California’s Boom and Bust: A Tale of Two Conflicting Values

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[January 24, 2018]

Pamela Tsai, America Daily

It might seem hard to reconcile two highlight facts about California’s economy.

A state that boasts the world’s sixth-largest economy in terms of GDP and practices the most liberal, progressive agenda aimed at eliminating inequality is also the most poverty-stricken state in America.

According to the latest Supplemental Poverty Measure of the Census Bureau, California has a 20.4 percent poverty rate, the highest in the nation, and is the home to 5.7 million Americans who live in poverty. More than one in five (21.2 percent) California children lived in poor families in 2015.

Child poverty is especially high in affluent counties such as Santa Barbara and Santa Cruz. California is now considered an extreme hour-glass shaped society, with Hollywood celebrities and Silicon Valley tech tycoons on the top, and millions of people living in poverty on the bottom.

US Census Supplemental Poverty Measure, comparing California with Mississippi, which has been considered the poorest state in America for decades.

Source: US Census

California is also the home of the world’s two most valuable companies Alphabet/Google and Apple. Both companies are known for shifting billions of dollars of profits offshore to avoid American taxes.

According to Dutch regulatory filings, Alphabet Inc.’s Google moved $15.5 billion in profits to Bermuda in 2015 alone, which saved the company $3.6 billion in taxes.

Apple transferred profits to the island of Jersey, near the coast of Normandy, where no corporate income tax is levied. The U.S. Senate investigative subcommittee found Apple had some $128 billion in profits that have eluded US taxes.

What caused inequality in a state that works so hard to advocate for equality, and provides one of the most generous welfare programs in the nation to the poor? (According to the US Census Bureau, California spent nearly $958 billion from 1992 through 2015 on public welfare programs.) What are the policies and underlying philosophies that have caused these unexpected outcomes?

America Daily interviewed Kerry Jackson, an author and research fellow at the Pacific Research Institute (PRI) in San Francisco. Jackson has authored a new study titled “GOOD INTENTIONS: How California’s Anti-Poverty Programs Aren’t Delivering and How the Private Sector Can Lift More People Out of Poverty.

Welfare Policy

In this study, Jackson examined California’s public policies that have contributed to the rising poverty as well as case studies of how the private sector successfully moved people in poverty from dependency on welfare to self-sufficiency and a meaningful life with dignity.

For example, public policies have produced the following perverse incentives:

  • Encouraging the state of joblessness and dependency on welfare because you are far better off staying out of job than going to work
  • Promoting the status of being a single parent because it is entitled to far better benefits than married couples.  “This led to a decline in marriage, which, Robert Rector of the Heritage Foundation, says remains America’s strongest anti-poverty weapon,” according to Jackson.
  • Making government agencies want to increase the size of their job and maximize their budgets. A bigger job and a bigger budget bring bigger power, bigger status, bigger pay, and job security.

Jackson gave an example. In 2009 when Kevin Concannon, an undersecretary of the Department of Agriculture who oversaw the federal food stamp program celebrated the record high of food stamp recipients, “He told the New York Times that he wanted to see the program grow even faster. ‘We’re mindful,’ he said, ‘that there are another 15, 16 million who could benefit.’”

Economic Policy

Besides welfare policies, California’s economic policies—such as high taxes and government regulations on land use, energy, and others—have exacerbated the problem, making housing and the cost of living in California prohibitively high for low-income households.

“The average California family living in its own home spends more than one-fourth of its income on housing while renters spend 36 percent of their incomes on housing. This strains resources to the point that not enough is left after paying for shelter to meet other needs,”

Jackson wrote in his article titled “Unaffordable: How Government Made California’s Housing Shortage a Crisis and How Free Market Ideas Can Restore Affordability and Supply.”

Jackson believes the high taxes and government regulations in California have also worsened the business climate, driving business opportunities and profits elsewhere.  Big businesses such as Google and Apple moved tens of billions of profits out-of-state to avoid exorbitant taxes.

Small businesses, an engine to promote job creation and economic prosperity, find it hard to survive in California.

“California has been named the worst state in which to do business for 12 straight years by Chief Executive magazine. In the Pacific Research Institute’s 50-State Index of Small Business Regulation, California also ranked dead last in terms of small business regulation,” Jackson explained.

Jackson drew a parallel between the high-tax states and low-tax states, citing a report by Matthew Ladner, Senior Advisor for Policy and Research at the Foundation for Excellence in Education. “Using data from the Census Bureau, the report found that states with the lowest tax rates enjoyed sizable decreases in poverty. For example, the 10 states with the lowest total state and local tax burdens saw an average poverty reduction of 13 percent. The 10 highest-tax states, meanwhile, suffered an average increase in poverty of 3 percent.”

California Values vs Traditional American Values

To Jackson, the root cause of the problem in California is that the good intention to help and intervene on behalf of the poor turns into the deprivation of individual power and abdication of individual responsibility.

The good intention, in the name of eliminating inequality and promoting prosperity for all, has taken away the power and potential inherent in each individual, making people dependent on government.

Individual power and self-governance is considered a traditional American value.  How relevant are traditional American values to the present-day society?

America Daily interviewed Paul Skousen, an author, and expert on the Constitution. Skousen worked for President Ronald Reagan in the White House Situation Room. He also served as an intelligence officer for the CIA. Skousen co-authored the book “The Naked Communist” with his father Willard Cleon Skousen.

Skousen said while the traditional American values have stopped being emphasized and embraced today, human nature hasn’t changed much from what it was 200 years ago when the Constitution was first written.

“The fact that Founding Fathers didn’t have smartphones and the internet doesn’t change the fact that human nature’s desires for power remain an issue”, he said.

Skousen maintains that it is against the Constitution that self-governance and individual power and responsibility are taken away by the government, no matter how good the intention is.

The freedom and prosperity of America come with individual responsibility and personal involvement in the preservation of this fundamental American value on which this country was founded and thrived on.

“If we forget these limitations and constraints on our government and neglect our personal responsibility for self-governance, we will forget what’s been put in place so we can enjoy a wonderful, prosperous life. If we forget the roots, we’ll lose them,” Skousen added.

In Jackson’s article “Why is liberal California the poverty capital of America?” published in the Los Angeles Times on Jan. 14, he said the liberal “California values” work to the disservice of millions of Californians whose values are more traditional, including many of the state’s poor residents.

With reporting by Allen Zeng, Lisa Xin and Pamela Tsai

“It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government. ” – President Reagan Inaugural Address on January 20, 1981

 

“I favor the policy of economy, not because I wish to save money, but because I wish to save people. The men and women of this country who toil are the ones who bear the cost of the Government. “

– President Calvin Coolidge, Inaugural Address, March 4, 1925