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California isn’t doing as badly as you think

Marketplace Staff Jan 13, 2011

California isn’t doing as badly as you think

Marketplace Staff Jan 13, 2011


Steve Chiotakis: In Illinois, the legislature passed a 66 percent income tax hike to help make up for a huge budget shortfall there. A lot of states are in the same boat. Facing catastrophic spending cuts, even default. But no state has taken the ridicule and criticism for its budget fiasco as much as California.

One columnist says that’s unfair. The Golden State contributes a platinum share to the national economy. And the ribbing should stop.

Brett Arends from the Wall Street Journal is with us now. Good morning.

Brett Arends: Good morning.

Chiotakis: So you say California isn’t quite this pariah that a lot of people make it out to be; calling predictions of its default is hogwash. What’s your reasoning?

Arends: This is a myth that has gone around and has been repeated so many times now that everyone just believes it. But the reality is, California’s economy remains very successful.

Chiotakis: Give us an example of your idea of success.

Arends: Per capita, real economic growth. You look at how much an economy has grown per person in real terms, and over the last 10 years, California’s grown about 15 percent. The average for the U.S. is less than 9 percent. California has grown faster than most other states in the union.

Chiotakis: So it’s growing at a faster pace, but you can’t hide, Brett, the fact that the state this daunting budget deficit. I mean, some are saying as much as $25 billion. How do you account for that?

Arends: No question, there are problems. No one’s suggesting it’s fine. My problem is with the people who think that it’s somehow a basket case and that they’re so doomed.

Chiotakis: By doomed, you mean bailouts? There have been rumblings of a California bailout, right, since the housing market collapsed here and everywhere else? But in your column, you say it’s just the opposite. How has California bailed out the rest of the country?

Arends: What happens in America is that essentially, the high-income, high-productivity and high-costs states pay much higher federal taxes than they get back in federal spending. California has probably transferred about $600 billion to the rest of America in the last quarter-century. America has been an enormous beneficiary of the Californian economy. And if you want to use the European analogy: they are Germany, they are not Greece. They have been pouring money into the system. The idea that somehow this state is on welfare, that the rest of us are “propping it up,” is nonsense.

Chiotakis: Brett Arends, columnist for the Wall Street Journal. Brett, thanks.

Arends: Thank you.

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