California's latest economic recession – unemployment hit 11.2 percent last month, fourth highest in the nation – has regenerated our perpetual squabble over whether the state's high taxes and regulatory climate have rendered it inhospitable to job-creating investment.
A conservative organization called the American Legislative Exchange Council says that's exactly what's happened, rating the state 43rd in the nation in economic competitiveness and citing its high taxes and regulation as the reasons.
The organization's recent report, titled "Rich States, Poor States," devotes two entire chapters to California, one of which contrasts the state with supposedly business-friendly Texas.
"California continues to increase regulations, raise taxes and spend profligately," says the report, co-written by economist Arthur Laffer. "Texas, on the other hand, has a pro-growth economic environment with a competitive tax system, sound regulations and spending discipline that will help Texas maintain its superior performance well into the future."
In that vein, Republican legislators have dreamed up a media stunt, an unofficial hearing in Reno this week, to publicize what they say is a flight of business to neighboring Nevada.
"California is experiencing an unemployment crisis as tens of thousands of our neighbors have lost their jobs," Assemblyman Dan Logue, R-Linda, said. "We are going to ground zero – Nevada – to understand why businesses have left California and how we can change our state's approach to prevent more from leaving."
There is, however, no empirical evidence of a massive business migration out of California to low-tax states such as Nevada or Texas, as superficially logical as that might seem to some.
A detailed study by the Public Policy Institute of California a few years ago couldn't find any such flight, and proponents of the theory have offered merely isolated anecdotes.
PPIC also issued another study last week saying the state faces a critical shortage of college-trained workers, and many economists, such as Steve Levy of the Center for the Continuing Study of the California Economy, argue that the state needs to spend more on education and infrastructure to secure its economic future.
California's business climate is largely unchanged from a few years ago when it had an economic boom and unemployment was at record-low levels. Nevada's unemployment rate is only slightly lower than California's, its job loss has been faster and the housing/finance meltdown has hit it just as hard as California while its gambling and convention industries, which are very sensitive to economic circumstances, are hurting badly.
Certainly a state's policies can affect its economy and finding the right formula for prosperity, based on sound economic research, should be No. 1 on the political agenda. But the perpetual, ideology-driven debate over causes and effects has been a rationalization for inaction.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
About Comments
Reader comments on Sacbee.com are the opinions of the writer, not The Sacramento Bee. If you see an objectionable comment, click the "report abuse" button below it. We will delete comments containing inappropriate links, obscenities, hate speech, and personal attacks. Flagrant or repeat violators will be banned. See more about comments here.