The Bear’s Lair: The collapse of California

My address book of friends living in California, some of them rich, has in 2020 gone from double digits to zero. Even within the economically doom-ridden United States, California’s outlook is especially grim, with “Bearmageddon” due in five years rather than ten. Yet there is an avenue of escape: the state must be split into autonomous regions, not to flood the U.S. Senate with yet more profligate and foolish Democrat Senators, but to ensure that any individual doom will be relatively small-scale, with other regions of the state avoiding it.

Wealthy Californians are leaving because taxes and living conditions have become intolerable. There is now a veto-proof majority in the California state senate and assembly, and a liberal Democrat Governor, so there is really nothing the legislature cannot pass, if it has a mind to. The top rate of state income tax is already 13%, and the legislature is talking of putting it up to 16%. Bear in mind that there is already a Federal income tax of more than 40% (when Medicare taxes are included) and that the two income taxes are now not deductible against each other, and you can see that squeeze on high incomes is getting pretty tight. If a Californian has participated, even in quite a modest way, in one of the many “unicorn” companies that is seeking to do an IPO or sell out, the tax burden becomes intolerable.

Even for those Californians who have so much money that they do not mind paying excessive taxes, there are disadvantages. One is the cost of real estate: San Francisco is one of the most expensive cities in the country, and Silicon Valley, once a sylvan grove of fruit orchards, is now almost equally so. For those so rich as to overlook California’s excessive taxes, this does not matter much personally, but it makes it very difficult for their brilliant young engineers, at first exit from college paid only about three times the U.S. median wage, who have to find accommodation beyond a sleeping bag on a friend’s floor.

However, it is California’s lifestyle problems that cause most disquiet. Youthful billionaires are uniformly liberal, even economically and even more so socially, but they find it distasteful to have down-and-outs defecating on the steps of their multi-zillion dollar apartments. The almost equally rich denizens of Los Angeles’ film industry, likewise, have social consciences the size of Mount Rushmore, but there are practical dangers to them when the local government sharply de-funds the police and the new District Attorney announces he’s not going to prosecute most property crimes or even assaults short of murder. After a few years of this, even the wastelands of non-California living begin to look attractive, and the tax savings will pay for the cost of the move. Naturally, California is attempting to levy taxes on the departing rich for the decade after they have left, but they all have accountants and lawyers who can be relied on to tie up such demands in the courts – what is the U.S. Constitution for, anyway, if not to block unfair levies on the very rich?

There are a number of places to which wealthy Californians can flee, without compromising their lifestyles. The other West Coast states and the big East Coast states are out – there is altogether too much risk of them going the same way as California; indeed, they are in some ways further down the same road to perdition. Anyway, I can assure any billionaires considering moving here: you would hate the climate in Poughkeepsie! Of the places with a zero state income tax, Nevada is close, but only the naffest billionaires can really like its lifestyle – and the snooty young high-tech graduates certainly won’t. Texas (Austin, not Dallas, Houston or, Heaven help us, Fort Worth) has these days a sufficiently snooty intellectual climate, but the physical climate leaves something to be desired in summer. New Hampshire is another possibility – just up the road from Boston, for the intellectually snooty, but another climate that Californians won’t take to easily – snow shoveling is no substitute for a Peloton! Florida may work better than the others; fewer intellectual pretensions, it’s true, but the climate is blissful for nine months of the year and you can always go on extended business trips to Europe for the other three and catch up on intellectual pretensions that way.

Then there are the less obvious possibilities – four of them to be precise (Washington has no state income tax, but very high other taxes – they get you anyway). Alaska allows you to keep that West Coast lifestyle, and maybe show off in the Iditarod, but the snow shoveling can be really extreme. Tennessee has the advantage that it is unattractive for the glitterati – and therefore least likely to slide into economic wokehood and high taxes just when you’ve settled there. The climate isn’t too bad, either, but you have to like country music or Elvis. Wyoming is kinda Western, but more snow shoveling and you have to like solitude. South Dakota has a GREAT Republican Governor currently, AND Mount Rushmore – no? Personally, I would waver between South Dakota and Tennessee as first pick, but then, I am not a billionaire.

For California itself, without major change the prospects are bleak. The rich are leaving, which will remove the bonanza of capital gains taxes on which the state’s bloated budget rests. The fundamental problem is the state, founded in 1850, is now far too large, with a population of 39 million, which gives each of the 80 State Assemblyman some 480,000 constituents, putting the Assembly completely out of touch with its people. It also has the problem that a California bankruptcy, with the world’s eighth largest economy, would be hugely damaging for the U.S. and the world.

The solution is to break the state up, not necessarily into sub-states, which would flood the U.S. Senate with witless left-wing Senators, but into self-governing autonomous regions, perhaps four of them, in a similar structure to that proposed for New York recently. (the New York proposal puts Poughkeepsie in the best of the three regions, so I favor it.) The central state government structure would remain, but have no functions, other than to fulfil the minimum constitutional requirements. Even the state bureaucracy would be split into four.

If California were divided into four autonomous regions, one could represent San Francisco and Silicon Valley, one the Los Angeles metro area, one could represent San Diego and Orange County, and the fourth, desirable one would represent the liberal redwood country in northern California and the Central Valley, rural and far more conservative than the coast. The San Francisco and Los Angeles regions could explore new levels of wokehood, as their inhabitants undoubtedly desire, without disturbing the rest of the state. Naturally, San Francisco would become even more heavily taxed and Los Angeles even more crime-ridden, but their eventual bankruptcy and societal collapse would affect only those regions. The third region, San Diego, would have a strong Hispanic presence and a strong military presence; it would probably still be Democrat, but conservative Democrat, sufficiently well run to allow its residents happiness.

The fourth region would be tailor-made for civilized living. I have always wanted to live in northern California’s beautiful climate, surrounded by magnificent redwoods, but the presence of all the hippies and environmentalists and the lousy quality of California’s state government has put me off. In the new Northern Region, the hippies around the redwoods would be outnumbered by conservative farmers from the Central Valley, making the region reliably Republican, and hence pretty well Nirvana. To add to its Nirvana qualities, we might indulge in a little creative boundary drawing, to include the French Laundry restaurant in the south of the district (but not too many of its rich liberal neighbors.) A customs toll suitably placed could then ensure that the French Laundry was not over-cluttered with Governor Gavin Newsom and his friends in the state bureaucracy. Redwoods, a northern California climate and the French Laundry – what could be nicer!

California deserves to be a nice place. A division of the above type would ensure that at least some of it became so, while the rest of it went bankrupt less dangerously than a collapse of the whole state. It deserves to happen.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)