Is California the Bow of the Titanic?

"If the U.S. is the Titanic, California is the bow."
—John Loeffler

As part of an annual survey, the Chief Executive asked 650 business leaders around the nation to rank states according to the level of taxes, regulation, quality of workforce and living environment. Texas easily took the top spot as most friendly towards business and California—well—this is what they had to say:

California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years...254 California companies moved some or all of their work and jobs out of state in 2011, an increase of 26 percent over the previous year and five times as many as in 2009.

Now, the question I want to ask is, do you think it's mere coincidence that companies choosing to leave California give reasons very similar to corporations or individuals that choose to the leave the U.S.?

That is:

  • Poor rankings (think education!)
  • More adversarial toward business
  • Uncontrollable public spending
  • Unfriendly business climate
  • Provable savings elsewhere
  • Most expensive
  • Unfriendly legal environment
  • Worst regulatory burden
  • Severe tax treatment
  • Unprecedented energy costs

Unfortunately, as those with the greatest mobility flee the state, that leaves less tax revenues and a greater budget deficit to deal with. We all know how the U.S. is planning on dealing with this problem, what about California? Well, the "Golden State" has it even worse. As business and middle-class taxpayers leave, non-taxpayers and welfare recipients have grown immensely.

For example, as highlighted in “Good Will Spending: Closed for Business,” Jim Puplava cites some very troubling and eye-opening statistics collected by Professors Boskin and Cogan of Stanford University.

Between 1985 and 2005 the population in California grew by 10 million people. And it is, and still remains, the most populous state in the union. But here’s the significant point: out of the 10 million new residents that moved into the state of California, we only got 150,000 new taxpayers. So, in other words, 98.5% of that 10 million population influx are non-taxpayers. So you have a tax base of 1.5% that is supporting the other 98.5%; and the statistics get even better...California has 12% of the nation’s population but it has one-third of the nation’s welfare recipients. 1 out of 5 residents of Los Angeles are on welfare.

As a long-time resident, Puplava also notes that “when you drive throughout California you really get a feel for why they use to call this the Golden State. If you look at California’s economy, it is one of the 7th or 8th largest economies in the world: It has manufacturing, it has technology, it has biotechnology, it has agriculture, it has mining, it has energy…it has tourism, it has the military…it is really almost mind-boggling how you can take one of the richest states in the country and drive it into bankruptcy.”

The U.S. is similarly one of the richest countries in the world—blessed with an abundant amount of rich natural resources and arable land. With the same utter amazement, it is absolutely mind-boggling that one of the richest and geographically diverse countries in the world is going bankrupt. What structural forces are at work that would create such an unwelcome and unnecessary disaster?

Like California, the problems facing America didn't start yesterday. They won't go away tomorrow and there's no easy solutions or simple scapegoats. For me, as a lifelong resident of both California and this country, I will do my best to remain here for as long as possible. However, if what Jim's co-host, John Loeffler, says about California is true, you won't find me perched on its bow screaming "I'm the king of the world!" before it hits a massive iceberg and sinks 13,000 feet underwater.

For an excellent in-depth discussion on the struggles California faces and what it means for the future of the U.S., I highly recommend listening to the following two-part series by Jim Puplava and John Loeffler:

Goodwill Spending Part 1: Closed for Business

Goodwill Spending Part 2: The California Nightmare

About the Author

Program Manager, Webmaster, Senior Editor, & Co-Host
cris [at] financialsense [dot] com ()