The shifting economics california

this is california the golden state and

one of the largest economies in the

world

in its own right if california was

counted as a sovereign nation

it would be the fifth largest by gdp

with a 3.2 trillion dollar gross

state product putting it just behind

germany and just ahead

of india of course the state has a lot

going for it

from the largest movie and technology

centers in the world

all the way to a surprisingly strong

agricultural sector

all of this has meant that the residents

of california are on average

doing very well for themselves and one

look around the wealthy enclaves of los

angeles and san francisco

would back this assumption up despite

all of this however

the state is going through a period of

economic turbulence

the fallout of the coronavirus has hit

the state’s economy

particularly hard major industries like

tourism and media creation

have ground to a complete halt having

widespread knock-on implications

and hitting a lot of smaller vendors who

were once reliant on these industries

this bump in the road however was by no

means the total undoing of the state

california’s metrics before 2020 looked

very strong with low unemployment solid

growth and booming industries

but there were still cracks forming

the state is home to the largest

population in the us

but the industries that were truly

driving wealth creation

are famously bad at actually employing

people

this had led to a sharp increase in

social issues like homelessness

and crime all of these problems that

were once bubbling away under the

surface have now been massively

accelerated

so much so that many economists have

predicted that the sun might be sitting

on the sunshine state

now that may sound like absurdist

alarmism but it’s a reality that

shouldn’t be totally dismissed

remember in previous decades there was

another economic region in the us

riding the high of a new growth industry

but these days

detroit is not exactly seen as the

bastion of prosperity

it once was so could the same grim

reality be in store for california

well to answer this we need to look at a

few key

areas what made the state so prosperous

before the 2020 downturn

what were the underlying issues

impacting the economy

how will these issues be impacted by the

wider economic decline

and finally while we are at it we may as

well give it an ee national economy

score and put it on the leaderboard

i know i know it’s a state but with a

gdp in the trillions of dollars

it certainly deserves an entry this

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below now this year has certainly been

one for doom

and gloom but it is still important to

address what is working well

any economy that can grow to the level

that california has

and provides so much wealth and

prosperity to its citizens

is probably doing something right so

what was the driver of the californian

dream

california is both really lucky and

really

unlucky in terms of its geography the

state had a big head start over other

states in the union when it was getting

started because

it had access to decent farmland a good

year-round climate

oh and an ocean for fishing and trade

on the flip side of that coin it was

literally about as far

away from the economic centers in the

u.s as one could reasonably get

while still within the u.s nonetheless

the state grew well as a distant outpost

that attracted farmers gold diggers and

or people that would rather be a little

bit removed from all of that pesky

law and order in the east the first big

win for the state in the modern era

was its film industry which was

curiously also at least partially thanks

to its geography

and position in the world you see early

film technology relied heavily on lots

of light and good weather

that’s one thing that california has in

abundance

i mean it’s right there in the name

what’s more

is that a lot of this new cinema was

filmed using technologies that

had patents on them primarily patents

owned by thomas edison and his

businesses that were headquartered

in new york by conducting business in

los angeles

up-and-coming film companies felt more

comfortable not being found out for

using much cheaper film equipment that

was not paying royalties back to edison

for his patterns now this all meant two

things

for starters it hopefully makes you feel

a little bit less guilty about watching

a cheeky movie for free online

but more importantly it established la

as the center of the movie business

we actually plan to do an entire video

on the economics of hollywood

but for now just know that eventually of

course camera technology got to a point

where film locations were not as

important and

modern studios do pay what they owe to

their suppliers

but once these studios were established

they got comfortable

support industries sprung up

film-related unions were founded and it

almost got to a point where it was

really hard to film anywhere

but la so through nothing but being in

the right place at the right time and

turning a blind eye some 100 years ago

california is now the epicenter of one

of the largest industries in the world

this would go on to become a common

theme the tech revolution that has

started silicon valley

was mostly formed around stanford

university which was one of the first

universities in the nation

to offer computer science as a course

once a few companies got going

other tech companies were attracted to

the same area and along with them came

people with expertise to create new

technology

once this modern gold rush hit a

critical mass silicon valley

just became the logical place to conduct

tech business because

it naturally ticked all the boxes access

to suppliers

access to investors and access to

skilled workers

given that technical development by its

very nature can be virtually rolled out

anywhere

being in and amongst a huge pool of

competitors is not as much of an issue

as it would be for customer facing

industries like

retail hospitality or even manufacturing

in fact having this ecosystem actually

makes everything much easier

you need a part that only a niche tech

manufacturer in the world makes

good chance it will be in silicon valley

you need to consult with the world

leader in some type of technical

infrastructure

chances are silicon valley is the place

to find them

this whole process is called

agglomeration which is a fancy word for

the benefits an industry receives by

being geographically close to its

industry partners

and peers being lucky enough to just

happen to have the nuclei around which

the largest industry in the world formed

became par for the course for california

now a lot of this was good planning and

the state did a lot of things right to

nurture the growth of these industries

but luck did play an undoubtedly huge

part

all the same even if north dakota

happened to be the early center for

technical innovation

it’s hard to see it having the same

appeal to tech companies and their staff

as the blue skies and sandy beaches of

california

now so far this all sounds great

california has a diverse portfolio of

wealth creating industries that are not

dependent on limited resources to

sustain

but suffering from success does start to

become an issue

in its own right especially when

california

is home to a lot of people that don’t

call it home

for a lack of better way of putting it

welcome to the hotel california

gold rushers throughout history were not

good for local economies long term

they see a massive spike in new workers

all desperately seeking their riches and

this does create some short-term wins

businesses catering to this foot traffic

can be built and maybe even some taxes

can be levied

but once the gold is dug everything goes

right back to where it was now the

california gold rush is a distant memory

these days

however state is not immune to the same

effects

on a larger scale moving to la to try

and make it in the film industry or san

francisco

to earn fat stacks as a developer are

pretty common endeavors

the issue is that these types of

employment

don’t actually give too much back to the

economy an influx of computer

programmers getting paid six figures for

graduate positions

means that things like real estate

become unaffordable to long-term

residents that moved into

other industries real estate also drives

up rents for commercial buildings which

get passed along to consumers

as higher costs of living it would be

next to

impossible for a worker earning the

national average wage to move to the bay

area

and expect to live a comfortable

lifestyle even as a single adult

not to mention with a family so people

either make sacrifices

like living with roommates or parents or

they move away

now particularly cold-hearted viewers

might say that trading in some

average income earning local residents

for some exceptionally skilled

and well-compensated computer nerds is

probably a good trade to make

but it isn’t for starters you can’t run

a city on computer code

yet someone needs to be there to stock

the whole foods for all of these guys

and

unless produce packer is a job role that

starts to attract a six figure salary

these people need to be accommodated in

some way or else

demand pull inflation can get dangerous

very fast

but the real issue is that these people

don’t stay for long

san francisco has the highest level of

internal migration within the usa

that means lots of people are moving in

and lots of people are moving out

that’s because people working in silicon

valley don’t tend to do it for very long

a few years in the industry gets people

great experience and a nice big pile of

cash to take back to their home towns

during this time most of these workers

will live below their means and focus

pretty heavily on work

they won’t be living family lives that

give back to local industries because

well

it’s too expensive even these

well-compensated tech employees would

struggle to raise a family in southern

california

given the cost of living it’s a pretty

common industry game plan

graduate university get a job in a fang

company

stick it out for five years save up some

cash live in a tiny apartment

and then move back to your home city and

live like a king doing consultation work

so people paying a lot of money for a

short-term stay in modest comfort

i guess the hotel california is open for

business but

you can actually leave to try and make

the best of this bad situation the

california government levies the highest

state income taxes in the nation

the general idea is that sure these

outside workers can come and make their

millions but at least it will generate

lots of revenue for the government that

they can then use to address some of the

issues caused by said workers

now in theory this is fine and it

actually worked well for some time

but it was a precarious balancing act

the slightest breeze could throw it off

course which is

exactly where the hurricane that is 2020

came in

the hotel california for the first time

ever was starting to see

mass vacancies the economic fallout of

the coronavirus has been a major hit

to everybody but the consequences have

been

especially severe in the united states

and especially severe in california

for starters nobody is making a movie or

going on a beach holiday or attending

disneyland at the moment

so that has been a major direct blow

but what might end up being more severe

is the consequences that are a little

bit harder to notice

people are starting to leave

the push to work from home means that

the aforementioned tech workers

no longer need to live in a cramped

one-bedroom apartment in the bay area

they can instead just do exactly the

same thing in a nice family home

anywhere in the nation while enjoying a

much better quality of life

and paying much less in tax

that same income tax designed to make

the most of those high-income earners

while they were there

is now pushing more and more people away

the issue of capital flight is an

argument that is often brought up to

dissuade governments from passing laws

on high-income earners

to speak candidly most of the time these

arguments are weak at best

most people will not move their families

to a new nation to save a few thousand

dollars on taxes

but a single worker moving to a new city

in the same country

well that’s a far more compelling

prospect

in fact while i was in the process of

writing this script

graeme steffen a personal finance

youtuber posted a breakdown of exactly

why

he is leaving california and moving to

las vegas to live

now graham does not work in the tech

industry but

he is still indicative of those types of

workers

young well-off with a business that he

can do from anywhere

without a family of course one man’s

experience does not a trend make

but this reason for leaving was very in

line with the research that we conducted

so anyway go and check out that video

here’s a good egg that graham

okay i know california is not a country

and

this says national leaderboard but it’s

still interesting nonetheless and i mean

hong kong gets a spot so why not right

size is simply phenomenal california

would make for a huge

national economy in its own right but

the fact that it’s just one part of the

us

gives you an idea of just how

influential economies like the world’s

superpowers

really are it gets a 9 out of 10 of

course falling short of the

14 figure gdp club but still one of the

largest most influential economies

in the world gdp per capita is also very

high

as temperamental as they may be the

state is still home to a lot of very

skilled very industrious workers

and with that a gsp per capita of 72

000 in 2019 gets it a 9 out of 10.

curiously enough the state or territory

within the us with the highest gdp per

capita

is the district of columbia with a

whopping

162 000 as of 2008

which actually puts it in line with

places like monaco

stability and confidence this is really

subjective and had it been asked 12

months ago it would have been a clear 10

out of 10

but flying so high means that it has a

long way to fall

and it has historically felt the impacts

of downturns

more heavily than the national average

which is of course still very well

deserved for a state with such a diverse

portfolio

of world-leading industries growth is

pretty stable

the economy is large and reflects a

developed nation in its own right

and the growth figures reflect this as

well outside of 2020 it has averaged a

two to three percent growth rate over

the past few decades

so it gets a six out of ten finally

industry well come on what else could it

be

if anything could get an 11 out of 10 it

would be california for its industry but

in the meantime

it will need to make do with a nice

round 10 out of 10.

all together this gives the sunshine

state an average score of 8.4 out of 10

just falling short of the top spot of

course with the same big asterisks as

hong kong that this

is not actually a nation

california would be a remarkable economy

if it was its own

nation but in a way it’s even more so as

just a very productive piece of a

grander american puzzle

but that does not mean it’s not without

concern

yes it has been fortunate enough to

attract a lot of very profitable

businesses

and very skilled people that come with

them yes it’s lovely beaches and

attractions will continue to bring in

tourists and businesses alike

but it can’t rest on its laurels many

economies throughout history have

thought they were the epicenter of

industries that would last forever

became overly reliant on them and then

suffered as those same industries faded

into obscurity

there is no such thing as an unsinkable

ship and when all the smart people start

heading for the life rafts it might be

time to look out for icebergs ahead

who would have thought the golden child

of american industry would have been hit

so hard

in so many unusual ways in such a short

amount of time

it’s one of those events that you don’t

see happening until it’s too late

unless you have some fantastic insights

like the ones

provided by trends the internet’s

definitive knowledge hub for

entrepreneurs and aspiring ones alike

which reminds me question for you have

you ever wondered what internet

millionaires and gazillionaires all have

in common

hint they’re smart like really smart and

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