Sunday, April 22, 2012

Government By the Poor and Those Who Don't Mind Supporting Them

This WSJ article based on an interview with Joel Kotkin got my attention, because it points out an obvious truth that had completely escaped me.  The interview deals with California demographics and how they relate to the progressive politics in the state.

It's no secret that people are fleeing California in droves.  But I'd always assumed that both the rich and middle-income earners were the ones doing the fleeing.  Not so:
Part of California's dysfunction, [Kotkin] says, stems from state and local government restrictions on development. These policies have artificially limited housing supply and put a premium on real estate in coastal regions.

"Basically, if you don't own a piece of Facebook or Google and you haven't robbed a bank and don't have rich parents, then your chances of being able to buy a house or raise a family in the Bay Area or in most of coastal California is pretty weak," says Mr. Kotkin.
While many middle-class families have moved inland, those regions don't have the same allure or amenities as the coast. People might as well move to Nevada or Texas, where housing and everything else is cheaper and there's no income tax.
So the rich are willing to put up with the red tape, taxation, and high housing prices because they've already got theirs, and the added taxation is a tolerable cost of living in a really, really nice place.  But the middle class can't hope to claw their way into the desirable enclaves in California, so they leave for places where the weather isn't perfect and the scenery isn't so pretty but where they actually have a future.

Meanwhile, the other group that's perfectly happy with California is the poor:
According to Mr. Kotkin, these upwardly mobile families are fleeing in droves. As a result, California is turning into a two-and-a-half-class society. On top are the "entrenched incumbents" who inherited their wealth or came to California early and made their money. Then there's a shrunken middle class of public employees and, miles below, a permanent welfare class. As it stands today, about 40% of Californians don't pay any income tax and a quarter are on Medicaid.
It's "a very scary political dynamic," he says. "One day somebody's going to put on the ballot, let's take every penny over $100,000 a year, and you'll get it through because there's no real restraint. What you've done by exempting people from paying taxes is that they feel no responsibility. That's certainly a big part of it.
And the welfare recipients, he emphasizes, "aren't leaving. Why would they? They get much better benefits in California or New York than if they go to Texas. In Texas the expectation is that people work."
You can see what's at the end of this process:  You have the very rich, whose capital gets put to work outside of California and provides them the income to live in the style to which they've become accustomed, and the very poor, who live at the sufferance of the very rich and provide a pool of labor for their convenience, financed largely by their contributions to a common pool of tax dollars.

There's a name for this type of society:  It's called an aristocracy.

The real question is whether this aristocracy is stable or not.  I've always assumed that California's finances would eventually collapse as its financiers chose to realize their income elsewhere.  Now I'm not so sure.  At the very least, maybe the collapse is delayed merely because the very rich like where they live.

California has always been an interesting lab experiment for the rest of the country, and its recent problems have certainly been instructive.  But a Californian aristocracy can only survive when the middle class that it drove away is off being productive somewhere else in the US.  If the whole US adopts the same aristocratic model, the middle class has nowhere to go, and the aristocracy may grow impatient with the amount of money it's forced to lavish on the serfs.  That's not a country you want to live in.


Greg Kemnitz said...

I'm not sure it's an "aristocracy" as much as it's an odd sort of class-based apartheid. The rich in CA aren't generally getting rich of the backs of the poor in CA (in fact, it's more the reverse in the case of welfare types). In fact, most of the rich in CA aren't particularly aware of the existence of many of the poor, as they don't ever go where the poor are.

If you're in Palo Alto or Bel Aire, you don't typically go to Stockton or Tehachapi (or even East PA or Compton). And you probably made your pile doing some sort of global business in which you rarely interact with anyone outside your social circle. As for state taxes, you just pay them as you aren't interested in living anywhere else (although your tax-home may be in another state if you can pull it off).

ken_anthony said...

It's only stable if you have other peoples money coming into the state.

That is possible, but not for the state govt. which can only continue by getting bailed out (they will never consent to cut spending.)