California’s Uncertain Recovery

California is notable for being a state which simultaneously shows impressive economic production but is plagued with the problems of a state in decline.  In 2011, California’s gross domestic product (GDP) was just under $2 trillion dollars, which easily ranked first among U.S. states and would have made California the ninth largest economy in the world (in 2011) if it were its own nation.

But there are negatives too.  California’s impressive GDP is largely attributable to it being the most populous U.S. state and to its supply of highly-skilled workers.  Foreign investment in the state, long a strength, is rising at a slower rate than in states such as Texas and Massachusetts.  The state has some of the highest energy prices in the nation, due in part to the state’s reluctance to develop its resources.  California’s high taxes and cost of living have made it one of the few states to experience a population loss in recent years due to net negative migration (although this does not measure births and international migration).  In November, voters chose to raise income taxes on the wealthy to an eye-popping 13.3 percent.  Using new poverty guidelines, the U.S. Census Bureau reports that California has a poverty rate of 25.3 percent, the highest in the nation.

There are signs that California’s economic problems may be growing to the point they are irreversible.  The Sacramento Bee, reporting on a recent report by the California State Auditor, said that the state’s net worth was a stunning negative $127 billion at the close of its 2012 fiscal year.  Moreover, that $127 billion does not account for all of the state’s pension obligations.  Similar pension obligations have become crushing for many California cities; the city of Stockton recently declared bankruptcy in an attempt to reduce its massive debts.

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