Wednesday, March 25, 2009

The future of the the California economy

The 1990s recession in Southern California was bad -- so bad, in fact, that people were wondering if the state's economy would ever fully rebound. I'm now hearing those voices rise again, although this time the reasons are more numerous. From a column by Steve Perlstein at The Washington Post:

The recession hit here earlier and harder than the rest of the country -- the statewide unemployment rate topped 10 percent last month -- and chances are it will linger here longer.

The severe downturn reflects the region's central role in the Bubble Economy.

As the headquarters for Countrywide Financial, Washington Mutual, New Century Financial and IndyMac, along with several of the nation's largest home builders, Southern California is ground zero for the mortgage crisis and the residential real estate bust.

As the capital of conspicuous consumption, its heavy reliance on auto sales, fashion, electronics and entertainment is now out of sync with the country's new frugality.

And as the gateway through which a majority of the country's imports flowed from Asia to American homes and businesses, its ports, warehouses and distribution channels, which once strained to keep up with the volume, now find themselves with large amounts of unused capacity.

More significantly, the receding economic tide has revealed serious structural problems and challenges in key sectors. The music, entertainment and electronic gaming industries are being turned upside down by the Internet.

The real estate industry is bumping up against the limits of population growth and exurban sprawl. And state and local governments that have long financed themselves by pushing costs off into the future have finally met their day of reckoning...

It is hard to overstate how reliant the Southern California economy has always been on population growth to drive its economic growth -- in oversimplified terms, building houses for the next wave of home builders...

But in recent years, this perpetual growth machine has pretty much run out of steam as residents old and new confronted the realities of two-hour commutes, bad air, a shortage of water and a backlash against illegal immigration.

Moreover, without the steady growth in tax revenue that came with population growth, the Ponzi scheme that passes for public finance in California was suddenly and painfully revealed. Much of the blame lies with public employee unions and a handful of other special-interest groups that have essentially hijacked political control of state and local governments.

Now, despite decades of high taxes and rapid growth, state and local governments find that they not only don't have the revenue to provide even basic services, but are saddled with hundreds of billions of dollars in unfunded pension liabilities and infrastructure needs...

Clearly, no matter how well the economy rebounds, the future cannot be business as usual.

Click here for the entire column.

1 comment:

Anonymous said...

Please, please, please keep this type of thinking going strong. Why? Because to me, the more of this type of defeatist thinking that goes on, the closer we are to a bottom. Anyone remember Silicon Valley circa 2001? I remember...I remember many stating that the Valley as we new it was dead. Lo and behold, the tech economy recovered, and look what came to pass...Google, the largest tech company on Earth. So keep the "it's never coming back the way it was ever" thinking up. That tells me we are near the dawn, and I'll be ready to receive some of that great redistribution of wealth that is coming our way.