Explaining Southern California's economy

Wait! Maybe Yahoo will move to LA!

A while back, I suggested that Yahoo, the beleaguered technology colossus, should close up shop in Silicon Valley and move all its operations to Southern California. (It already has an office in Santa Monica.) Now CNN's Juilanne Pepitone reports that something along those lines might be in play. Could Disney buy Yahoo? Here's the lowdown:

While Disney hasn't thrown its name into the ring, one analyst thinks it and its big-media rivals should consider a Yahoo buyout.

"The big guys -- Apple, Google -- aren't interested. And either way, it would make more sense for a traditional media company to buy Yahoo," says James Dobson, stock analyst at The Benchmark Group.

That's because traditional media companies are struggling with how to monetize their online presence. They're still working through the transition from old to new media, and they face stiff competition from upstart online publications.

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Visual Aid: Southern California lagging in metro GDP growth

This chart is disturbing. It's from the Bureau of Economic Analysis and it summarizes percentage change in real GDP growth for U.S. metropolitan areas from 2009 to 2010. Have a gander at the lower left hand corner of our fair mainland (not Alaska and Hawaii). That large area of middling and lower-than-middling improvement is SoCal. In fact, the entire state managed a feeble performance — with the obvious exception of that little bit of overachieving dark blue: Silicon Valley.

For contrast — and tale of two years — here's the 2009 chart:

Source: BEA

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The Forever Recession: There are no jobs and maybe there won't be for a while

The BLS jobs report that hit this morning was…how to put it? Demoralizing? Particularly headed into a holiday weekend that's supposed to celebrate the American worker. As some commenters have already pointed out, that fact the U.S. economy added zero — yes, zero — jobs in August is both depressing and symbolic.

Depressing because it came in well under even worst-case scenarios produced yesterday by the likes of Goldman Sachs, which had anticipated a fairly demoralizing 25,000 jobs to be added (Take that, starry eyed Goldman optimists!). I guess you could throw up your hands and say, Well, at least we didn't drop into negative territory! The national unemployment rate stayed at 9.1 percent (and presumably, the California rate will stay stuck at 12 percent, with L.A. County above that at 12.4 percent — that data will come later in the month). 

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What’s Texas got that we don’t got?

Welcome-Texas-Sign

Now that Texas Governor Rick Perry is running for President, his so-called “Texas Miracle” on job creation is being hotly interrogated in all quarters. Here’s a taste, from Harold Meryerson at the Washington Post:

Perry’s economic vision is the kind of race-to-the-bottom mercantilism we’ve come to expect from developing nations in the globalized economy, although, as China, Brazil and India illustrate, many such nations have begun to provide citizens with more schooling and better jobs as they grow wealthier. No comparable developments can be seen in Rick Perry’s Texas.

And here’s Joseph Lawler at the American Spectator:

Although there are good reasons to think that Texas's record doesn't validate conservative economics once and for all, I think that the evidence suggests that Texas would have been worse off in the recession -- more like California -- if not for its free-market laws. Conversely, it also indicates that states like New York and Illinois would be in better shape now if they were more like Texas.

You get the idea. The left considers Texas' job-creation record to consist of...crummy jobs and low wages with few benefits and -- unlike enlightened China and India -- no meaningful schooling to help workers drawn by those jobs to the state to escape their low-wage plight. The right says that business needs to be able to afford the jobs it creates in order the be successful, so quit complaining. Hey, look at California, where the unemployment rate just climbed above 12 percent again, making it the second-most-unemployed state in the U.S., behind the place where all work goes to die, Nevada.

In 2009, the Economist magazine, never one to pull punches, did take a good hard look at the California v. Texas debate. Here’s what it thought about the Golden State:

Back in its golden age in the 1950s and 1960s, it offered middle-class people, not just techy high-fliers, a shot at the American dream—complete with superb schools and universities, and an enviable physical infrastructure. These days California’s unemployment rate is running at 11.5%, two points ahead of the national average. In such Californian cities as Fresno, Merced and El Centro, jobless rates are higher than in Detroit. Its roads and schools are crumbling. Every year, over 100,000 more Americans leave the state than enter it.

And here’s the rundown on the Lone Star State:

Texas also clearly offers a different model, based on small government. It has no state capital-gains or income tax, and a business-friendly and immigrant-tolerant attitude. It is home to more Fortune 500 companies than any other state—64 compared with California’s 51 and New York’s 56. And as happens to fashionable places, some erstwhile weaknesses now seem strengths (flat, ugly countryside makes it easier for Dallas-Fort Worth to expand than mountain-and-sea-locked LA)...Texas also gets on better with Mexico than California does. 

Oh man. Ouch. 

The Battle of the Biggest States in the West really boils down to three main distinctions. First, Texas doesn’t do politics like California. In fact, it doesn’t do politics at all. The American Prospect argues that Texas doesn't have a government so much as an "anti-government." This makes it tough for politicians or, um...voters to interfere with the business process.

Second, California is a laboratory for democracy, with its controversial reliance on direct democracy through the ballot process. Texas is a pioneer of the state-as-mercantilist approach that the WaPo’s Meyerson outlines above. This might make California seem far more noble, but in practice it’s made California far more reliant on business innovation (e.g., Silicon Valley) to move the needle than on simply creating a favorable climate for business operations.

Finally, while California is stereotypically laid-back, Texas is stubbornly indifferent. It can get away with this because it’s the center of the U.S. energy economy. California has Green dreams, while Texas loves Big Oil. 

It’s unlikely if not inconceivable that Texas and California will combine economic DNA. And this is a problem for the Golden State. Because while Texas can catch up with what California currently has going for it, especially in terms of education, California will have to give up plenty of things it can no longer afford to stay competitive with its rival in the West.

Photo: dherrera_96/Flickr

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