6th October 2022
California’s success in producing multi-billion dollar technology companies is singularly astounding. But what has been the effect of these windfalls on wider society?
There are some surprising facts about government spending which provide clues. State workers in California receive a 53% wage premium compared to workers in the private sector. Not what you’d expect given the superior working conditions and job security offered by state employment. Another example is education, with California spending more per student than other states, and attainment remaining low.
On the face of it these outcomes stem from corruption and mismanagement, but recent demographic change may offer an alternative explanation.
Demographic replacement
California’s old middle class gradually left for Texas, with blue collar industries suffocated by regulation and taxation. They were replaced by California’s ever growing high paid government workforce. With the majority of these workers home owners – the old American middle class – it begs the question: have California’s politicians been focussed on sustaining high real estate prices rather than solving social problems?
The politics seem to suggest so, with America’s wealthiest state electing 42 democrats to congress and just 11 republicans – amid the backdrop of abject social decline.
Real Estate capture
Post war there was massive real estate development in California, particularly in the suburbs. This began to end in the 1970s, as real estate permits became difficult to acquire in Marin County. Today the entire state is like Marin County: you cannot build anything and real estate has become almost entirely a financial asset.
Is it really real estate that is driving the politics? And is this the need the govenment is so successfully serving?
Homelessness and Lawlessness
With everybody’s finances so levered to house prices, a tiny increase in housing supply sends down prices twice as much. And any reductions in supply send prices soaring.
In such a scenario are California’s problems like homelessness and high crime best thought of as features rather than bugs?
For all its depravity, the homelessness problem acts as a price control mechanism. The homeless population lives in the low parts of town near retail and sheltered amenities. With high price elasticity in the real estate market, the presence of homeless people reduces real estate prices in the city centre less than it drives up property prices in the hills – where the expensive real estate is situated.
Is the government’s failure to address homelessness and crime a function of the need to stash vast technology profits?
Ideas from Peter Thiel’s NatCon 3 speech in Miami, 11th September 2022