Is California an Economic Paradise? Paul Krugman Thinks So
Paul Krugman is worried, very worried, that California voters will overturn all of the many progressive gains that the state has made in the past decade when they vote in the September recall election for Gov. Gavin Newsom. If polls are correct, there is the possibility that conservative Larry Elder might replace Newsom. He writes:
What would make this outcome especially galling is that California is in many ways — with the glaring exception of housing, which I’ll get to — a progressive success story.
He goes on to claim that the very policies that many believe would hold back economic growth, such as high taxes, a vast regulatory network, a heavy public sector burden, and the like have had no effect upon California’s economy and, in fact, probably enhance economic opportunities:
The Golden State took a sharp left turn in 2010, with the election of Jerry Brown as governor. Two years later, Democrats gained a supermajority in the Legislature, giving them the power to enact many progressive priorities. California soon raised taxes on the rich, increased social spending and increased its minimum wage. It also enthusiastically implemented the Affordable Care Act.
Conservatives predicted disaster, with some saying that the state was committing economic “suicide.” And California gets a lot of negative coverage in the business press, where one constantly finds assertions that business is moving en masse out of the state to lower-tax, less-regulated states, like Texas.
The data, however, say otherwise. Given all the trash-talking of California and trumpeting of Texas’ prospects one reads, it’s a bit startling to look at trends in real G.D.P. and employment between 2010 and the eve of the pandemic and discover that California and Texas had essentially the same growth rates. It’s also startling, given all the talk about people fleeing high taxes, to learn that highly educated, high-income workers — who do indeed pay higher taxes in California than in most other parts of the U.S. — were continuing to migrate into the state.
California’s experience, in other words, gives the lie to conservative claims that taxing the rich and spending more on social programs destroys prosperity. And the state didn’t just achieve rapid economic growth; its effective implementation of Obamacare helped it reduce the number of its residents without health insurance much more rapidly than the rest of the country.
In other words, don’t believe your lying eyes. The fact that residents of California pay the highest income taxes (and the rich are not the only ones hit hard by the state’s income tax, as the rates that are higher than most states kick in a lower income levels), the highest sales taxes, the highest gasoline taxes, and some of the highest utility rates in the United States. (My wife and I have estimated that if we were to move to a non-income tax state such as Tennessee or Florida that we would save a minimum of $40,000 a year, excluding any quality-of-life issues.)
Krugman goes on to admit that while California has the nation’s highest poverty rates, that situation has nothing to do with tax burdens (even poor people on average pay a tenth of their income to state and local governments in that state), but rather because of the high cost of housing. And why are California housing prices high? Krugman claims that those dastardly conservatives are behind that problem:
What’s behind California’s housing nightmare? Runaway NIMBYism, which has blocked new housing construction. California’s economic performance matched that of Texas in the 2010s, but it issued far fewer building permits despite having a larger population. California gained three million jobs between 2010 and 2019 but added fewer than 700,000 housing units.
NIMBYism, however, happens to be one of the few major issues that cut right across party lines. Conservatives are as likely as liberals to oppose housing construction; some progressives — among them Governor Newsom — are strong advocates of housing expansion. So California’s big policy failure shouldn’t be an issue in this recall election. What’s on the line are its policy successes.
As usual, Krugman wraps a bigger lie around a kernel of truth. While local zoning regulations (and I’ve never seen Krugman speak out against zoning) have contributed to the problem, the larger issue, according to James Broughel and Emily Hamilton of the Mercatus Center, revolves around state housing regulations that choke off new construction. They write:
…California’s state building code is also especially restrictive and deserves scrutiny from policymakers concerned about housing affordability. By itself, this se
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