California is doomed for two simple but profound reasons: the state's cost structure is too high for most businesses to survive, and it is a boom-dependent economy.
The dysfunctions crippling California would easily fill a volume: a dysfunctional Legislature that has been gerrymadered to protect virtually every seat; a dysfunctional proposition system which enables special interests to craft Protected Fiefdoms via the ballot box; recalcitrant public unions who don't see anything wrong with public servants getting 90% of top-pay in pensions while still earning big bucks as "contract employees," an enormous population of undocumented workers who pay only sales taxes, and whose employers pay no payroll taxes, either-- and that just scratches the surface.
I want to highlight two systemic, structural causes for California's impending bankruptcy as a state and as an "economy": a crushingly high costs structure and an economy entirely dependent on the next boom.
I know this sounds too simplistic to be meaningful, but I think there is much truth in this statement: Costs are too high because the guy before you paid too much.
In other words, you can't afford the $500,000 mortgage on the $625,000 house you bought in 2008 because the guy before you paid $550,000 for a house which sold for $140,000 in 1997.
These numbers are drawn from reality: our friends bought a small home in a desirable suburb in the San Francisco Bay Area for $140,000 in 1997. Yes, it was a fixer-upper and yes, our friends completely remodeled it. The fair value of the house after renovation was probably in the $175,000 to $190,000 range, tops. [Read story at SeekingAlpha.com/by Charles Hughes Smith].
Posted by Bruen
at 10:11 PM PST
