Utah economy

California needs a recession |

Nowhere is better suited for highs than California, a place of miraculous growth and remarkable innovation. A backwater just a century ago, with a population of just over 3 million compared to nearly 40 million today, the Golden State has established pre-eminence in everything from agriculture and film to world travel. space and the Internet.

Yet in recent years, California’s lead has increasingly focused on one sector: technology. That has left the state deeply exposed to the recent decline in the stock market, which has a heavy focus on tech stocks, and the inhospitable near-term climate for start-ups, which once reliably filled state coffers. Easy Street is about to be much less so.

Even as state offices and their media megaphones brag about its nearly $100 billion surplus, California’s Office of the Legislative Analyst predicts the likely reappearance of budget deficits in the near future. Instead of crisis periods, we will likely see a repeat of the last recession, which ended in 2009. At the time, it took California five years to return incomes to pre-recession levels, period during which the government was forced to cut state programs by about $45 billion to make up for the deficit.

In many ways, California is even more vulnerable today. Governor Newsom and his public relations team may brag about the state’s economy “reviving strongly,” but California is entering a recessionary environment with the fourth-highest unemployment rate in the nation and the one of the slowest job recoveries in the country. Los Angeles and San Francisco, its two largest cities, are near the bottom of all metros in terms of job recovery.

This decline has its roots in the pre-pandemic era. For years, California has significantly underperformed its major rivals — Texas, Washington, Arizona and Utah — in construction, manufacturing, and professional and business services. Over the past decade, about 80% of all jobs created in California have paid below median income, creating an ever-expanding working class in low-end service industries.

During the boom of the rich, the state decided not to re-diversify its basic economy but to expand its welfare state. It may have been applauded by progressive publications, but the state is not a bottomless pit. California still suffers from the highest long-term debt of any state – $507 billion – and that will only increase with interest rates.

And yet, he seems unwilling to change course. Following his recall triumph, Newsom, along with the legislature, is determined to redouble their efforts to make California the model of a progressive future. Others, like University of California’s Laura Tyson and former Newsom adviser Lenny Mendonca, see the Golden State as the “way forward” for more enlightened “market capitalism.” But this reality is difficult to see on the ground.

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Joël Kotkin is the author of The rise of neo-feudalism: a warning to the global middle class. He is Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director of the Urban Reform Institute. Learn more at and follow him on Twitter @joelkotkin.

Photo: Jay Galvin via Flickr from CC 2.0 license.

Mary Cashion

The author Mary Cashion