Explaining Southern California's economy

The Future of Wealth in LA: Entrepreneurship is the name of the game

Dollars

AFP

The California Community Foundation has released a new study, "The Future of Philanthropy in L.A.: A Wealth of Opportunity." My KPCC business vertical colleague Brian Watt will have a report on air later that you can listen to, and I'm going to provide a bit on insight in the overall trend of wealth formation and transfer in the LA area.

The numbers are far from trivial: "Despite the recession, Los Angeles County residents have an estimated net worth of almost $1.3 trillion." Just to put that in perspective, the entire annual GDP of the United States is about $14.5 trillion. What's truly staggering, however, is how much of this money will transferred generationally: the RUPRI Center estimates $1.4 trillion by 2060 — a huge increase over 2020's projected $114 billion.

What's truly fascinating about these numbers is where the wealth is coming from. According to the report, "LA's growing and future wealth will be driven by entrepreneurs, especially immigrant entrepreneurs." 

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Why Southern California's housing crash could lead to an entrepreneurship boom

The Economist's Ryan Avent has a Kindle Single out, titled "The Gated City." Reuters ran a short except last week, which included this:

If you can believe it, Silicon Valley’s main metropolitan centers were losing residents to other parts of the country during the Dot Com boom…The reason...was housing costs. From 1997 to 2000, average earnings in the Silicon Valley area increased by nearly 40%. But from 1997 through the end of 2000, home prices in San Francisco nearly doubled, according to the Case-Shiller index of home prices. As fast as compensation was rising, it wasn’t keeping up with housing costs. And so even as the demand for skilled workers in Silicon Valley soared, residents trickled away to other locations. That made for a too-tight labor market, and that, in turn, squeezed out entrepreneurs....And what did that mean for the American economy? The workers that moved elsewhere didn’t give up working. They found employment in other metropolitan areas, many of which developed thriving tech sectors. Those sectors weren’t fallow fields for new firm creation….But what the economics of metropolitan geography tell us is that many small collections of firms will often be less productive and less innovative than fewer, larger firm clusters. The forces that repelled workers from Silicon Valley, which was the intellectual heart of the country’s tech industry, reduced the potential economic impact of the tech boom. And in a not unimportant side effect, it reduced national productivity and total compensation in the economy.

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