When’s the Next Bus to Arkansas?
Within the sphere of the national economy, California has enjoyed the position of favorite child for so long that it is difficult to picture a fall from grace. Yet, suddenly, that fall seems more than possible.
Over the past month, the unsettling and sometimes amazing evidence has accumulated piece by piece. It suggests that the recession will cut deeper in California and last longer than in other parts of the country. If true, we would become the national economic orphans for the first time in memory. House prices would fall further. Jobs would get scarcer.
And to some, the evidence suggests something much worse. These gloomers--some of them past boosters of California--see the state reaching the end of an economic era. Gone, they say, are the factors that fueled past booms--cheap housing, low business costs and open spaces. They see California entering a new period where the economy will be hounded by a host of chronic problems, including a flight of the middle class to healthier regions and a state government impoverished by escalating social demands.
Now that’s real gloom, and you will notice that I have carefully hedged my bets. I have used verbs like “seems” and “suggests.” A little judicious hedging is always advisable when economic forecasting becomes the center of discussion.
But still, the news is not good. Let me hit the highlights.
First, the state’s Frankensteinian deficit has come back to life. Once regarded as thoroughly dead after last year’s combination of tax increases and service cuts, the deficit has risen from its crypt and now stands $3 billion high. That is a huge number for this point in the fiscal year. The problem is low revenues produced by the sick economy, and the only solutions are yet higher taxes or deeper service cuts.
Then we’ve got the souring of California’s demographics. A state-sponsored study revealed last week that “tax receiver groups”--such as students, welfare recipients and Medi-Cal patients--are growing far faster than net tax payers. In just one example, California now maintains the largest prison population in the Western world. Each one of those 100,000 state prisoners costs the taxpayers $21,000 per year.
By the year 2000, the study predicted, tax receivers will outnumber net tax payers by a healthy margin and could produce state deficits in the range of $20 billion per year. This phenomenon, caused largely by California’s huge influx of foreign immigrants, reverses longstanding trends.
Moving on to the business scene, a just-released study by Southern California Edison charts the continuing exodus of manufacturers from Southern California. The Edison study found that 160 large and mid-sized companies had pulled out in favor of Arizona, Nevada and Mexico. As a group, the companies had provided 22,000 jobs.
“Southern California may be on the verge of major changes in its economic base,” Edison concluded.
There’s more. In fact, there’s lots more. But let’s end with an intriguing report by a team of securities analysts at Prudential Securities. This report to stock market investors seeks to draw some major conclusions from the latest economic numbers on California.
“We believe,” the study said, “that 1991 will be looked back upon as the end of the old, positive California and the beginning of a much more difficult economy.”
Among other pleasantries, the study predicted steep drops in house prices, increasing state taxes, shrinking employment and continued decline in the “quality of life.” It also noted that the drought has accelerated wariness of California on the part of business leaders throughout the country.
Within the state, Prudential fingered Southern California as the sickest region by far, and the Bay Area as next on the list.
Acknowledging that California’s reputation for economic invincibility is so legendary that many would not accept their view, the authors wrote, “We are attempting to describe some once-in-a-lifetime adverse changes.”
Well, are these guys right? Should we all pack up and move back to Arkansas? Quien sabe. It will be a couple of years before we know. A big clue will be offered by the end of the national recession. As the downturn ends in other regions, watch to see what happens here. We will either match their upturn, or we won’t.
Meanwhile, keep in mind that California’s demise has been predicted before. There is something about success on a grand scale that invites predictions of a mighty fall. Of doom.
But, you know, it hasn’t rained yet, has it?
