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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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California Economic Trends and Policy Implications

Uploaded: Jun 12, 2017
Between 2012 and 2016 California captured 17.1% of U.S. job growth and 23.6% of U.S. GDP growth. While the Bay Area was the growth leader, the rest of the state also outpaced the nation in job growth.

Readers are familiar with the tech led job growth in our region. But Southern California rebounded as well led by growth in motion pictures, foreign trade related jobs and record levels of tourism and airport travel.

The state was well positioned to take advantage of U.S. growth in the three T’s—tech, trade and tourism/entertainment.

These trends have interesting implications for two national policy discussions. California’s job growth was accompanied by improved air quality in the Bay Area and Southern California and by a decline in per capita GHG emissions. These gains were the result of regulations and changers in resident behavior accompanied by technological change that improve energy efficiency and miles per gallon for vehicles.

Thus the President’s claim that regulations and the Paris agreement are job killers is refuted not only by this recent evidence but also by peer reviewed studies of the economic impact of state and Southern California air quality plans. I was one of many technical reviewers in both cases.

His claim is just wrong at the economy wide level although some individual sectors always shrink in big economic transitions.

While advocates sometimes overstate the immediate job potential of clean energy jobs, there is no question that the future belongs to the regions that can develop the next round of innovation in areas like battery technology, autonomous vehicles, transmission line efficiency, fuel efficiency and the like. When personal computers and word processing software were introduced, would you want your state to be a leader in personal computing or typewriter manufacturing?

The second policy implication deserves everyone’s attention. Most Californians understand that restrictions on immigration and foreign trade will hurt our local economy as will reductions in federal support of basic science.

Now it is time to return to the opening statistics—17.1% of national job growth and 23.6% of national GDP growth.

What happens in California affects the national economy. We are one important center of innovation, connections with the Pacific Rim and a leader in entertainment and tourism. The state and national economies are connected and what hurts one hurts the other as well.
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Comments

Posted by musical, a resident of Palo Verde,
on Jun 12, 2017 at 5:29 pm

Don't forget growth in the fourth T â€" taxes.


Posted by musical, a resident of Palo Verde,
on Jun 12, 2017 at 5:32 pm

( The unprintable character was the long hyphen pasted from the original article,
not an attempt at a colorful adjective ... )


Posted by resident, a resident of Charleston Meadows,
on Jun 13, 2017 at 7:12 am

I suggest that everyone reviews the Paris Agreement on Wikipedia. Find out for your self what it means and who is paying for this show. I do not believe that anyone disagrees with the fact that there are changes taking place. The disagreement is in how to deal with it. The US is expected to fund the countries who signed on. That moves the responsibility onto the US and takes it off the individual country. The agreement approach is poorly scripted. We do not have the money to pour into other countries - we have infrastructure problems that are not being addressed and need to be to eliminate problems in the future regarding flooding and water conservation.

In South America they are ripping out the jungles/tree canopy to replace with crops. The US cannot interfere with that dynamic if a country decides that is how they increase their food supply.

Coal is a major climate issue. We have states that are mining coal and want to move by train to west coast ports for shipment to China. But China has coal stockpiled and is selling it to North Korea, India, and other countries. The US west coast ports in Washington, Oregon, and California/Oakland have specifically stated that coal will not be trained in and shipped from those ports. Note who owns the trains that carry coal and oil - Mr. B has to maintain "rolling stock" to be profitable.

The state of California has many problems that became evident during the Drought/Heavy rain climate scenario that need to be fixed - no cheap effort.
The California taxpayer has to get involved with how the state is addressing these problems which have been a long time in forming. The Paris activity has no immediate resolution to anything happening here - other than a lot of people going to conferences. Those conferences have been going on for many years and will go on for many years with no involvement with the Paris agreement.

Companies who are involved with climate technology have continual conferences to highlight and sell their products - this has been going on forever. They will continue to go on and do not need the Paris agreement to
change that dynamic. What each state needs is a governor who is stepping up to the plate to resolve specifically identified problems within each state and how those problems specifically affect the surrounding states.


Posted by Eric Rosenblum, a resident of Downtown North,
on Jun 13, 2017 at 2:30 pm

Thanks for the blog, steve.

I have always been a bit mystified by the conservative talking point that "jobs are fleeing California to less regulated states", when it is self-evidently not the case.

How do you think the local regulatory regime plays into development of a cleantech industry? Ie., does the fact that CA will have tighter environmental regulations spur the development of local cleantech, or is the market so global at this point that a state's environmental policies don't necessarily impact an industry locally?


Posted by stephen levy, a resident of University South,
on Jun 13, 2017 at 2:52 pm
stephen levy is a registered user.

@Eric

The regulatory environment the size of the California market and the size of potential world markets have created the conditions for innovation and related job growth--think Tesla.

Tie the regulatory environment and the other factors to the tech labor force already here and you see why companies like Ford, Porsche and others have set up auto tech startups here.

In a word, you want to be in the industries of the future.

Some people overstate current clean tech job levels but no doubt in my mind that this is a big growth area for companies that can innovate successfully.


Posted by Amy Sung, a resident of Duveneck/St. Francis,
on Jun 13, 2017 at 3:02 pm

Thank you Steve for painting a true and clear picture for all of us to see. We not only enjoy economic prosperity, we also have the clean air and fresh water thanks to CA's stringent regulations. Seeing that CA pumps a quarter of input to national GDP growth, it's a number that we should be all be proud of.

Let's dig a bit deeper about the benefits of immigrants and H1 Visa and why bashing immigrants is a misguided policy. About 40 percent of Fortune 500 companies were founded either by immigrants, or by the sons and daughters of immigrants, according to The Atlantic. Many of the Bay Area CEO's are household names, Steve Jobs, Elon Musk, and Sergey Brin just to name a few.

Demographic advantage is another benefit immigrants bring. Compare to other developed countries facing aging population, US has a steady growth rate of workforce age group, and thus a favorable competitiveness edge, thanks to the immigrants (and birthrate, of course!) Did you notice that Justin Trudeau and Emmanuel Macron wasted no time to signal to students and tech workers that Canada and France welcome them!


Posted by Sanctimonious City, a resident of Another Palo Alto neighborhood,
on Jun 13, 2017 at 3:21 pm

It is pretty simple really.

Business is good for the global elites who are selling out the middle class. It is easy money because it is not through innovation or hard work but primarily through taking advantage of an unfair international trade system.

China pegs its currency to the dollar at about six to one (Currently .15 to 1). Then, it adds a tariff on our high tech goods of about 25%. Lastly, it makes foreign companies hire local employees and adds additional regulatory burdens. The "Great Firewall" of national censorship even filters commercial sites in addition to political ones. Good luck buying something from Amazon or Home Depot from China.

Chinese government and business officials then take their cut off the top. The US management reaps a windfall to earnings per share from the cost reduction and then retires early on inflated compensation packages leveraged on the stock price.

Trade related jobs is a euphemism for a booming trade deficit that imports goods and services and exports our high paying jobs and stiffs the tax payer with a $500+ annual bill.

Open borders flood the market with low skilled workers, H1B Visa bundling undercuts high skilled workers and off shoring manufacturing, development, QA and support takes care of the rest.

The movie industry is growing only because of an influx of Chinese investment and over generous tax subsidies as payment for loyalty at the ballot box. By the way, that service sector is barred from India along with a number of other white collar industries.

The author mixes many topics and likes to have it both ways. Carbon is the same as pollution and market forces will respond with technology to save us but we still need to make Billions in transfer payments to governments around the world.

The Trump administration is supportive of international trade. Unlike the policies of the last 30 years, it prefers fair trade to free-rider trade.


Posted by resident, a resident of Charleston Meadows,
on Jun 13, 2017 at 7:13 pm

Concerning jobs leaving California they are the heavy manufacturing jobs. The Burbank Airport used to be Lockheed Martin building airplanes. The smaller Santa Monica Airport used to be McDonnell Douglas which moved to Huntington Beach and was later sold to Boeing. Heavy manufacturing has moved to Texas and other states that have a cheaper labor force and lower state tax. Heavy manufacturing is typically union labor. Tesla is an anomaly but does have government subsidy.

The tax situation is a problem that needs to be worked on. The major companies in our area - Google, Facebook, have money stored off shore that remains to be taxed. That is being worked on now - how to bring those dollars back in.

A big problem for California at time is the retirement fund CALPERS. At this time it is underfunded. That is another element that is being worked on.


Posted by Alice Schaffer Smith, a resident of Greendell/Walnut Grove,
on Jun 13, 2017 at 8:15 pm

Clean Air regulations help the health of our citizenry and the quality of our food and environment. Job creation is a result.

What I would like to see (and we did it with eggs, why not with other produces and products,) is not allowing into CA products or produces which do not met the standards set within the state for our own productions on clean air, child labor laws, use of pesticides etc.

Why not make the 6th largest economy in America stand for the high standards we want for our citizenry, whether produced in CA or imported into the state.


Posted by Dissenter, a resident of Evergreen Park,
on Jun 13, 2017 at 8:50 pm

"Open borders flood the market with low skilled workers, H1B Visa bundling undercuts high skilled workers and off shoring manufacturing, development, QA and support takes care of the rest."

Yet skilled jobs remain unfilled. What's wrong with this picture?


"The Trump administration is supportive of international trade."

Only for countries that personally profit Clan Trump (e.g., China, where First Daughter Ivanka's goodies are manufactured, instead of in the USA as First Daddy promised us, and which speed tracks trademarks to benefit The Donald), or that flatter our humble leader for preferential policy treatment (e.g. Saudi Arabia, which projected a five-story image of D. J. on a building for all its loyal citizens to admire),


Posted by Sanctimonious City, a resident of Another Palo Alto neighborhood,
on Jun 13, 2017 at 10:07 pm

@Amy Sung
You miss the point. If you look at the Declaration of Independence then I bet 40% of the signers were either immigrants or the children of immigrants. The U.S. nation is defined by that heritage along with the Bill of Rights which makes it exceptional. You probably won't see that in the Atlantic.

Using Fortune 500 founders as the example is also a red herring. Few people take issue with legal immigration or the fact that Einstein, Sergey or entrepreneurs come here to create wealth and raise standards of living. What the middle class objects to is the wholesale and intentional (via immigration, tax and financial regulation policies) destruction of upward mobility and the American dream.

For the last 40 years the U.S. has had a trade deficit which cumulatively is over $12 trillion. That is in addition to the national deficit which is approaching $20 trillion. It is no coincidence that while this was happening that literally millions of jobs were shipped off shore. Foreign governments and individuals used that disparity largely to purchase U.S. assets in the form of government debt and real estate. Now you know where all those cash buyers come from bidding up the price for ghost houses.

It is widely accepted in economics that perpetual trade deficits are detrimental to the national interest for the following reasons:

1. It creates debt that must be financed. As we all know that adds costs that could be used for something else particularly when at the scale of $Trillions. Further, the debt must eventually be paid off, defaulted on or devalued through inflation.
2. It reduces GDP which is defined as Personal Consumption Expenditures plus Business Investment plus Government Spending plus (Exports minus Imports). We have the world's largest economy but our current annual trade deficit in the range of $550B+ reduces our GDP by more than the equivalent of a Taiwan, Sweden or Isreal every year.
3. It reduces tax revenue. Sure, we get some sales tax but lose other corporate and employment taxes. The rise in trade deficits has also corresponded to the rise in our national debt.
4. When at the scale of $Trillions, our currency exchange rates and interest rates can be influenced on the international markets. That exposure can hurt our ability to manage our domestic economy and service our debt.
5. It shifts high value jobs to other countries and creates greater income inequality. There is no better example in history than the U.S. over the last 40 years of those effects. If the trade deficits last long enough it creates structural unemployment issues and impairs the country's ability to support itself with industry.

The reality is that the last 40 years have represented the largest theft in history. It was a one time generational transfer of wealth from America's middle class to the global elite and its constituents. Their goal now is to create a permanent ruling class to solidify the new power structure. It is slash and burn economics that benefits the original generation that lit the match but leaves everybody thereafter with a baron landscape.


Posted by resident, a resident of Charleston Meadows,
on Jun 14, 2017 at 9:54 am

deleted--please feel free to start your own blog in pot related issues

SL: My blog argues two points

One, that the CA economy has done well despite stringent air quality regulations and the claim that these regulations hurt the overall economy is false

Two, that the CA economy success is important for the nation and policies that hurt the state economy also hurt the nation

If you agree or disagree with these arguments, please post but please stay on the blog topic


Posted by musical, a resident of Palo Verde,
on Jun 14, 2017 at 10:19 am

@Sanctimonious, "baron landscape", clever.


Posted by stephen levy, a resident of University South,
on Jun 14, 2017 at 10:21 am
stephen levy is a registered user.

The state air resources board has made two relevant data updates in the past month.

First, total green house gas emissions declined in 2016 following a pattern of recent declines. This comes as the state added nearly 2 million jobs. Per capita emissions have fallen even more.

Second, air quality in the Bay Area improved as we met two additional federal standards and also improved in Southern California.

You may like or dislike the state's air quality regulations (I approve of them generally) but it is hard to argue against the simple fact that our economy can grow, outpacing the nation in job and GDP growth, while improving air quality.

That seems to me to be an important finding for how we think about the economy/environment connection.


Posted by Stinging Facts, a resident of Another Mountain View Neighborhood,
on Jun 15, 2017 at 6:25 am

Some people hate the success of CA because it proves them wrong about a lot of things they like to gripe about. It's like people nit-picking about the Warriors and trying to convince people that they are not good. Meanwhile...see you at the parade!


Posted by Hamilton, a resident of Duveneck/St. Francis,
on Jun 15, 2017 at 1:34 pm

Nice article Steve and completely agree that California's full embrace of clean energy has contributed to our economic growth. There are already 2.3 Solar jobs for every Coal job in the USA. See: Web Link

Our country was founded on immigrants and I'm a big fan of smart immigration policy that includes continuing to attract the best and the brightest as well as filling jobs with hard working folks that would otherwise go unfilled. However, it's been abused in the area of the H1B visa where US workers have been replaced by lower cost H1B workers, such as at UCSF and Berkeley just to name two local institutions.

Web Link
Web Link

Globalization and trade are the future and California has embraced these and prospered. We're also happy to share our jobs with other states (including red states) so I don't see some jobs moving out of the state as a bad thing. However, when those states push federal policies that limit our countries trade and immigration and while increasing pollution that hurts every state.


Posted by Chris, a resident of University South,
on Jun 16, 2017 at 8:38 pm

Sanctimonious,

Your attempt at playing economist is embarrassing.

You do realize that the economy is at virtual full employment and people are being paid what they are worth.

If you think Americans consume too much (you hate cheap imports), you should propose a consumption tax. Use the proceeds to invest in social goods.

Many Americans are doing extremely well and better than ever (look around you). You are rightly bothered by people who are not doing well and not reaping the unprecedented benefits to the upper tier. Then you should propose ways to DIRECTLY help them. Playing your convoluted economic games will bring everyone down.


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