a state can improve its cash flow by increasing taxes, as California did or by cutting spending or a combination thereof. Further, California has hundreds of billions in unfunded liabilities in the form of unfunded liabilities for government employee retirement. The “surplus” could be entirely converted to pay this debt and it would barely make a dent in it.
Lastly, raising the state’s minimum wage to $10 per hour by 2015 will do little to help California’s chronically poor, now the most numerous in the nation on a per capita basis, according to a new, more comprehensive U.S. Census Bureau report that considers a state’s cost of living and the value of welfare benefits. Further, according to the U.S. Bureau of Labor Statistics, the minimum wage is mostly earned by young, inexperienced workers—raising the minimum wage simply prices these workers out of the market in many cases, contributing to long term poverty by discouraging employment. Further, California’s myriad regulations, costing as much as $134,000 per year in compliance costs for a small business according to a state report issued in 2009, high taxes, and high energy costs, all contribute to a high cost of living that squeezes the poor. In fact, when considering the cost of living, the first phase of California’s upcoming minimum wage boost will still leave California workers earning less real purchasing power than their counterparts in Texas.
Texas’ minimum wage, when adjusted for purchasing power, is 23 percent higher than California’s and 35 percent higher than New York’s.
Gov. Brown’s speech made no mention of California’s stifling regulations or of the drive of many elected officials in California to focus on anything but policies that would encourage economic growth, jobs and general prosperity. This arena is fraught with irony for those who care to take an honest look.
Having had a front row seat in the California Legislature for six years, I thought it might be illuminating to compare the number of bills introduced on global warming in a two year session with net job growth over the same time period. Sure enough, there was a negative correlation: the more global warming bills lawmakers introduced, the more job losses there were. The peak legislative interest in global warming occurred in 2009 to 2010 with 130 bills. California lost 2.1 percent of its employment base over that two year period. The previous session saw 117 bills on global warming from 2007 to 2008 with 1.6 of the job base evaporating. California workers should be delighted that only 31 global warming bills have been introduced so far this session, with job growth up 1.6 percent in the past 12 months.
The irony of unintended political consequences is further stoked with reports that pollution from China, making its way across the broad expanses of the Pacific Ocean, is now a major challenge in California’s long-running struggle to achieve clean air—according to EPA data, California had 19 of the nation’s worst 25 metro areas for ozone or particulate pollution in 2012, Texas had three. But how many lawmakers concerned about global warming have stopped to ask themselves how much of that Chinese coal-fired pollution is due to California’s regulatory pressures forcing manufacturers to abandon the Golden State for the smoggy climes of Communist Beijing?
Similarly, as California grapples with a 500-year drought one hears predictable calls for more climate regulation—but how many factories were humming in “Yang na” in 1514? (The Native American name for the region around Los Angeles, translated as “the valley of smoke.”) Perhaps drought happens from time to time and it’s the duty of lawmakers to help their constituents by encouraging the construction of more water storage capacity and canals rather than indulging in pork projects and endless green studies.
Most observers know that California has the nation’s highest marginal income tax rate, at 13.3 percent. But what about other factors that can curtail both freedom of action and job growth?
Alexis de Tocqueville warned of the danger of soft tyranny when he wrote in 1835’s Democracy in America of “…a network of small complicated rules…” that act to reduce citizens to sheep with the government their “shepherd.” The capacity for soft tyranny at the state level can be quantified by looking at four factors: the level of state and local spending as a share of the private economy; the amount of state and local taxation as a share of income; the highest income tax rate; and the number of state and local bureaucrats engaged in making rules or otherwise minding their fellow citizens’ business (see Texas Public Policy Foundation’s website for the full report on soft tyranny at the federal and state levels). Using these measures, we see that New York has the highest level of soft tyranny, followed closely by California. At the other end of the spectrum: Texas and South Dakota.
Does soft tyranny hurt the economy? Real GDP growth data from the U.S. Bureau of Economic Analysis suggests so with the 10 states having the most liberty averaging 22.5 percent growth from 2002 to 2012, 64 percent higher growth than was seen in the 10 big government states which averaged only 13.7 percent growth.
If the nation’s largest economy is to truly thrive, and not just for the wealthiest of its citizens, policymakers must address the root cause of its economic malaise: big government with all of its capricious rules and marketplace distortions.
Fortunately, there’s a model readily available for California to follow—it’s in Texas.
Chuck DeVore is vice president of policy at the Texas Public Policy Foundation and served in the California State Assembly from 2004 to 2010.