If you look at the two attached graphs you would think more of the Japanese economy rather than the “dynamic“ California economy. From 1950-1989, the tax Filings grew at the rate of 5.8%. One would guess that the employment grew at least at a rate of 3% a year, if not 5% a year. After 1990, the rate is 0.52%. This despite the technology boom of late 1990s and the current homebuilding, “home-modernization,” to use Greenspan’s term for home- improvement and additions, and house-trading. BTW, if there was a way to measure non-Hispanic employment since 1990, it is probably down. There is no question, from these two graphs, that California lost its golden touch around 1990. The question is: Where would the employment in California be in the absence of the two booms, or bubbles, after 1994?

In few words: Down in the Dumps. Let us examine the second graph carefully to buttress this conclusion. The downturn of early 1990s hit Southern California, where I lived, particularly hard, but the effects are very visible in the statewide employment. If you look at the employment during

1991-92 and during 2001-02, blue line, both encompassing recessions, they look somewhat similar except that slope down in 2002 is relatively sharper than in 1992. The difference is that in 1993 we saw a very sharp downturn while in 2003 we didn’t. Why? One explanation is that in 1993 home prices were falling, 10-15% rate in L.A. County, while in 2003 home prices were skyrocketing, 30%+ in L.A. County and 20%+ statewide.

The effect of very sharp price rises in stocks and homes has a delayed effect on consumption and employment by some 12-18 months (my best guess).

This is clearly visible when we examine the red line in the second graph. In the absence of the two bubbles my best guess is that California would have lost 1.5 million jobs since 1990. In the meanwhile, some 1.5-2.0 million new housing units, homes and apartments, have been built since 1990. If California were to lose the jobs that it currently has as a result of the two bubbles, there will be some 2.0-2.5 million fewer jobs. You can just imagine what it would do to the housing prices.

Why the Malaise After 1990?

In L.A. County, where I lived, the home prices peaked in the spring of 1990, before Saddam Hussein and before the recession. They dropped 29% in nominal terms and more than 40% in real terms in the subsequent four years or so.

Could it be that very high home prices in the spring of 1990 dissuaded people from coming to California from other states, which was the cause of the boom in the preceding four decades? That this put a kibosh on the homebuilding industry and related employment? There is no question that in my area, San Fernando Valley, there was a bust in homebuilding in early 1990s (two Anglos, who lived in my neighborhood, I hired to do some repair work, were very thankful that I employed them at less than half their wages than hiring Mexicans). This bust was preceded by a building boom for 3-4 years. How soon people forget?!

I already know what the next bubble is likely to be after the bust in the Housing Bubble. It would be in the price of gold when people afraid of losing money in stocks and real estate, after being thoroughly chastised, would chase gold as an investment. Unfortunately, the rise in the price of gold will not create jobs, mostly driven by debt-driven consumption, except in the gold mining industry (many mines not profitable at the current price will start operating again).