Monday, October 17, 2011

Is a Population Exodus California's Only Hope?

We tend to like the work of Dan Walters at the Sacramento Bee, but every once in a while, even the dean of California journalism misses a pitch. In his latest piece, Walters offers the following hypothesis: a massive exodus of population could be just what California's beleaguered economy needs. You see, back when the Cold War ended, the middle class in southern California took a series of body blows as the aerospace industry largely picked up stakes and left the region. As a result, between 1.5 and 2 million Californians left the state between 1990 and 1994. In Walters' view, this exodus helped to speed the state's recovery, and the lack of a similar outflow of people may be the reason the current recession has persisted so long.

Walters' argument, unfortunately, leaves two critical questions unanswered: did California's economy actually recover later in the 1990s, and if so, by what mechanism did the loss of population contribute to it? The aerospace collapse in the 1990s revealed, pretty clearly, that the free-market demand for the industry's products was far lower than it had believed during the command-economy days of the Cold War; similarly, the 2007-08 collapse showed us that actual demand for housing, even in California, was far lower than Alan Greenspan's easy money had led us to believe. Recovery, then, would seem to imply either a rebound in these sectors, or a reallocation of economic resources into more productive areas. But it's not clear that either happened in the 1990s — we saw a brief period of illusory prosperity at the end of the decade, as venture capital flooded into absurdly overvalued internet stocks, and we saw a housing bubble — and it certainly isn't happening now. The exodus certainly brought the state's unemployment rate down, but taking people out of the labor force isn't the same thing as creating new jobs for them.

As Walters points out, the fact that the current recession hit the housing market especially hard is one reason why Californians haven't left in similar numbers to pursue work elsewhere: it's tough to contemplate relocation if it's going to involve short-selling your house or going through a foreclosure. He's also entirely correct to note that the extension of federal unemployment benefits has had a hand in keeping people from moving on. But his grasp of the underlying economics is completely off. It's typical of pundits and politicians to view unemployed workers as a drag on the state, rather than individuals capable of productive work. Ultimately, losing a large chunk of the population isn't going to get California working again; that isn't going to happen unless Sacramento releases its strangehold on the private economy, and sets its many innovators free to do what they do.


  1. Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET1.4 million people. The cumulative net annual income lost from this 8 year out-migration comes to about $26 billion. Net departures slowed in 2008 only because people couldn’t sell their homes. In 2010 we lost “only” 72,000 net people to domestic migration. Again, note that this is NET loss. and and

    These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods) – and retirees seeking to make their pensions provide more bang for the buck.

    Some of these departing seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions. And once they move out of California, our state can no longer tax their California-paid pensions.