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Posts Tagged ‘California’

Joel Kotkin on the Decline of California

In Economy on July 9, 2012 at 1:09 am

Flag of California

An interview about the sad decline of once great California with demographer Joel Kotkin is linked below. [1]  Excerpts follow:

‘California is God’s best moment,” says Joel Kotkin. “It’s the best place in the world to live.” Or at least it used to be.

Mr. Kotkin, one of the nation’s premier demographers, left his native New York City in 1971 to enroll at the University of California, Berkeley. The state was a far-out paradise for hipsters who had grown up listening to the Mamas & the Papas’ iconic “California Dreamin'” and the Beach Boys’ “California Girls.” But it also attracted young, ambitious people “who had a lot of dreams, wanted to build big companies.” Think Intel, Apple and Hewlett-Packard.

Now, however, the Golden State’s fastest-growing entity is government and its biggest product is red tape. The first thing that comes to many American minds when you mention California isn’t Hollywood or tanned girls on a beach, but Greece. Many progressives in California take that as a compliment since Greeks are ostensibly happier. But as Mr. Kotkin notes, Californians are increasingly pursuing happiness elsewhere.

Nearly four million more people have left the Golden State in the last two decades than have come from other states. This is a sharp reversal from the 1980s, when 100,000 more Americans were settling in California each year than were leaving. According to Mr. Kotkin, most of those leaving are between the ages of 5 and 14 or 34 to 45. In other words, young families.

….

Mr. Kotkin describes himself as an old-fashioned Truman Democrat. In fact, he voted for Mr. Brown—who previously served as governor, secretary of state and attorney general—because he believed Mr. Brown “was interesting and thought outside the box.”

But “Jerry’s been a big disappointment,” Mr. Kotkin says. “I’ve known Jerry for 35 years, and he’s smart, but he just can’t seem to be a paradigm breaker. And of course, it’s because he really believes in this green stuff.”

In the governor’s dreams, green jobs will replace all of the “tangible jobs” that the state’s losing in agriculture, manufacturing, warehousing and construction. But “green energy doesn’t create enough energy!” Mr. Kotkin exclaims. “And it drives up the price of energy, which then drives out other things.” Notwithstanding all of the subsidies the state lavishes on renewables, green jobs only make up about 2% of California’s private-sector work force—no more than they do in Texas.

 ….

California used to be more like Texas—a jobs magnet. What happened? For one, says the demographer, Californians are now voting more based on social issues and less on fiscal ones than they did when Ronald Reagan was governor 40 years ago. Environmentalists are also more powerful than they used to be. And Mr. Brown facilitated the public-union takeover of the statehouse by allowing state workers to collectively bargain during his first stint as governor in 1977.

….

So if California’s no longer the Golden land of opportunity for middle-class dreamers, what is?

Mr. Kotkin lists four “growth corridors”: the Gulf Coast, the Great Plains, the Intermountain West, and the Southeast. All of these regions have lower costs of living, lower taxes, relatively relaxed regulatory environments, and critical natural resources such as oil and natural gas.

Take Salt Lake City. “Almost all of the major tech companies have moved stuff to Salt Lake City.” That includes Twitter, Adobe, eBay and Oracle.

Then there’s Texas, which is on a mission to steal California’s tech hegemony. Apple just announced that it’s building a $304 million campus and adding 3,600 jobs in Austin. Facebook established operations there last year, and eBay plans to add 1,000 new jobs there too.

[1] http://online.wsj.com/article/SB10001424052702304444604577340531861056966.html

Pictures from Wikipedia Commons.

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San Bernadino County to Seize Mortgages Using Eminent Domain

In Economy, Housing Bubble, Loan Forgiveness on July 5, 2012 at 5:00 pm

Threats to our rights not only come from Washington, they originate in city halls and county offices across the nation.  An example is a movement in several economically devastated California municipalities to use the power of eminent domain to seize not land, but mortgages.  The San Bernardino Board of Supervisors approved this action June 20, 2012.  [1]   Unemployment is as high as 30% in parts of San Bernardino County. [2]

Regardless of the merits or demerits of the specific proposal, this most certainly is NOT what eminent domain is intended for.

This odd interpretation of a city’s right to condemn land needed for a public project (e.g. building an expressway) is to be used to go after the mortgage holders of vacant properties.  [2] Note it does nada to improve the properties nor does it get jobs for out-of-work borrowers.  It is simply to seize mortgages from the prior mortgage holder and shrink the loan balance to an amount determined by San Bernardino and its private-sector financial partner.

The obvious impact of this attack on long-standing property rights would be to make lending more dangerous.  This will increase mortgage rates and make lenders less likely to extend mortgages, both of which have the long-term impact of making mortgages harder to come by, especially for the poor.  Which would seem to be a perverse effect of the original attempt.

Who came up with this hair-brained idea?  Someone with their hand in the cookie jar.  A couple of San Francisco investment banks and venture capital fund devised the idea and just happen to profit from the transactions (the Mortgage Resolution Partners firm refinances the seized mortgages for municipalities).  Roger Altman, the chairman of one of the investment banks, Evercore, just happens to be a former Clinton Administration official who also raises funds for President Obama. [2]

Let’s hope this misguided attack on property rights is nipped in the bud by the courts.

 

[1] http://www.latimes.com/business/money/la-fi-mo-eminent-domain-20120620,0,4970444.story

[2] http://online.wsj.com/article/SB10001424052702303933404577505013392791018.html?KEYWORDS=cities+california+mortgages

 Pictures from Wikipedia Commons.

Which State Has The Most Inequality? Texas or New York? Why?

In Gini Ratio, Income Tax Rates, Inequality, Texas on October 21, 2011 at 12:25 am

Econscius looked into economic inequality by state and found some surprising facts.  Which state did you think has the most economic inequality, defined by the government’s Gini ratio?  Did you guess Texas or Alabama?  The Gini ratio measures unequal outcomes in wealth; a ratio of 0.0 would mean everyone had exactly the same and a ratio of 1.0 would mean one person held all the wealth.

The District of Columbia has the highest level of inequality (Gini ratio of 0.532).  New York has the highest state ratio at 0.502, followed by Connecticut, Texas, Louisiana, Alabama, Mississippi, Illinois, Georgia and Massachusetts which rounds up the Top 10 with a score of 0.468.

The state with the lowest Gini ratio is Alaska at 0.402.  Utah is second most equal at 0.414, followed by Wyoming at 0.415.

Econscius ran several regression analyses of the most recent state Gini ratios, looking for correlations that would help identify the cause(s).  First, I compared “Right to Work” states against the tally of state Gini ratios, expecting the comparative absence of unions might be a factor.  “Right To Work” states prohibit closed shops (mandatory unions).  But there is no statistical correlation (RSquared = 0.01), which can be easily seen by the high rate of dispersion in the graph below.  An interesting follow-up may be to see if there is any difference using the unionized proportion of the workforce in place of Right To Work state.

State Gini Ratio vs Right to Work (1 = yes, 0 = no)

The scatterplot below shows a rather loose relationship between average income and Gini ratio.  The trend line shows high income states tend to be slightly more equal than lower-income states.  (R-squared is 0.08).  In statistical terms, income and Gini ratio should be impacted by co-variance (the two variables are not independent of each other), making it a less than ideal measure.

State Gini Ratio Vs. Median State Income

Next, I ran a regression of Gini ratio against Net State Income Tax Rate, as calculated by the National Bureau of Economic Research.  The NBER is best known as the group that officially dates recessions.  As seen in the graph below, the trend line is the opposite of what one might expect.  Higher state income tax rates actually imply slightly higher inequality (R-squared 0.08). 

The scatterplot graph below clearly shows how the highest inequality states of New York and Connecticut have high taxes and several of the states with no income tax have the lowest Gini ratios, e.g. Wyoming and Alaska.  While higher income taxes are not well correlated with equality, an observation is states known for high property taxes (which are regressive) are bundled amongst the most unequal, including New York, Connecticut, New Jersey, Florida and Illinois.

State Gini Ratio vs. Net State Income Tax Rate (NBER 2009 Tax Data)

Lastly, let’s look at state Gini ratio vs. population density (people per square mile) .  This regressed variable has the strongest correlation with Gini ratio (R-squared 0.14). 

Why would sparsely populated states be more equal and densely populated states have a greater gap between the rich and poor.  I hypothesize higher density means more urbanized areas, which means more specialization of skills.  The economic concept of division of labor shows how the greatest economic benefits come from having each person focus on what they are most economically productive at and then trading their output with the output of someone else for all other items.  One way to think of it is to imagine Steve Jobs working in isolation in a rural area.  He would have less time to spend inventing computers and whatnot if he was unable to employ other people to mow his lawn, clean his car and other household chores.  Imagine if he had to do his own legal work, build his own house, cook his own food because there were no restaurants, etc. 

Large cities allow a high degree of division of labor.   Urban areas tend to be centers of economic specialization.  There are centers of specific industry specialization such as entertainment in Los Angeles, energy in Houston, finance and media in New York, insurance in Hartford, government in Washington DC, pharmaceuticals in New Jersey, autos in Detroit and technology in San Jose.  Most cities provide network benefits for commerce.  Corporate headquarters are mostly found in large metropolitan areas as employers can easily find necessary skilled workers in management, marketing, human resources, accounting, law, consulting and finance. 

The concentration of highly paid professionals in these large cities also leads to a concentration of poorly paid service workers because of the high degree of division of labor.  Whereas a small town worker may handle many household chores on their own, the highly compensated professionals around big cities like Los Angeles and New York hire maids, nannies, gardeners and even dog walkers.  They outsource some of their work to dry cleaners and restaurant employees.  They also may do more retail shopping, which means more need for low skill, low wage workers at retailers plus truck drivers and distribution center workers to deliver the goods.  It is no surprise, then, that large cities like Chicago, New York, Detroit and Los Angeles are both very rich and very poor at the same time. 

The wealthy professionals living in Atherton, CA, Huntington Beach, CA, Wilmette, IL, Grosse Point, MI and Irvington, NY trade some of their copious amounts of money for leisure time by sub-contracting low skill work like house painting and pizza delivery to low skill workers.  These low skilled workers are generally paid below average wages, which helps explain why the large cities, and the states they reside in, are both rich and poor.  This helps explain the high Gini ratios in the more densely populated states.

These four regression analyses do not explain all of the differences in Gini ratios.  While income tax rates have no relationship, it is possible a measure of to marginal tax rates on the rich may be a factor.  We did not look at state and local sales and property taxes.  Other possible explanations may include educational attainment dispersion within each state, the types of industries prevalent in a state, immigration levels, and even cultural differences between states. 

We found New York is actually less equal than Texas, which probably surprises most people but likely reflects the high density of population in metro New York City where many highly compensated, high skilled workers reside as well as many low pay, low skill workers who serve their day-to-day needs.  As we have seen in my posts on Texas, (https://econscius.wordpress.com/2011/09/03/stellar-texas-job-growth-in-above-average-wage-cities/) it is increasingly densely populated and affluent in its large metro areas of Dallas, Austin, San Antonio and especially, Houston.   Metro Houston is the 3rd largest home of Fortune 500 HQs and is now the major home of the energy industry’s professional staffs (senior management finance, legal, accounting, engineering).  Progressive, union-friendly states like Connecticut and Massachusetts are less equal than Right To Work states like Nebraska and Kansas.  It appears one factor is the densely populated concentrations of skilled workers such as hedge fund and insurance workers in Connecticut and biotech and technology in suburban Boston. 

I believe Gini ratio and measures of inequality are overhyped.  If a richer neighbor of mine accidentally drops some of his property, say his iPod, in a river, inequality has been slightly reduced but am I better off?  Nevertheless, the evidence on state Gini coefficients suggests there is no diabolical plot causing high inequality.  Several of the least equal states like New York, Massachusetts and Connecticut are reliably Democratic, high tax and union friendly.  The District of Columbia is the most unequal of all.  The inequality must come from other sources, certainly including the concentration of highly paid, skilled workers in those states. 

 

Notes:

Chart 1: 2009 Gini coefficient data (latest available) from http://en.wikipedia.org/wiki/List_of_U.S._states_by_Gini_coefficient retrieved 10/18/11.   Right-To-Work states from http://en.wikipedia.org/wiki/Right-to-work_law retrieved 10/18/11.

Chart 2: 2006-7 average data (latest available) from http://en.wikipedia.org/wiki/List_of_U.S._states_by_median_income retrieved 10/18/11.

Chart 3: 2009 data (latest available) from http://www.nber.org/~taxsim/state-marginal/avrate.html, retrieved 10/19/11.

Chart 4: Population Density from http://en.wikipedia.org/wiki/List_of_U.S._states_by_population_density retrieved 10/18/11.

Pictures from Wikipedia Commons.

Your comments are welcomed!  What do you think causes inequality?

Stellar Texas Job Growth in Above Average Wage Cities

In Job Creation, Oil, Texas on September 3, 2011 at 1:53 am
 

Texas Major MSA Population Growth (Outer Ring) & Job Growth (Inner Ring)

The graph above shows how the Dallas, Houston, San Antonio and Austin metropolitan areas account for the vast majority of Texas population growth and job growth in the past decade.  The entire rest of the state is in the olive shading.  This fact exposes a common and untrue claim about Texas job growth, namely that is is adding a lot of jobs but they are low wage.  Dallas, Houston and Austin all have wage levels that are above both the Texas and US averages.

Average Wages and wage growth 2001-10 are shown in the chart below.  Texas is a little behind the US average but actually made up a little of the gap.  We see the aforementioned average 2010 wages in three of the four big metro areas are above both Texas and US averages.  As we just saw above, the bulk of Texas job creation, 509,560 of 860,740 total new jobs, took place in just those three cities.  San Antonio is not far behind ($39,410 average) and with its low cost of living and absence of state income tax; San Antonio accounted for another 130,940 of the 860,740 total.

US & Texas Average Wages in 2001 plus Wage Growth to 2010

 
How does Texas job growth compare to US job growth?  The next chart shows us how impressive the 860,740 jobs created in Texas was.  The United States total was a loss of <883,250>.  When we remove Texas from the USA total (for statistical purposes, not political secession!), we see the non-Texas US total was really a loss of <1.7> million jobs.  The chart below also shows how geographically diverse the Texas job growth was; all four of the large metropolitan areas as well as the fifth largest city, El Paso and the border cities of Laredo and Brownsville-Harlingen far outpaced overall US job growth.
 
This dispersion of job growth is also found in other, smaller Texas MSAs, too:
 

McAllen-Mission 32%
Victoria 32%
Killeen-Temple 24%
Bryan-College Station 21%
Abilene 15%
Corpus Christi 12%
Waco 5%
Beaumont-Port Arthur 2%
Sherman-Denison -3%
   
Chart by Author  
Source: BLS OES, MSA data 2001 vs. 2010  
 

A criticism of Texas job growth made by Paul Krugman is that Texas is a “still energy-heavy economy”. [2]   Oil and gas are actually a small percentage of Texas jobs, however.  “Mining, which encompasses oil and gas, employs only 2.1 percent of the Texas population – a surprising statistic for those unfamiliar with Texas economics.” [3]  It is true some support jobs, for example teachers and restaurant workers, are indirectly employed by supporting the 2.1% directly involved in mining, but Mr. Krugman overstates the case.  It is also true Texas is not the only state with mineral wealth.  Some states with oil such as California and New York have been less diligent about developing their resources than states like Texas, Louisiana, North Dakota and Pennsylvania have.   This impacts jobs. 

The dispersion of job growth also proves false the claims Texas job growth is all energy.  Houston, Beaumont and Corpus Christi are along the oil intensive Gulf Coast but are not exclusively energy, anyway (e.g. SYSCO Foodservice, headquartered in Houston).  Dallas, Austin and San Antonio have more varied, non-energy economies.  Dallas, the largest metro in Texas, is a major white-collar corporate center.  Austin, home of Dell Computer and many chip companies, is a major technology and Venture Capital hub.   The Rio Valley cities are agricultural centers with strong Mexican border trade.  San Antonio is “Military City USA” with low paid soldiers as well as many white-collar back office functions, logistics, tourism and skilled manufacturing (e.g. new Toyota and Caterpillar plants).

Dallas, Austin and San Antonio certainly help account for the fact education, healthcare and professional and business services, account for 26 percent of all jobs in Texas. [3]  Dallas Federal Reserve Bank CEO Richard Fisher pointed out, “Non-agricultural employment growth in Texas has compounded at an annual rate of 1.95 percent over 21 ½ years; that of California at 0.57 percent and New York at 0.19 percent.” Mr. Fisher noted in the period of June 2009-2011, Texas had accounted for 49.9% of net new jobs created in the United States. [3] 

So where are the low wage Texas jobs some pundits keep talking about?  They are not in the four big metropolitan areas, but instead are found in rural areas and smaller communities, many of which have been poor since before the US annexed Texas.  This is hardly unique, however, as there are poor rural areas and declining small cities in upstate New York, downstate Illinois, interior California, etc.  I am unaware of any state that has solved this disparity.  In fact, other high wage metro areas are not located far from much lower wage, economically depressed cities in their own states, e.g. San Francisco ($59,820 avg. wage) vs. Fresno ($41,100) and Merced ($39,080) or New York City ($55,080) vs. Buffalo ($42,010) and Binghamton ($41,260). 

I think another important point is how the direction of Texas wages is up and has, for decades, been slowly but surely closing in on national averages.  There is something disingenuous about comparing the higher average wage levels in declining northern small cities with traditionally poor, but upcoming Texas cities.  Rochester was the birthplace of Kodak.  Buffalo was a very prosperous port and manufacturing city.  Carrier invented air conditioning in Syracuse.  The somewhat higher residual wages in some of these Rust Belt cities do not go as far due to taxes and living costs and their long term unemployment and wage trends are typically not at all promising.  Would you rather build your future in Buffalo or San Antonio? 

Another factor in Texas wages is the unfortunate fact that racial minority groups are lower-income in America.  Whites are a minority in Texas.  I should emphasize I do not believe there are any innate differences, simply differences in culture, role models, difficulties with English as a second language, etc.  Metro San Antonio is majority Latino.  High wage metro Houston is 41% Latino.  It would appear the Texas economy is doing something right for many Hispanics in these cities.  Many of the below average wage areas in the Rio Valley are almost exclusively Latino, such as Hidalgo County, home of McAllen ($32,470 avg. wage), which is 91% Latino, and Webb County, home of Laredo ($33,580 avg. wage), which is 96% Latino.

In conclusion, the data shows Texas job growth far exceeded the nation in 2001-2010 and the Texas job growth was concentrated in metropolitan areas with above average wages.  This disproves the claims Texas is simply creating low wage jobs.  There are low wage jobs in Texas, many in South Texas agriculture have been there in more or less the same form for centuries, but it takes some clever mental jujitsu to look at the actual record of Texas and not see the huge growth in population and in jobs in above average wage cities. 

Texas Longhorn logo.svg

[1] Data sources: 2001 US and Texas employment data:

http://www.bls.gov/oes/2001/oes_00al.htm and http://www.bls.gov/oes/2001/oes_tx.htm#b00-0000; 2010 US and Texas employment data:  Texas $42,220, US average $44,410

http://www.bls.gov/oes/current/oes_tx.htm#00-0000 and http://www.bls.gov/oes/current/oes_nat.htm#00-0000

 2001 MSA employment data:

http://www.bls.gov/oes/2001/oes_0640.htm#otherlinks, 2010 MSA employment data: http://www.bls.gov/oes/current/oes_32900.htm#00-0000, 2000 & 2010 Census data by MSA: http://en.wikipedia.org/wiki/List_of_United_States_metropolitan_areas and State Census data: http://www.census.gov/popfinder/

[2] http://seattletimes.nwsource.com/html/opinion/2015919308_krugman16.html

[3] http://www.christianpost.com/news/dallas-fed-ceo-defends-texas-job-growth-warns-politicians-over-criticism-of-bernanke-54419/

New York Times Hypocrisy: Recall For Thee But Not For Me

In New York Times, Political Rhetoric, Wisconsin Recall Elections on August 10, 2011 at 11:43 pm

Readers of the New York Times know its editorial board supported yesterday’s recall votes of Wisconsin Republican state senators.  You could be forgiven for thinking the New York Times was a strong backer of citizen initiatives to recall legislators and governors – even if only a few months after their election.

But you would be wrong.

Today’s NYT editorial applauds the recalls and even gives strategic advice on how to structure a recall:

“Five months after Gov. Scott Walker of Wisconsin pushed through a law stripping public unions of their bargaining rights …. Mr. Walker’s opponents did not succeed in turning over the Senate, but it was still an impressive response to the governor’s arrogant overreach.”

“It was probably a stretch for union supporters to go after six incumbent senators, rather than concentrate their forces on the most vulnerable. Nonetheless, voters around the country …  should draw strength from Tuesday’s success, not discouragement.”
 

Back in March, the NYT editors sounded no alarm bells whatsoever about the nascent recall efforts against Governor Walker and Republican state senators:

“It could have serious consequences for the Wisconsin Republicans who voted to do so. Recall efforts against Mr. Walker and several Republican senators are already under way… The place to exercise some power of their own is at the voting booth.” [2]

Contrast the glee over Wisconsin’s “impressive” recalls with New York Times editorial positions in the last major American political recall attempt.  Back in 2003, the NYT editorialized twice against the recall election of California Governor Gray Davis.  In “Wrong Remedy In California”, the NYT wrote:

“Californians have reason to be angry…. Recalling Governor Davis, however, is not the answer. It is an unwise move with potentially damaging ramifications.”

“Allowing wealthy, opportunistic politicians to overturn fair elections when politicians fall out of favor with the public is unhealthy.”

“The state’s Constitution says a recall election is mandated if the effort’s organizers collect enough signatures. Yet Californians can still avoid a political quagmire by voting to keep the governor they already have — at least until the next general election.”  [3]

In “California Chaos”, NYT editors opined:

“California is now rolling inexorably toward a rendezvous with potential political chaos that it does not need in its present fragile condition and that somebody in authority should have found a way to avoid.” [4]

Why the double standard on recalls? 

The answer is obvious:  Walker is a Republican and Gray was a Democrat.  The overtly partisan New York Times hypocritically says ‘Recall for thee, but not for me’.

 

[1] http://www.nytimes.com/2011/08/11/opinion/wisconsins-warning-to-union-busters.html?_r=1&scp=1&sq=wisconsin+recall&st=nyt

[2] http://www.nytimes.com/2011/03/11/opinion/11fri2.html?scp=3&sq=wisconsin+recall&st=nyt

[3] http://www.nytimes.com/2003/07/11/opinion/wrong-remedy-in-california.html?scp=14&sq=gray+davis+recall&st=nyt

 [4] http://www.nytimes.com/2003/07/26/opinion/california-chaos.html?scp=3&sq=gray+davis+recall&st=nyt

Pictures from Wikipedia commons.