Crash! California Dreamin’ Meets Another Dose of Economic Reality

The states are supposed to be diverse. That part of the great American experiment worked as planned. California is the land of big government.  In theory, the high taxes in California lead to great government services at moderate prices.  For example, California was supposed to have great roads (ha) and great schools (ha ha). That is what the textbooks said. That is what the politicians promised election after election, tax increase after tax increase. In theory, the high taxes also lead to low wages since many people want to move to California and enjoy those great government services.  The great government services are supposed to offset the low wages, so both companies and employees are satisfied. As you’ve already guessed, this theory doesn’t work in practice.

In practice, citizens know what they want better than government knows. Private citizens are also much more efficient at getting what they want than the government is.  The obvious example is that private schools often spend less and provide a better education than government schools.

Big government does more than tax. Big government also regulates. In California, companies pay high regulatory costs and high labor costs. Rather than needing low wages, California workers need high wages to pay the costs of poor government services, high regulation and high taxes.

In practice, the high taxes and regulations puts California companies at a competitive disadvantage.  Some estimates put the cost disadvantage at thirty percent. That is enough to kill many of the smaller firms. More and more employers leave California so they can innovate and compete. Now, after 50 years, Toyota’s national sales headquarters is leaving Torrance, California for Plano, Texas.

They don’t call it the left coast for nothing. California government won’t learn unless the California voters teach their representatives a stern lesson. Until they learn, the American experiment will continue.. and more middle class workers will follow their jobs east.

Image: Courtesy of: http://physick.wikispaces.com/1D+Collisions