Saturday, June 2, 2012

California vs. the Productive Class

California is sinking fast economically, as we explained in States in Budget Crisis.
The Los Angeles Times points out that California placed 48th in a study of business-friendly states, trailed only by New York and New Jersey -- and that was the good news. A few weeks later, the Times reported even more dismal information.

Leading with the news that Chief Executive magazine had named California the worst place to do business for the eighth year in a row, they went on to detail some of the reasons.

Its 10.9% unemployment rate is only lower than Nevada's and Rhode Island’s. A third of U.S. welfare recipients live in California, the report noted. High state taxes and bundles of red tape make operating a business in the state unaffordable to many companies, critics say.

Last year, 254 California companies moved some or all of their work and jobs elsewhere -- 26% more than 2010. Most chief executives in Silicon Valley said they won't expand in the state, according to the survey.
In The California "Austerity" Trap, Robert Upshaw points out that California's expected budget shortfall has mushroomed to $16 billion and in response, Governor Jerry Brown offered a plan that ups the top tax bracket rate by 3% for the next seven years and increase sales taxes by one-fourth of 1 percent for four years.

In response to these woes, California's solution is to attack its underground economy, estimated by the state at between $60 and $140 billion, rather than lowering the tax and regulatory burdens that have driven that substantial portion of the economy underground, as Reason reports.
In explaining the need for SB 1185, BOE1 Vice Chair Michelle Steel describes her own Bulgaria on the Pacific as "a high-tax and high-regulation state" in which "it becomes attractive to operate businesses outside the law in order to obtain a competitive advantage." Is the solution to reduce taxes and ease regulation? Of course not! Instead, the legislation establishes a new bureacracy with its own staff to which people can snitch about off-the-books businesses, and which will also pool data compiled by other agencies.
While Greece, a bit farther along in its economic meltdown, has decided to make accommodations for the underground economy, California has decided to go to the mattresses. Given the example of the improvements that are occurring in Detroit absent the government stamp of approval, California launches the first domestic full-court press of the dinosaurs against the rats that are breeding in their nests.

SB 1185 details the rationale for the attack.
The underground economy hurts all Californians. Revenues to support government services are lost, workers are forced to go without basic employment protections, and legitimate businesses are confronted with unfair competition.
The underground economy hurts all Californians, except those who aren't starving or homeless (or collecting welfare and food stamps) because they've taken their destiny into their own hands in defiance of the state. The underground economy hurts all Californians, except those who would never be able to open their own businesses or buy the products they desire if they let bureaucrats dictate the terms of their activity.
All over the world -- from San Francisco to São Paulo, from New York City to Lagos -- people engaged in street selling and other forms of unlicensed trade told me that they could never have established their businesses in the legal economy. "I'm totally off the grid," one unlicensed jewelry designer told me. "It was never an option to do it any other way. It never even crossed my mind. It was financially absolutely impossible." The growth of System D opens the market to those who have traditionally been shut out.
In a feudal state where taxes and regulations have already made it virtually impossible to create new opportunities for the peasants, a state which has lost four million people in the last two decades, a state where "about 40% of Californians don't pay any income tax and a quarter are on Medicaid," it will be interesting to see how this war against the productive class plays out.

...and that's all I have to say about that.
1 BOE refers to the California Bureau of Equalization. Shades of Atlas Shrugged! That brings to mind the Equalization of Opportunity Bill previously discussed in Is Directive 10-289 in Our Future?


  1. California is overdue for an economic death. I lived there during 2007-2009 and it was starting to tank.

    By the way, don't buy the lie that New Hampshire has the lowest unemployment because it's so "libertarian". NH has a very old median age, and it's the younger people who are the most harmed by the crappy economy.

  2. I'm 65, and spent the first 58 years of my life in California. My grown sons are still there, pretty much trapped for all intents and purposes.

    California remains a beautiful place. It may be habitable again once the parasites are fumigated and the land allowed to return to its natural condition.

    But Julia, an unfree and coercive society/economy hurts every single one of us - just in different ways. Don't let anyone convince you that we must pit the young against the old. We all need each other. :)

  3. That's not my point at all, really. My point is that all the statistics which claim NH (the state I live in) does so well *because* it's libertarian are way off.

    NH is experiencing a population decrease, if you can believe it, because young people are realizing that there's no opportunities for them here. Like I said, most of the state's population consists of older people who already have steady jobs or are retired.

    Also, I don't understand why *any* business would want a free market. Free markets mean an extreme amount of competition and increase risks. Businesses would do everything they could in their power to prevent a free market from emerging. (Also, David Graeber does a pretty good job of showing how markets only come into being because of states in his latest book, which I would highly suggest market anarchists read.)

  4. The only way a business could do anything to prevent competition would be through the coercion of the "state." And that option is only available to the largest players, who have the most to offer the state in return for that protection. You are indeed correct that these entities have no desire to see any kind of free market evolve. But they do not represent all entrepreneurs or businesses, by any means.

    I owned and operated a small business. My competition was welcome, and most of them were my friends. The state was my enemy for many obvious reasons, taxation only being one of them. I would open a small business today if it were possible. The state makes it simply impossible... I would be overjoyed if I were free to engage in competition with others like myself. Unfortunately, the state claims total monopoly and nobody may enter the field at all unless they work for the state!

    There are many kinds of markets, and most people don't understand what a free market actually is or could be. The "black" and "gray" markets today come closest, and they are thriving without government "help," and in spite of serious state opposition.