California is the nation’s wealthiest state. Were it a sovereign nation, California would have the world’s fifth largest economy.
In many areas, however, California is failing.
Take the political front. The California legislature passed legislation that would regulate wages and working conditions in the fast-food industry. In addition, state regulators assert that within 13 years, no new internal combustion engine vehicles will be sold in the state. By 2035, all new vehicles sold in California will be electric vehicles. Last week, California’s legislature passed a bill that would require the makers of social media apps such as Facebook, Instagram, and TikTok to consider the physical and mental health of minors when designing their programs.
All three of these actions are bad policy.
The fast-food legislation, which creates workers’ councils, will raise wages for workers at large national chains to $22 an hour. The minimum wage in California is $15 an hour. Jobs will be lost. Marginally skilled workers and teenagers looking for part-time work will be shut out from working at McDonald’s or Starbucks. They will lose labor market access and the skills that go hand in hand with progress up the wage ladder. Moreover, small local restaurants with limited pricing power will be hit very hard. They will go bankrupt. Labor will migrate from the local restaurant to the national chains.
Second, neither the electrical vehicle industry nor California’s power grid is prepared for the widespread adoption of electric vehicles. This month, California asked electric vehicle owners not to charge their vehicles because the state’s power grid is strained by air conditioning demands caused by a heat wave. Imagine if most Californians relied solely on electric vehicles for transportation. Equally important, electric vehicles, even after the new $7,500 federal credit, are significantly more expensive than internal combustion engine vehicles. Electric vehicle batteries are expensive, $10,000 or more for a battery. Today, the typical price for an electric vehicle is $66,000.
Perhaps electric vehicles are cheaper than internal combustion engine vehicles over their respective lifetimes. But for the middle class and working class, the upfront cost is what matters. Many in the middle class and working class live paycheck to paycheck. They cannot afford to pay $12,000 more for a car. Two hundred dollars a month is a lot of money, especially considering rising inflation and interest rate hikes.
Importantly, cost inflation for electric vehicles will be sky-high for the next decade or longer. The global supply chain for the rare earth metals essential for the electric vehicle battery is not ready for prime time. Over the last year, lithium prices are up 80%.
As for the social media legislation, this should be a matter for the federal government, not California. Smartphone companies would be hard-pressed to have specific programming for phones for California while also having separate software protocols for phones sold in other states. Smartphone apps are clearly an important aspect of interstate commerce, regulation of which is reserved by the Constitution to Congress. Is California taking power from the federal government?
It’s already clear that failed political policies in California have led to disastrous social consequences. California leads the nation in homelessness. California on a per capita basis leads the nation in people living in poverty. California has a poverty rate of about 17%, which is higher than states such as Louisiana and Mississippi, according to the Census Bureau’s Supplemental Poverty Measure. Flowing from the high poverty rate is the equally disturbing level of economic inequality. Using the traditional Gini coefficient measure of economic inequality, California ranks as the nation’s fifth most unequal state.
For a deeply Democratic state, it is a mark of failure that economic mobility is so low. A 2020 study by the Urban Reform Institute found disparities in economic mobility among races. Many black and Hispanic people living in California’s largest cities are trapped in poverty. Can we truly call this progress?
James Rogan is a former foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
