When prosperity in California is finally and forever declared dead, it will be ruled a suicide. California will have only itself to blame, as the California State Government and Court System will be responsible for the premature death of the California’s business climate and livability. The single reason California business is still breathing is that the Golden State had so far to fall, having been endowed with the gold, the weather, the coastline, and so much more. It was so wealthy that Larry Gatlin wrote and performed the masterpiece song, All the Gold in California.
Death by a Thousand Paper Cuts was an ancient method of Chinese execution, one that has morphed into describing any slow, but eventually deadly, progression of individually small wounds. I imagine that most California business owners, large and small, feel that happening to them, as they watch their business climate degrade. Increasing homelessness, drug addiction, crime (related items), taxes and regulations, all confront California businesses every day. None of these conditions are improving, and elected leaders do not appear to care.
People are fleeing California in droves, and they are taking their businesses (and their gold) with them to Nevada, Texas, Florida, and the like. As businesses and wealthy individuals leave, prosperity in California decreases, one “paper cut” at a time. These losses add up; and in fact, they compound. The exodus will eventually prove financially deadly.
This all begs the question, “What next?” The answer, recently emerged from the California Senate Appropriations Committee. On a 5-2 vote, the Committee approved a new standard for who can be considered an independent contractor, versus a W-2 employee of the company. All this follows in the wake of the “Dynamex” California Supreme Court decision in 2018, in which delivery drivers were ruled to have been incorrectly classified as independent contractors.
In essence, elected “do-gooders” in California are creating, in their minds at least, a Utopian society in which all companies are wildly successful. Fringe benefits for W-2 employees (not for 1099 Independent Contractors) are motivating the politicians. Health insurance, vacations, personal time, holiday pay, family leave, minimum wage, ad infinitum, are California’s requirements for having anyone perform services for your California business. Some businesses can afford all these, but others cannot.
The 20th Century’s eminent economist, Milton Friedman, observed that “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” He must have been studying the California legislature, as that seems to be their modus operandi. Faced with insurmountable impediments to success, many businesses simply fold. Some are portable, and they often re-open in other, more business-friendly, locales.
According to Forbes Magazine, losses of population and wealth from 2011 to 2016 totaled 243,000 Californians earning $7.7 Billion annually. The pace of outflow is accelerating; the end result is inevitable.
Somehow, today’s “leaders” in California are calling “no harm, no foul,” as they claim the State has a budget surplus. That claim is not supported by California’s Balance Sheet, which shows massive debt. This debt includes over $1 Trillion (12 Zeros) just in unfunded pension liabilities. With about 12% of the U.S. population, California owes about 20% of the unfunded pension liabilities in the entire country.
Herb Stein, economist and father of always-entertaining Ben Stein (“Bueller, Bueller, Bueller”) once proclaimed that, “If something cannot go on forever, it will stop.” California has only taxing authority, not money printing authority. Therefore, the State’s unsustainable accumulation of debt must eventually come to a halt.
No one can predict what day it will happen, and we dread hearing a proclamation of instability from California. The inevitable reaction in Congress is always to “do something.” This would lead to a bailout of California. With your money. With my money. With printed money. With inflationary, electronic, fiat dollars.
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