It’s official: California grows to 6th-largest world economy

As reported by the San Francisco Chronicle:

California jumped ahead of Brazil and France to become the world’s sixth largest economy in 2015, according to a report released Friday by the Center For Continuing Study of the California Economy.

California’s gross state product rose to $2.5 trillion in 2015, up 4.1 percent from the previous year when adjusted for inflation. This outpaced the national growth rate of 2.4 percent, which bumped the United States’ gross domestic product to $17.8 trillion.

Meanwhile, a recession and government turmoil caused Brazil’s GDP to fall to $1.8 trillion.

Behind the United States, China’s economy came in second with $10.9 trillion; Japan followed with $4.1 trillion; Germany came in fourth with $3.6 trillion, followed by the United Kingdom at $2.9 trillion. …

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L.A. Has Fallen Far Behind the Bay Area — Perhaps Permanently

Photo courtesy of channone, flickr

Looking at Los Angeles and San Francisco, two successful California cities in 1970 whose fortunes have since diverged radically, The Rise and Fall of Urban Economies tries to answer an old question: Why do some cities thrive while others stagnate? The authors chose their subjects wisely. Had they paired up any other American cities — say, Chicago and Dallas — too many disparate factors would have come into play. Cities in the same state, however, share a universe of government policies, whether concerning income-tax rates or right-to-work rules, grounding the comparison and lending credence to the conclusions.

Los Angeles and San Francisco have much in common: top-notch climates, natural amenities like oceans and mountains, thriving arts and culture communities, and major international airports. In 1970, both cities boasted powerful industry clusters, similar concentrations of manufacturing firms, and highly educated and technically oriented workforces employed by innovative companies (Amgen in L.A., Genentech in the Bay Area). Prior to the 1990s, Los Angeles actually produced more patents than the Bay Area.

Over the last 45 years, however, while the Bay Area’s economy has soared, with per capita incomes raising rapidly, incomes in L.A. have trailed those in America’s other big cities — in fact, they were on par with those of metro Detroit. The authors dismiss many popular explanations for the trend, from housing costs to immigration to government spending levels. One after another, these theories are investigated and rejected as effects rather than causes. What, then, accounts for the difference?

The authors draw conclusions broadly similar to those made by U.C. Berkley’s AnnaLee Saxenian in her 1996 book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128. The influence of San Francisco’s counterculture, they say, inspired the Bay Area’s tech sector to develop a new approach to management oriented around collaboration, distributed development, labor mobility, and open networks. In Los Angeles, by contrast, the entertainment industry emulated Silicon Valley’s networked organizational structure, but remained disconnected from — and in many ways indifferent to — the larger Southern California economy. As indicated by measures like interlocking board memberships, Los Angeles’s corporate community is less interconnected than San Francisco’s.

The authors offer another reason why Los Angeles failed to keep up with its neighbor to the north. Unlike the Bay Area, which pursued a “high wage specialization strategy,” Los Angeles, in the interest of social justice, deliberately focused on lower- and middle-tier economic sectors. “Los Angeles’s leaders generated a low-road narrative for themselves, while Bay Area leadership coalesced around a high-road vision for their region,” they write. Such decisions have consequences, many of which are demographic. Had Los Angeles followed the same path as San Francisco, Southern California would have attracted far fewer working-class Latinos. The authors don’t directly state this, but it’s a clear implication of their findings. It’s logical to conclude that any region looking to replicate San Francisco’s success should take an exclusively high-end focus — social justice be damned.

Though academic in style, this is a fascinating book, especially for leaders thinking through development challenges in their own regions. It is narrow in focus, however. The authors leave job creation out of their definition of economic development. Instead, they focus on per capita incomes. That’s fine, but many readers will equate development with employment.

The Rise and Fall of Urban Economies paints a picture of a tough economic future for any region with a high-cost environment but a low- to medium-skilled labor force. “Los Angeles can never belong to the club of regions that can attract manufacturing back from cheaper regions of the United States or abroad,” the authors note. Though true, this will be painful for L.A.’s boosters to swallow. Retooling such a gigantic economy won’t be easy.

So this is the Recovery? Californians not feeling it

JobsIs the Great Recession over?

In California, the signals are mixed.

On one hand, a recent study of U.S. Census data by the Washington, D.C.-based Economic Innovation Group found that Los Angeles County led the nation with the largest number of jobs added, a total of 352,840 between 2010 and 2014.

The good news extended statewide. Twenty counties in the U.S. accounted for half of net new businesses established in those years, and five of those counties are in California.

Yet the latest Field Poll found that 74 percent of California voters list the economy and jobs as their top concern.

Is that just habit? Or something else?

A closer look reveals a problem of definitions, starting with: What is a job?

“People are considered employed if they did any work at all for pay or profit during the survey reference week,” explains the website of the U.S. government’s Bureau of Labor Statistics, referring to its monthly survey of 60,000 households, “This includes all part-time and temporary work, as well as regular full-time, year-round employment.”

So when people pick up part-time or temporary work for a few days or even for a few hours, the government counts them as “employed” at “a job.”

Some people are counted as “employed” at “a job” even if they don’t get paid.

Here’s an example from the BLS website: “Garrett is 16 years old, and he has no job from which he receives any pay or profit. However, Garrett does help with the regular chores around his parents’ farm and spends about 20 hours each week doing so.”

Here’s another one: “Lisa spends most of her time taking care of her home and children, but she helps in her husband’s computer software business all day Friday and Saturday.”

According to the Bureau of Labor Statistics, Garrett and Lisa have “jobs.” They’re in a category called ”unpaid family workers,” which includes …

Click here to read the full article.

This piece was originally published by the L.A. Daily News

Pause Mechanism Does Not Ease Discomfort Over Minimum Wage Hike

Minimum WageAs Governor Jerry Brown signs the new minimum wage increase law this morning, many in the business community are studying the proposed temporary pause mechanism built into the bill that is supposed to reassure businesses. It does not.

The mechanism is power in the hands of a governor to pause the minimum wage increase during economic downturns. There are two scenarios in which a governor can hit the pause button.

It is important to note that this power granted the governor is optional. Even in a recession political pressure could prevent the governor from pulling the trigger.

The first trigger is pulled when nonfarm employment for a 3 or 6 month period declines and sales and use tax has dropped over a 12-month period compared to a previous year, all these measurements to be taken at the end of the budget year in June.

The second trigger is based on state budget projections. If the Department of Finance projects a deficit in the then-current fiscal year or in either of the following two fiscal years the governor can pause the minimum wage increase. The budget trigger can be used a maximum of two times.

According to a quick review by the California Business Roundtable’s Center for Jobs & the Economy, this trigger power, which the business group labels an “Off-Ramp” provision, if it had existed during recent past recessions, would have complicated economic conditions as California was trying to pull itself out of a recession. The analysis says the minimum wage increase would have resumed after the pause while unemployment was still high.

From the Roundtable’s Center for Jobs & the Economy brief examining the last two recessions:

The 2001 Recession—

Most of the country went through a relatively short 2001 recession, but in California it was extended due to Silicon Valley being the epicenter of the bust and spiking energy prices as a result of the state’s regulatory and other energy policy decisions.  While the triggers would have provided a one-year delay in 2002, the minimum wage would have continued its annual increase as unemployment continued to rapidly rise from an average of 5.4% in 2001 to a peak of 7.3% in 2003.

The 2007 Recession– 

The minimum wage increases would have resumed in 2012 when unemployment still averaged 10.4% or even earlier in 2011 when unemployment averaged 11.7%. Most importantly, the minimum wage increases would have kicked back in during the critically important 5-year recovery period where California slowly struggled to regain the two million jobs lost throughout the state.

The brief also noted how the resumption of the minimum wage could put California at a disadvantage with other states: “the state will then resume raising its wage level above other states just as the recovery begins—a time when competitive factors will be particularly crucial to how quickly the state can restores its economy.”

For the full Center for Jobs & the Economy brief go here.

Originally published by Fox and Hounds Daily

Why The Middle Class Can’t Afford A House rising cost of housing is one of the greatest burdens on the American middle class. So why hasn’t it become a key issue in the presidential primaries?

There’s little argument that inequality, and the depressed prospects for the middle class, will be a dominant issue this year’s election. Yet the most powerful force shaping this reality—the rising cost of housing—has barely emerged as political issue.

As demonstrated in a recent report (PDF) from Chapman University’s Center for Demographics and Policy, housing now takes the largest share of family costs, while expenditures on food, apparel, and transportation have dropped or stayed about the same. In 2015, the rise in housing costs essentially swallowed savings gains made elsewhere, notably, savings on the cost of energy. The real estate consultancy Zillow predicts housing inflation will only worsen this year.

Driven in part by potential buyers being forced into the apartment market, rents have risen to a point that they now compose the largest share of income in modern U.S. history. Since 1990, renters’ income has been stagnant, while inflation-adjusted rents have soared 14.7 percent. Given the large shortfall in housing production—down not only since the 2007 recession but also by almost a quarter between 2011 and 2015—the trend toward ever higher prices and greater levels of unaffordability seems all but inevitable.

The connection between growing inequality and rising property prices is fairly direct. Thomas Piketty, the French economist, recently described the extent to which inequality in 20 nations has ramped up in recent decades, erasing the hard-earned progress of previous years in the earlier part of the 20th century. After examining Piketty’s groundbreaking research, Matthew Rognlie of MIT concluded (PDF) that much of the observed inequality is from redistribution of housing wealth away from the middle class.

Rognlie concluded that much of this was due to land regulation, and suggested the need to expand the housing supply and reexamine the land-use regulation that he associates with the loss of middle-class wealth. Yet in much of the country, housing has become so expensive as to cap upward mobility, forcing many people to give up on buying a house and driving many—particularly young families—to leave high-priced coastal regions for less expensive, usually less regulated markets in the country’s interior.

The Rise of the Exclusionary Region

The regions with the deepest declines in housing affordability, notes William Fischel, an economist at Dartmouth College, tend to employ stringent land-use regulations, a notion recently seconded by Jason Furman, chairman of President Obama’s Council of Economic Advisors. In 1970, for example, housing costs adjusted for income were similar in coastal California and the rest of the country. Today house prices in places like San Francisco and Los Angeles are three or more times higher, when adjusted for income, than most other metropolitan areas. For most new buyers, such areas are becoming what Fischel calls “exclusionary regions” for all but the most well-heeled new buyers.

The biggest impact from regulation has been to diminish the supply of housing, particularly single-family homes. In a recent examination of permits across the nation from 2011 to 2014 for Forbes, we found that California regions lag well behind the national average in terms of new housing production, both multi-family and single family. Houston and Dallas-Fort Worth, areas with less draconian regulations, have issued three times as many permits per capita last year. Overall California’s rate of new permits is 2.2 per 1000 while across the Lone Star state the rate was nearly three times higher.

In the “exclusionary regions” along both coasts, high land prices have made it all but impossible to build much of anything except luxury units. In Manhattan this has taken the form of high-rise towers that have been gobbled by the rich, including many foreigners, but this new construction has done little to make New York affordable for most residents. Between 2010 and 2015, Gotham rents increased 50 percent, while incomes for renters between ages 25 and 44 grew by just 8 percent.

Making of Two Americas

Real estate inflation is redefining American politics and could eventually transform the nature of our society. In the dense, increasingly “kiddie-free zones” around our Central Business Districts (CBDs), according to 2011 Census figures, children between ages 5 and 14 constituted about 7 percent of the population, less than half the level seen in newer suburbs and exurbs. The common habitués of these high-cost, high-density urban areas—singles and childless couples—have emerged, according to Democratic pollster Stan Greenberg, as key elements of the progressive coalition.

The bluer the city, generally, the fewer the children. For example, the highest percentage of U.S. women over age 40 without children—a remarkable 70 percent—can be found in Washington, D.C. In Manhattan, singles make up half of all households. In some central neighborhoods of major metropolitan areas such as New York, San Francisco, and Seattle, less than 10 percent of the population is made up of children under 18.Perhaps the ultimate primary example of the new child-free city is San Francisco, home now to 80,000 more dogs than children, and where the percentage of children has dropped 40 percent since 1970.

In contrast, familial America clusters largely in newer suburbs and exurbs, and increasingly in the lower-cost cities in the South, the Intermountain West, and especially in Texas. Overall—and contrary to the bold predictions of many urbanists—suburban areas are once again, after a brief slowdown, growing faster than the urban cores.

America remains a suburban nation. Overall, 44 million Americans live in the core cities of America’s 51 major metropolitan areas, while nearly 122 million Americans live in the suburbs. And this does not include the more than half of the core city population that live in districts, particularly in the Sunbelt, that are functionally suburban or exurban, with low density and high automobile use.

The Geography of Inequality

Inequality may be a big issue among urban pundits, but, ironically, inequality is consistently more pronounced in larger, denser cities, including New York, Los Angeles, and San Francisco. Manhattan, the densest and most influential urban environment in North America, exhibits the most profound level of inequality and the most bifurcated class structure in the U.S. If it were a country, New York City overall would have the 15th-highest inequality level of 134 countries, according to James Parrott of the Fiscal Policy Institute, landing between Chile and Honduras.

In our core cities in particular, we are seeing something reminiscent of the Victorian era, when a huge proportion of workers labored in the servile class. Social historian Pamela Cox has explained that in 1901 one in four people, mostly women, were domestic servants. But is this—the world portrayed in shows such as Downton Abbey and Upstairs Downstairs—the social norm we wish most to promote?

In contrast, research by the University of Washington’s Richard Morrill shows that suburban areas tend to have “generally less inequality” than the denser areas. For example, in California, Riverside-San Bernardino is far less unequal than Los Angeles, and Sacramento less so than San Francisco. Within the 51 metropolitan areas with more than 1 million in population, notes demographer Wendell Cox, suburban areas were less unequal (measured by the Gini coefficient) than the core cities in 46 cases. And overall the poverty rate for cities is close to 20 percent, almost twice that of suburban areas.

The differential of housing cost accounts for much of this disparity. High housing prices tend to stunt upward mobility, particularly for minorities. One reason: The house remains the last great asset of the middle class. Homes represent only 9.4 percent of the wealth of the top 1 percent, but 30 percent for those in the upper 20 percent and, for the 60 percent of the population in the middle, roughly 60 percent. The decline in property ownership threatens to turn much of the middle class into a class of rental serfs, effectively wiping out the social gains of the past half-century.

The Geographic Shift

High housing prices are also rapidly remaking America’s regional geography. Even areas with strong economies but ultra-high prices are not attracting new domestic migrants. One reason is soaring rents: According to Zillow, for workers between 22 and 34, rent costs claim upwards of 45 percent of income in Los Angeles, San Francisco, New York, and Miami compared to less than 30 percent of income in cities like Dallas and Houston. The costs of purchasing a house are even more lopsided: In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.

This is leading to a renewed shift even among educated millennials to such lower-cost regions as Atlanta, Orlando, New Orleans, Houston, Dallas-Fort Worth, Pittsburgh, Columbus, and even Cleveland. As millennials enter their 30s and seek to buy houses, these changes are likely to accelerate.

Millennials may be staying in the city longer than previous generations, but their long-term aspirations remain fixed on buying a single-family house. This trend will accelerate in the next few years, suggests economist Jed Kolko, as the peak of the millennial population turns 30. Faced with a huge student debt load, a weaker job market, and often high housing prices, millennials face tougher challenges than some previous generations, but retain remarkably similar aspirations.

Bringing Back Levittown

Clearly America needs a new approach to housing. Democrats may enjoy their strongest base in the cities, but many of their young constituents likely will end up in the suburbs, or will continue to move to smaller, less reflexively progressive cities. Finding ways to make suburbs more sustainable, both environmentally and for families, will have more long-term appeal than trying to eliminate their preferred way of life.

Some attempts to force developers to build low-income units have, if anything, worsened the situation by discouraging new production while actually boosting prices for the vast majority. In some cases, as in New York City, the forced construction of low-income units in otherwise market-rate buildings has resulted in such absurdities as the so-called “poor door,” through which low-income residents, who are denied most of the amenities offered to wealthier residents, must enter.

Republicans too may need to change their tune. As suburbs become more multi-cultural, and dominated by millennials, the GOP will have to embrace some of the environmental and social priorities of the new residents. They also have to realize that middle-class homeowners do not always share the same interests as Wall Street investors. Under the current regulatory regime, slavish adherence to the ambitions of big investors could undermine the dispersed ownership culture, replacing it with one primarily rental-based, even in single-family homes. Essentially this could transform large areas, including suburbs, into far less socially stable areas, particularly for families.

One potential solution would be to draw on the successful policies enacted after World War II. At that time, the nation suffered a severe housing crisis as servicemen returned from the war. The solution combined governmental activism—through such things as the GI Bill and mortgage interest deductions—with less regulatory control over development. The result was a massive expansion of the country’s housing stock, and a dramatic increase in the level of homeownership.

Bringing back the Levittown approach would require jettisoning ideological baggage that now accompanies the contemporary discussion about housing. Libertarians tend to favor loosened regulations—something welcome indeed—but seem to have less than passionate interest in addressing the housing interests of working- and middle-class Americans. As we saw in the late ’40s, at least some government support for affordable housing is critical to expanding ownership.

But increasingly the worst influence on housing stems from the proclivities of contemporary progressivism. Whereas earlier Democratic presidents, from Roosevelt and Truman to Johnson and Clinton, strongly supported suburban single-family growth, contemporary progressives display an almost cultish bias toward the very dense, urban environment. The fact that perhaps at most 10 to 20 percent of Americans prefer this option almost guarantees that this approach would be unacceptable to the vast majority.

How we deal with the housing crisis will shape our future, and will largely determine what kind of nation we will become. Although some developers outside the coastal areas are trying to revive smaller “starter homes,” at least in more reasonably priced markets, this may prove all but impossible to accomplish in “exclusionary regions” unless there is serious change.

Following our current path, we can expect our society—particularly in deep blue states—to move ever more toward a kind of feudalism where only a few own property while everyone else devolves into rent serfs. The middle class will have little chance to acquire any assets for their retirement and increasingly few will choose to have children. Imagine, then, a high-tech Middle Ages with vast chasms between the upper classes and the poor, with growing dependence—even among what once would have been middle-class households—on handouts to pay rent. Imagine too, over time, Japanese-style depopulation and an ever more rapidly aging society.

Yet none of this is necessary. This is not a small country with limited land and meager prospects. A bold new approach to housing, including the reform of out of control regulations, could restore the fading American dream for tens of millions of families. It would provide the basis for a greater spread of assets and perhaps a less divided — and less angry — country. Rather than waste their time on symbolic issues or serving their financial overlords, candidates in both parties need to address policies that are now undermining the very basis of middle-class democracy.

This piece originally appeared at The Daily Beast.

Cross-posted at New Geography.

California drought impact pegged at $2.7 billion

As reported by the Sacramento Bee:

The drought is costing California about $2.7 billion this year, according to a new UC Davis study, although the statistics suggest the state’s overall economy can withstand the impact.

In their latest estimate of the four-year drought’s economic effects, professors at the university’s Center for Watershed Sciences said Tuesday the drought has reduced seasonal farm employment by 10,100 jobs this year. When indirect job losses are thrown in, including truck drivers, food processing workers and others partially dependent on farming, the impact on payrolls comes to 21,000.

At the same time, the study said farmers are holding up reasonably well in spite of significant water shortages and the fallowing of 542,000 acres of land. “Agriculture is very resilient because of the underground water,” said Richard Howitt, professor emeritus of agricultural and resource economics and a co-author of the report. “The economic impact is not as severe as it could be.”

​Minimum Wage Hikes Hurt the Economy and the Poor

California has raised its minimum wage four times over the past 13 years, with each increase outpacing the federal minimum wage. California’s current minimum wage is 138 percent of the federal level, and with the impending statewide increase mandated by current law in 2016, California will have the highest minimum wage in the country.

Despite clear negative impacts on both California’s economy and low income citizens, Senate Bill 3 (Mark Leno, D-San Francisco) would mandate an additional statewide increase to $13 per hour with annual, auto-scheduled wage increases thereafter.

With another increase already teed up for January 2016, pre-programing additional increases is reckless.  The weight of economic data compels the conclusion that arbitrary minimum wage increases do more harm than good.  Motivated by the understandable desire to help the state’s lowest wage earners, the reality is that they reduce access to jobs for those citizens who need them most and further suppress upward mobility for those clinging to the bottom rung of the employment ladder.

Capitol Matrix Consulting studied the fiscal impact of a $13 minimum wage to the state and, not surprisingly, found devastating consequences.  The study identified a $200 million annual cost to the state due to the recent minimum wage increases already being phased in.  Worse yet, it projects a cost of $860 million to the state in the 2016-2017 fiscal year if the minimum wage is raised to $13.  (Most of these costs are incurred due to increased state payments for providers of In-Home Supportive Services (IHSS) and increased state costs to the Department of Developmental Services (DDS)).

These negative financial impacts would not be offset by any additional revenue to the state.  Paying for burdens would have to come from higher taxes – further accelerating an economic death spiral – or cuts to vital services and fewer public sector jobs.

While Capitol Matrix’s study analyzed the direct fiscal impacts of another increase, the projected costs to the state – totaling nearly a billion dollars a year – do not represent the full impact of such an increase.  Increasing labor costs on California’s millions of small businesses creates additional unintended consequences, including higher prices for the goods and services we rely on and reduced access to jobs for teens and low-skilled workers.  California’s recent minimum wage increase is not yet a year old, and another increase is only eight months away.  These two increases are a 25 percent wage increase in just 18 months, and small businesses are already feeling the pressure to cut hours, eliminate jobs and raise prices.

Like many well-intentioned progressive policies the actual effects of a significant increase in the minimum wage won’t match the promise of helping the working poor – in fact, just the opposite.  For struggling Californians looking for work, what good is an increase in the minimum wage if you can’t get a job?

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpa​yers’ rights.

CA Jobs are Booming, But What Kind of Jobs?

First the good news on the job front: California is leading the nation in job creation. Job growth in the Golden State last year increased by 3.1% while job growth in the rest of the nation settled in at 2.3%. And with 67,300 new jobs created in January alone, the state’s unemployment rate dropped to 6.9% from 7.1%, the lowest in nearly seven years, although still higher than the national unemployment figure of 5.5%. Still, the January California job gains made up 28% of all jobs created in the entire nation.

Yet, wage growth is not keeping pace, especially in populous Los Angeles County. Low paying jobs make up a large share of the job increase in the county and elsewhere.

According to Jordan Levine of Beacon Economics in L.A. the cost of hiring middle class workers in California is expensive. The reasons Levine mentioned in a Long Beach Press Telegram report were regulations and environmental laws that have driven up the cost of doing business and the cost of housing. It becomes difficult for businesses to meet the higher wages needed to keep middle-wage workers.

“It really comes down to the cost of living,” Levine said. “If you look at who’s moving out, it’s people making $50,000 or less.”

So while the legislature looks for solutions to housing costs to help create affordable housing through tax credits and fees, legislators also should consider how past regulations and laws have driven up the cost of housing and look for ways to ease up on those rules.

Beyond that examination, the legislature should go further and see how regulation reform could add to job creation in the middle class.

As the California Business Roundtable noted not long ago, “By a large margin, California’s regulatory environment is the most costly, complex and uncertain in the nation. No other state comes close to California on these dimensions.”

Let’s hail the increase in jobs that is occurring now and celebrate California’s recovering economy. But, now is also the time to take steps to continue job growth and make moves that encourage businesses to generate more middle class jobs.

This piece originally ran on Fox and Hounds Daily

Whether Politicians Like It or Not Gasoline Is California’s Life Blood

The Field Poll reports that for the first time in seven years more California voters believe the state is moving in the right direction (50 percent) than feel it is on the wrong track (41 percent). Those living in coastal California are much more likely to have a positive outlook on our state’s future than inland residents. And Democrats are more optimistic than Republicans, so it may be safe to assume that Democrats living in Malibu, Silicon Valley and the Bay Area are much happier than Republicans living in Central Valley and other areas with high unemployment.

Like politicians everywhere, California’s governing class will attempt to claim credit for this reversal of what had been nearly unanimous pessimism.  Moreover, they will also claim that this is vindication of progressive policies that have given California one of the most harsh tax and regulatory environments in the nation.

However they explain the voters’ optimism, they are unlikely to bring up the one thing for which they can claim no credit whatsoever; the lower gas prices that existed during the period the poll was conducted, January 26-February 16, just before the cost of a gallon of gas began to vault upward again.  With prices in late January down almost 2 bucks per gallon since the high in 2014, many Californians have had reason to smile. It is also interesting to note that the last time more voters than not were positive about their state, gas prices were also down.

Even if there is not an exact correlation, when drivers who fill up their cars two or three times a month see that they are saving money, they are definitely in a better mood.What is ironic is that while the Sacramento political class may want to take credit for voter optimism, they have been working overtime to keep the cost of gasoline high. Between the high gas tax and the additional “carbon tax” imposed on manufacturers that is putting upward pressure on prices, the politicians have proven they are no friend of the millions of average folks who must depend on their cars for transportation.  According to State Board of Equalization Member George Runner, even with the price dip, Californians in January were paying as much as 47 cents more per gallon than drivers in other states.

Acknowledging that gas taxes are providing sufficient revenue, the State Board of Equalization last week reduced the state gas tax by 6 cents a gallon beginning this July. The reduction is based on a formula enacted by the Legislature in 2010, a formula that is so complicated that most news reporters don’t understand it.  Runner rightfully objects to this confusing system that hides the actual cost of the gas tax by hiding the second carbon tax that is only reflected in the overall price.  Currently, Californians pay about 64 cents per gallon in taxes and fees — the second-highest rate in the nation — but we become number one when the hidden tax of about 15 cents is added in.

If the Sacramento politicians really want to see voters smile, they should lay off trying to increase costs for the millions of Californians who depend on their cars to go to work, take their children to school and to do the weekly shopping.  Because one thing is certain – the optimism that Californians are feeling now will disappear in a heartbeat if gas prices return to what they were less than a year ago.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Economic Contrast: Texas vs. CA

In the last decade, Texas emerged as America’s new land of opportunity — if you will, America’s America. Since the start of the recession, the Lone Star State has been responsible for the majority of employment growth in the country. Between November  2007 and November 2014, the United States gained  a net 2.1 million jobs, with 1.2 million alone in Texas.

Yet with the recent steep drop in oil prices, the Texas economy faces extreme headwinds that could even spark something of a downturn. A repeat of the 1980s oil bust isn’t likely, says Comerica Bank economist Robert Dye, but he expects much slower growth, particularly for formerly red-hot Houston, an easing of home prices and, likely, a slowdown of in-migration.

Some blue state commentators might view Texas’ prospective decline as good news. Some, like Paul Krugman, have spent years arguing that the state’s success has little to do with its much-touted business-friendly climate of light regulation and low taxes, but rather, simply mass in-migration by people seeking cheaper housingSchadenfreude is palpable in the writings of progressive journalists like the Los Angeles Times’ Michael Hiltzik, who recently crowed that falling energy prices may finally “snuff out” the detested “Texas miracle.”

Such attitudes are short-sighted. It is unlikely that the American economy can sustain a healthy rate of growth without the kind of production-based strength that has powered Texas, as well as Ohio, North Dakota and Louisiana. De-industrializing states like California or New York may enjoy asset bubbles that benefit the wealthy and generate “knowledge workers” jobs for the well-educated (nationwide, professional and business services employment rose by 196,000 from October 2007 through October 2014), but they cannot do much to provide opportunities for the majority of the population.

By their nature, industries like manufacturing, energy, and housing have been primary creators of opportunities for the middle and working classes. Up until now, energy  has been a consistent job-gainer since the recession, adding  199,000 positions from October 2007 through October 2014, says Dan Hamilton, an economist at California Lutheran University. Manufacturing has not recovered all the jobs lost in the recession, but last year it added 170,000 new positions through October. Construction, another sector that was hard-hit in the recession, grew by 213,000 jobs last year through October. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes.

Reducing the price of gas will not change the structure of the long-stagnant economies of the coastal states; job growth rates in these places have been meager for decades. Lower oil prices may help many families pay their bills in the short run. But there’s also pain in low prices for a country that was rapidly becoming an energy superpower, largely due to the efforts of Texans.

Already the decline in the energy economy, which supports almost 1.3 million manufacturing jobs, is hurting manufacturers of steel, construction materials and drilling equipment, such as Caterpillar. Separately, the strengthening of the dollar promises harder times ahead for exporters  in the industrial sector, and greater price competition from abroad, amid weakening overseas demand. Factory activity is slowing, though key indicators like the ISM PMI are still signaling that output is expanding.

Right now in Texas, of course, the pain is mounting in the energy sector. Growth seems certain to slow in places such as Houston, which Comerica’s Dye says is “ground zero in the down-draft.” Also vulnerable will be San Antonio, the major beneficiary of the nearby Eagle Ford shale. The impacts may be worst in West Texas oil patch towns like Midland, where energy is essentially the economy.

Yet there remain reasons for optimism. Cheaper energy prices will be a boon for the petrochemical and refining industries, which are thick on the ground around Houston and other parts of the Gulf Coast. The Houston area is not seeing anything like the madcap office and housing construction that occurred during the oil boom of the 1980s. Between 1982 and 1986 the metro area added 71 million square feet of office space; including what is now being built, the area has added just 28 million square feet since 2010. Compared to the 1980s, the residential market is also relatively tight, with relatively little speculative building.

The local and state economies have also become far more diversified. Houston is now the nation’s largest export hub. The city also is home to the Texas Medical Center, often described as the world’s largest. Dallas has become a major corporate hub and Austin is developing into a serious rival to Northern California’s tech sector.

Texas needs to increase this diversification given that oil prices could remain low for quite a while, and even drop further after their recent recovery.

This is not to deny that the state is facing hard times. Energy accounts for 411,372 jobs in Texas, about 3.2% of the statewide total, according to figures from Austin economist Brian Kelsey quoted in the Austin American-Statesman. If oil and gas industry earnings in Texas fall 20%, Kelsey estimates the state could lose half of those jobs and $13.5 billion in total earnings.

Low prices also could also devastate the state budget, which is heavily reliant on energy industry revenues. A reduction in state spending could have damaging consequences in a place that has tended to prefer low taxes to investing in critical infrastructure, and is already struggling to accommodate break-neck growth. The only good news here is that slower population growth might mitigate some of the turndown in spending, if it indeed occurs.

But in my mind, the biggest asset of Texas is Texans. Having spent a great deal a time there, the contrasts with my adopted home state of California are remarkable. No businessperson I spoke to in Houston or Dallas is even remotely contemplating a move elsewhere; Houstonians often brag about how they survived the ‘80s bust, wearing those hard times as a badge of honor.

To be sure, Texans can be obnoxiously arrogant about their state, and have a peculiar talent for a kind of braggadocio that drives other Americans a bit crazy. But they are also our greatest regional asset, the one big state where America remains America, if only more so.

This piece first appeared at Forbes.

Cross-posted at New Geography and Fox and Hounds Daily