California, You Used To Be Cool

Speaker 2

Magnus the economist. Well, unfortunately, as a state that I know all too well, and what I will say on behalf of California, it's absolutely beautiful. The weather is the compensating differential to live with and put up with generally terrible government that has high taxes, high regulations, ⁓ pretty much an experiment for every far left crazy policy that seems to later make its way onto the national scene starts in California. And as you know, it wasn't always that way. California was seen as the economic engine of the nation. It was the West of the United States, the vibrant area of the country that had moved away from and gotten beyond the reaches of Washington, D.C. and New York City and all the old control of the East. It was the place where you set out to start anew. And over the course of a couple of generations, It's completely reversed now. It's become this bastion on the left coast that exports bad policy to everywhere else.

Speaker 1

Yeah, there seems to be a question of it's so beautiful, but what is the cost that you're willing to pay for that beauty? I imagine there's many a playboy out there who, know, is with a supermodel and it's just like, you know, she's the most beautiful woman in the world, but this is really taking a toll on my life, on my psyche, on my health. I'm not going to survive very much longer.

Speaker 2

You see that already. There's actually an ongoing exodus right now of wealthy people, of entrepreneurs and innovators from California. As recently as 15, 20 years ago, the Bay Area, the Silicon Valley ⁓ engine was the center of the entire tech universe. Now it's moving to Texas. Now it's moving to other parts of the country because people are picking up their businesses and leaving, not because California ceased to be beautiful. not because California ceased to be an economic engine. It's still kind of sputtering along and actually doing reasonably well, but it's overtaxed and overregulated to the point that before getting fed up with policies and they are seeking relocation elsewhere, they're voting with their feet.

Speaker 1

number of people I know who were in California, kind of not the early days because they're not, they're not 200 years old. But, you know, there was a time where it seems like California had a, a mix of you had conservatives, you had liberals, and there was a point where you could actually have say like a conservative politician in the state. It doesn't seem like it's been that way for so long, which makes me wonder, is California able to turn around a lot of its bad policies? being kind of a uniparty state because something that is continuously brought up is California's high speed rail, which I would think by this point, people would say, hey, we've spent a lot of money. We don't have anything. Why don't we just scratch this whole thing and move on? But yet it still seems to be a policy that people are pushing.

Speaker 2

Is this cost fallacy overlaid with the idea that this is like an environmental utopia? This is a way to break free of the combustion engine and airplanes or something because trains are supposedly cleaner. They're mass transit. They're supposedly better for the environment. And yet, you know, the main environmental impact of the California rail system is they keep doing all these studies to that extend the cost because every time they build an overpass, they have to make sure there's not ⁓ an endangered snail or something that lives there. There are environmental impact studies. There are cronyism contingents that have gotten involved in some of the contracts and what started out as an already expensive, multi-billion dollar project. ⁓ expands into tens or hundreds of billions of dollars and has no operational rail the show for it.

Speaker 1

Yeah. So say in the future, high speed rail did come about and you're stopping in cities like San Francisco. Los Angeles. One thing that you're probably still going to see is the insane amount of homelessness. So ⁓ here you are traveling in beautiful, quick style, you know, on a train, but you know, you are going to be, you know, seeing a lot of homeless people. And it seems like San Francisco is very different than Los Angeles climate wise and even like people wise and stuff. I wonder, is there an argument to be made of like which city is best to be homeless in? Like is it better to be homeless in San Francisco? No Cal or in SoCal LA.

Speaker 2

Well, part of it's the weather. Now, I'll say a caveat on the train lines. One of the major issues they're having is to figure out how to get these high-speed rails into the actual cities, the population center. So more likely what they're going to end up building is a high-speed train from Bakersfield to Fresno with ⁓ line extensions that get you near Los Angeles and San Francisco. So it's not all that practical to begin with. But know, once it arrives, let's assume that it could arrive into San Francisco or arrive in Los Angeles. Yeah, both of the areas, you know, they have temperate climates year round. The weather is never too hot or never too cold. It's a very livable place, including livable in the sense if you want to reside in a tent city outdoors. But the homelessness problem is very real. And it's something that I've seen up close and personal. ⁓ York part of the year out in California, because our main office is there. My organization, the Independent Institute, we do a series of studies every year on California waste, and abuse. And one of the major issues is homelessness. In our office out there, just down the street, there was a homeless encampment that set up during the COVID period. It basically took over a sidewalk and then took over a street, built a shantytown there. And nobody could do anything about it, even though it's a very clear public health and danger, ⁓ like criminality danger to the immediate area. And you saw that because ⁓ then there's a shoplifting epidemic at nearby businesses. The nearby businesses can't get police to respond. So what do they do? They shut down, they pack up and leave. And what eventually got this homeless encampment removed was not any policy by the city. Rather, the EPA came in and they tested the water in a nearby creek that flowed into San Francisco Bay, and they found the water was so infested with heroin and fentanyl and all these drugs that were being used at the homeless encampment, it was now in excess of the environmental standards of the federal government. So the EPA had to order the city to remove the homeless encampment because it was polluting the bay.

Speaker 1

Way to go, EPA. I didn't think that. Yeah, I didn't think I would be on the side of the EPA going forward. Well, I remember hearing about an app that was developed in San Francisco where people would actually point out where poop was on the streets.

Speaker 2

It's like interactive map, Google Maps, with poop.

Speaker 1

But yeah, it seems like it was like really, really scary to think what can happen to a city when you allow it to just go that way. I mean, it seems like we're just so civilized in a way where it's sort of like that just doesn't even seem to be ⁓ a, I don't know, I can't write my mind around it.

Speaker 2

San Francisco and Los Angeles are some of the most expensive places in America to live. They're consistently up there at the top of the list. Cost of living is a million dollar or multi-million dollar homes and there's poop on the sidewalk in front of them. So it's a real interesting conundrum there. But I think at the end of the day, what it comes down to is a succession of bad policies overlaid on top of each other. And I have deep sympathy with people that are homeless, that are in... ⁓ you know, situations of precarity and you want to get them help. That's the human thing to do. But the policy regimes that have existed in California have focused on, I guess, a couple of different things. One of them is they just throw money at homelessness projects, gobs and gobs of money without any real plan or knowledge or anything of ⁓ what it's actually doing in practice. But gobs of public money and no real means of accountability to see how it's used. And then have overlaid with that, California has had a problem of decriminalization where they basically said, we're going to stop enforcing against petty crime. Anything under, you know, it's like $950 or something of that nature was one of the measures that they passed. Anything below that is considered petty crime and doesn't necessitate or warrant police resources to come stop it. And you think, OK, well, what's the private solution to that? Well, then the stores themselves have to incur the cost of policing against shoplifting. And that's where you get these ubiquitous cages over the laundry detergent, the deodorant aisle, where you walk into the grocery store to CVS, and now you have to push a button for someone to come unlock the cage to give you ⁓ razor blade or shampoo or some minor thing that Otherwise, it's being just gobbled up by shoplifters because every store knows if they call the police for a petty shoplifter, the police goes, yeah, well, maybe we'll get to you next Tuesday and we'll just file a report and there's nothing we can really do. So you have this combination of a homelessness solution that's very centered around the government throwing money at it and a growing tolerance for petty crime that's often associated with homeless communities that have sprung up. In areas where there's an encampment, yes, the petty crime spills over into the neighborhood businesses. In short order, those businesses pack up and leave.

Speaker 1

And when it comes to this idea of if there's a problem, throw money at it. I mean, when you have organizations and so many jobs that kind of rely on there being a problem, when you do throw more money at it and the problem isn't getting solved. ⁓

Speaker 2

There's a homelessness industry, just like there's a California train industry. The train never gets done, so you throw more money at it. Homelessness is never solved, so you have all these government organizations and bureaucracies that are like, ⁓ well, that's because we need more funding for our agency.

Speaker 1

When you look at spending that goes towards homelessness in all these different cities, like say from like New York versus San Francisco versus LA, purportedly to fight homelessness, but it seems like the amount of homeless has actually risen over the years.

Speaker 2

Yeah, it seems like, if you subsidize something by throwing money at it without actually addressing the problem. And, you know, this is something that I think groups across the political spectrum in California have really noticed. You know, we're in a free market, classical liberal libertarian-ish space, and ourselves, but we have significant anti-homelessness initiatives at the Independent Institute. And a lot of that is rebuilding private civil society charitable approaches to homelessness, and we find groups in the center, on the right, on the political left, that are all fed up with the bureaucracy, and are all fed up with the official public government solutions to homelessness that never really seemed to work. So it's all looking for, well, how do we recreate a way to address this problem through the private sector, through private charities? And it's kind of, well, let's look out to what other states are doing and how they've dealt with their homelessness problem. And a lot of it's focusing on rehabilitating people or giving them a private shelter or a private solution where they can get back on their feet rather than putting them in the homelessness lifestyle managed by a California state or city bureaucracy.

Speaker 1

Yeah, I believe it was Michael Schellenberger. He wrote a book called San Francisco. In addition to the book, he was doing a lot of ⁓ interviews with homeless people in San Francisco. And some of the people that he was talking to, I they were basically being paid to live on the street with the amount of money that they were getting from the state. It's sort of the homeless are not an endangered species. There are definitely a lot of them there, but yet they're kind of being protected as if, as if they are, because I just don't see a lot of people who are able to break the cycle. If all of their terrible, terrible vices are being fed.

Speaker 2

Bices being fed and in some ways even encouraged, you know, I've seen the tent cities up close. I've been driving down the interstate in Oakland and suddenly a fire breaks out next to it. And it's the homeless camp under the overpass as you know, something's gone wrong and suddenly the tents are on fire. And you have people that are high on substances wandering around not knowing what to do. It's a very, very dangerous situation. And yet The local government is like, their solution is, well, all right, we just throw money at it we don't really do anything to get these people help, to get them off the streets, get them into a private shelter. Now overlay that with the other problem that California has, know, the highest, some of the highest cost of living in the country. A big part of that is the NIMBY situation, the not in my backyard housing policies and building policies. Everything is so horrendously regulated. that to create new construction, means you have to go through years of jumping through hoops that all have ⁓ fees and licenses and costs attached to them. New building is much more difficult there than somewhere like Texas, somewhere like Tennessee or Florida. And as a result, you find people that are leaving the area because just the housing costs are so high. And the bureaucracy to do anything is so interminable. It's basically given the government a stake in any and every example of land use that you could possibly do.

Speaker 1

Yeah, and I've seen some things too when you look at the pricing for building new housing or you know housing for homeless and you look at the price per unit and sometimes you're looking at like half a million dollars per unit. It's like wait a minute half a million dollars.

Speaker 2

You could buy them a condo and so on.

Speaker 1

And that would be very upsetting to the people of Florida. ⁓ Something that I came across on X, someone was talking about the homeless problem in Los Angeles, and somebody had filmed basically them riding through the streets of Los Angeles. And it looked like a shanty town from worse than a shanty town from years and years ago. that video, the copy that went along with it said, this is what Democratic Socialists of America governance delivers. And someone responded to that, a writer for the show's New Girl, BoJack Horseman and Blackish, some of those shows who I've really enjoyed. And he said in response, LA looks like this because we give the cops three billion a year. And I was trying to figure out, wait a minute, the reason why LA has this, you know, staggering homeless problem is because police are given three. billion dollars ⁓ a year. What do make of that? you make heads of tales of that?

Speaker 2

Well, I think this ⁓ really taps into you. Remember a few years back, we had the defund the police movement that really erupted on the far left. And I think this was a ⁓ seizure of a very real problem that existed. Yes, there were police abuses and we had some very prominent instances of that, you know, cops being caught on camera, beating a guy in a traffic stop. The original one was the Rodney King one that was in California. And this is a a periodic way, but some of the policy responses to that, they're not, well, let's reform how police conduct themselves and change some of the standards of evidence or make it easier to prosecute bad cops that do go over the line. The answer to that has been, well, we need to eliminate police entirely. And one of the things that grew out of that was this proposition in California to push to decriminalize petty crime. You decriminalize petty crime. as a means, a backdoor means of defunding the police. Well, then suddenly the police are not there when you're the convenience store on the corner is getting ransacked at three in the morning by a wave of shoplifters. Something that actually happened in Oakland a couple of years ago. And it went ⁓ like a big national news story. The video of ⁓ this mob descending on a poor gas station owner and just taking all this stuff. And the police are, yeah, well, we'll send someone out in three hours and we'll give you a report on it. It's up the gas station shuts down. succession of these types of things. And it's gone even so bad after, especially after COVID, some of this really took off. I California was a huge lockdown state, so you're overlaying another bad policy in all of this. But there was a backlash, especially in the Bay Area, where the voters, these are Democratic-leaning, left-leaning areas, actually voted to recall their county and local prosecutors. and threw out some of these decriminalized crime ⁓ style politicians and just brought back in kind of left of center certainly, but they're like, ⁓ we actually believe that police should stop shoplifting. So you've had a voter backlash that even in the last two years that has started to turn the corner on that because it just got so bad.

Speaker 1

I think what that person wrote is kind of also an example of a meme that I've been seeing around where you have these images of the homeless on the street and people are saying, no, this is capitalism. This is happening under capitalism to which I always respond. Well, why aren't the capitalists basically plowing up these tent cities and getting, and getting rid of them? That would be the capitalist's response to, Hey, you're on private property. Get out of here.

Speaker 2

Well, it turns out the 10 cities are in public property. Right. They're on right of ways and easements and highway overpasses and things like that. It's a classic commons problem. It's, know, everyone owns it because it's the public and therefore no one owns it, especially when you decriminalize any means of, you know, bringing at least some semblance of order to what's going on in some of these cities. And they end up becoming kind of these lawless areas of just ⁓ rampant. petty criminality, there's often drug investations, just as we saw with the EPA case, draining into San Francisco Bay. So it's really like a public failure that's being blamed on the private sector. And meanwhile, the private sector is saying, well, how can we reconstitute civil society and solve this through charity and through philanthropy and through private options that are currently being impeded by the fact that the public, the government has cornered this market and it's crowded out? private philanthropy. This is a long-standing economic principle. It was observed by Alexis de Tocqueville over 200 years ago when he looked at the pauper laws, essentially the early welfare system that was emerging in Europe. He noticed that what this does is it actually crowds out private charity and does a worse job at addressing the problem than what previous private actors would have done because there's no longer a personal stake or motive in why relief is being pursued. Now it's just we take money from the taxpaying public and expend it on a giant bureaucracy that does more to perpetuate itself than actually solve the problem.

Speaker 1

And I guess there's that question of, know, if you do move the homeless out as California did before, ⁓ J from China paid his visit.

Speaker 2

Mirgeve visited the Bay Area. It's the first time that the poop had been cleared up in years.

Speaker 1

Yeah, and I don't know where those homeless people were put, but they were no longer on the street, at least for...

Speaker 2

at least for a little bit, it comes back.

Speaker 1

I've seen a lot of people comment that you can't basically incarcerate your way out of the homeless situation. But I think that raises the question of when it comes to a cost-benefit analysis, what is the cheaper solution? Is it putting homeless people in jail, in prison versus that $500,000 studio apartment?

Speaker 2

Right? Again, it speaks to the benefit of the private sector. If you would get the government out of the way and allow charitable homeless shelters to be set up, I'm certain they could be run. In fact, I know some evidence that they can be run at a tiny fraction of the cost of the public welfare bureaucracy that is purporting to solve this problem and not really doing anything. Again, but then you have the NIMBYism. You want to set up a private homeless shelter or a facility or rehab institution. Well, all the neighbors now suddenly come out and they have a veto. We don't want that in our neighborhood. So we have the poop on the street, but we can't have a shelter next to us because those are the wrong type of people. So it ends up kind of like a devolving to the path of least resistance, which is the tent city on the public land.

Speaker 1

I think a lot of charitable organizations privately run, they have rules that you have to abide by in order to stay there. One of those rules is most likely if you're someone who is a drug user, you can't use drugs.

Speaker 2

on the site. there's actual enforcement. If you engage in criminality or violence at a shelter, you're at minimum going to be expelled. And if the police are enforcing, they'll be called. If you attack somebody, know, crime is sexually enforced. Yes. again, it's property rights go well with bringing these, internalizing these enforcement mechanisms. When it spills over into the Commons, ⁓ it's the tent city and there's a night fight every night.

Speaker 1

Yeah, and it reminds me of this thing that I read about San Francisco where there was a COVID era program. And this is according to the California Post that guzzled, it's a great pun because of what's about to follow, guzzled $5 million of taxpayer money annually to serve booze to homeless alcoholics. And finally, Finally, it's going to close down this year. They're they're getting rid of that program according to San Francisco Mayor Daniel Lurie ⁓ So if the program went on for about six years and that's a lot of booze ⁓

Speaker 2

It's millions of dollars worth of booze.

Speaker 1

Yeah. So I can't even like, I've never written a, ⁓ a request for a grant. I've never done anything like that. I'm just trying to picture what the pitch was to the state and saying, give us money and we're going to make sure that homeless alcoholics got their booze.

Speaker 2

Got their booze because ⁓ I guess everything was under lockdown. you know, they to have some other means of acquiring that. ⁓ It's interesting you mentioned it as being wound down. Daniel Lurie is one of these, ⁓ he's kind of he's left of center politicians that was elected in this wave to replace the more radical progressives that had basically decriminalized everything and created all these types of programs. So in that sense, you see the political system is kind of rounding back toward some semblance of sanity in the way that it's dealing with this. ⁓ Although more broadly, you look to Los Angeles, it's a political mess right now. L.A., the big thing, is rebuilding after the wildfires.

Speaker 1

I was recently in Los Angeles and I just got to say there was a pall over the whole trip. was a sadness there that you could really feel. I have a number of friends who work in the entertainment industry and as an industry that feels very much like it's dying out there. Years back a friend of mine, she had described it as basically saying this is Detroit but for movies and And that really, you know that really nailed it and then the the palisades fires Just I mean destroyed it destroyed so much more than just houses It destroyed lives and spirits and it's a really really sad state

Speaker 2

for movies. It is. this is another area of, know, independent has done entire studies of the California wildfire problem. And at the end of the day, it goes back down to very bad policy and very bad management. There's a couple of issues. There's some very deep seated issues with the way that they address environmental conditions and brush. In California, it's often a very dry state. So it's naturally prone to fire outbreaks. And there are a couple of different ways you can deal with this, you the historic ways you clear out the underbrush and that limits its ability to spread. But if everything has to be natural and there's an endangered stale or something, then you can't touch the area around ⁓ where a natural forest is. Well, the underbrush grows up and a spark is lit and then it's much more devastating. So you have issues there. There are water management issues. saw in the Palisades fire, one of the more infamous incidents for us, they had an entire reservoir that had been offline for years that could have potentially been used to fuel or feed the hydrants, or they bring in these aircraft that scoop up water and then they dump it over. So there are all sorts of things that can be done on an improvised basis to stop one of these fires when it breaks out. But that only works if your reservoir is in commission. And I think this was more of a metaphor that water management in California has been a problem for decades. And the solution that the state has incentivized is, we must do the environmental thing. We need low flow shower heads, toilets that you have to flush six times just to make them work, and all that type of regulation to limit water use. Whereas the infrastructure, updating reservoirs. ⁓ refilling the reservoirs that we have, keeping them in functional order. That has been neglected. There's really bad laws and regulations in place on new water source acquisition and requirement, because everything's governed by environmental conservationism and protection, rather than actually facilitating a need for the reservoir. what I mentioned on this, there are a few things that are more environmentally destructive than the entire forest. burning down. So they do all these very short-sighted micro-policies that make it impossible to build anything, improve anything, manage infrastructure. They've removed markets from the water market entirely. It's basically government allocated and regulated in different ways. And then the result is you get far more environmental devastation than ever would have been the case if you had a reasonably sane policy for building infrastructure. And now what we have, you know, the Palisades fire and some of the other fires and the Altadena area, you know, all the hills around Los Angeles, we all saw it on the news. Well, here we are over a year later and almost nothing's been rebuilt. The main reason being that the state and local government have all these regulatory obstacles to get permits to actually rebuild the thing. And this is not a new problem. This happened most recently in the Palisades fire. So now you have all these empty lots where people are facing years of red tape and bureaucracy and hundreds of thousands of dollars just to rebuild what was destroyed. Well, a similar thing happened, I think it was 2018. You remember the Paradise Fire. This is in Northern California. It's city of about 25,000 people before the fire, and it's devastated by a wildfire. And then afterward, they change all the building codes, the population has maybe rebounded to half of that.

Speaker 1

Yeah, now it's coming out. have a person who's been charged with arson. So it's like you have this environmental impact that is manmade from one person. One person could have just such a detrimental effect on an entire state. It's completely insane.

Speaker 2

displacing hundreds of thousands of lives.

Speaker 1

You know, there are all these ⁓ little details too about what rebuilding would entail. If you're one of the lucky ones who insurance that's able to cover your rebuild, well, maybe you're the one house that's able to do it on your block. And that's a lonely, lonely place to be the only house on your block.

Speaker 2

It's funny you mentioned the insurance. I mean, there's another California Golden Fleece report. California has one of the most heavily regulated home insurance markets in the country. What does that do? It raises the price on it. And eventually, the regulatory burden becomes so unbearable that insurance companies leave the state and you have a decline in a competitive insurance market.

Speaker 1

And you know looking ahead, you know because a lot is up in the air, especially when it comes to the political races in California One candidate for governor is mr. Steyer who? The last time he ran for president for president he spent like I believe was like 250 million dollars or if we if you break this out about 1900 dollars per every vote he received and I'm not saying that those people were paid although

Speaker 2

⁓ Just the volume of ads and yeah, and everything that he's dumping money in.

Speaker 1

We should do an episode on whether I could actually get paid for my vote because $1900 sounds pretty good to take part in in a democracy So he's a he's a billionaire ⁓ and he happens to be a very special billionaire because he seems to be the one of the billionaires that the Democratic Socialists actually like as far as plans for the future I mean is California gonna stay on the same track with you know other you know politicians like this or is there real change that could be made?

Speaker 2

That's the great question. Have they hit rock bottom yet on some of these terrible policies? As I mentioned, so in the last election cycle, 2024, I think they kind of did in some of the Bay Area cities, or San Francisco and Oakland. They all threw out some of these really, really far left wing, democratic socialist type candidates, just because people got so fed up with crime becoming rampant and not being enforced. So there are areas of backlash. Another one you see in the Los Angeles area, this fits with the LA is the Detroit version of the movie industry. So there's a Mayor's race going on right now. And one of the big issues has been all the obstacles to rebuilding after the Palisades fire and some of the other fires in the area. And one of the guys is running, I don't know what his chances are, but he's certainly making media scenes, is this character by the name of Spencer Pratt, who was... affected by the fires and kind of made this his campaign thing. And I guess, well, who's Spencer Pratt? You don't remember there's this 2000s era reality TV show called The Hills. And Spencer Pratt was like the boyfriend that everybody hated. This guy that was wandering around there and California dude bro that ⁓ all the viewers thought was annoying. Well, he's grown up now and he's, ⁓ you know, he made his money, I guess, on reality TV. but he's affected by the fires and he's made this his cause. It's like, why can't we do anything functional to rebuild after the fires? And you see the other celebrities that are doing this, because that was one of the weird things about the Palisades fire. Even though there were normal suburban neighborhoods that are also affected in that wave of fires in very pronounced ways, this was the one that also touched the ritzy area, the billionaire estates overlooking the ocean in Pacific Palisades. And it's kind of like, wait a minute, people that had been able to insulate themselves from the crazy of California politics are suddenly now affected by it. Not only are they affected by it, they can't rebuild their home because there's a five-year waiting period to get a permit. And that permit adds hundreds of thousands of dollars to the process of just starting the rebuilding.

Speaker 1

I've heard a lot of criticism of Spencer Pratt as a candidate, people saying, ⁓ do you really want a reality star to be your mayor? And I was just thinking, look, we have a reality star as a president, but also out of all the places in the world that a reality star kind of should be represented in government, would think.

Speaker 2

Probably Los Angeles.

Speaker 1

Los Angeles, I mean, if we're gonna do that, you know, we're not campaigning for anyone here. Obviously with California, there's a lot to talk about. We can't fit it all into this episode. So please tune in next week when we will continue to discuss this idea, this novel idea of tax the rich and more epic failures that originated and continue in the great state of California. This has been Happy Hour Econ. See you next week.