California has been cited recently as a disaster and a total "basket case" that everyone is deserting. This narrative is particularly common in right wing political media. It is referred to as a state full of rampant socialism and communism. California is a state that is dying due to it's liberal policies, crazy people, and huge immigration. Right?
Well, at least economically, the facts don't support such statements and conclusions. Other states should be so lucky as to be the economy that is California. Let's review.
Gross Domestic Product (GDP)
The top three states by GDP1 are:
- California - 3,120,386 million.
- Texas - 1,772,132 million.
- New York - 1,705,127 million.
That right. Business loving, everything is bigger, Texas is in second place at only 57% of the GDP of California. Not even close.
But you say, yeah, California is big but sinking fast, right? Well no. The top ten states by GDP growth rate2 are:
- Washington - 5.70%
- Utah - 4.30%
- Idaho - 4.10%
- Arizona - 4.00%
- California - 3.50%
- Colorado - 3.50%
- Florida - 3.50%
- Oregon - 3.40%
- Nevada - 3.20%
- Texas - 3.20%
That's right. Big and still growing fast. Well ahead of the other large states.
In fact, California is the largest sub-national economy in the world. If California were a sovereign nation3, by GDP it would rank as the world's sixth largest economy, behind India and ahead of the UK.
Not bad for a "communist" state that supposedly ditched capitalism.
But what about the population? I understand people are leaving in droves to move to other states because of how bad things are in the state, right? Well in 2022 for the second straight year California's population did decline. Data4 show California's resident population at 39,029,342 in July 2022, a decline of more than 113,000 since July 2021 and down more than a half-million people since July 2020.
Why? A few reasons. Aging baby boomers. Fewer children. Restrictions on immigration. High cost of living. Migration out has historically been offset by immigration but, with COVID-19 and increased federal immigration restrictions, arrivals in the past few years have been below migrations out.
Immigration, as a positive offset to migration out of the state, is particularly important. California is viewed as a land of economic opportunity by immigrants. Note the GDP discussion above. When immigration from outside the USA is constrained, California's population growth is more severely impacted than other states.
The data does not suggest that numerous California residents suddenly decided to leave for the greener pastures in other states. In fact it is reasonable to expect immigration to increase as the pandemic recedes and if/when federal immigration begins to function again. So no there's no net mass movement out of California.
Federal Balance of Payments
It might be the case that California does so well economically because of "help" from the federal government. To investigate, we should look at the state's balance of payments—federal spending distributed to the state minus the amount paid to the federal government by the state's residences and businesses.
The COVID pandemic significantly skews this data for every state as the federal government spent considerably to all states as part of the pandemic response. So, using the numbers from 2019, the last full year before the pandemic, will provide better insight to the norm.
In 2019, California sent $11.9b5 more to the federal government than it received. That's $303 per person in the state. Therefore, California supports the federal government not the other way around. The state helps fund the other states in the country. Checking additional years before 2019 we see the same. The state has been a net contributor to the federal government for many years. The economic performance is not due to "help" from the outside.
1 2021 data from the U.S. Bureau of Economic Analysis.↵
2 2018 data from the U.S. Bureau of Economic Analysis.↵
3 2022 data. California was 5th but in 2022 India's growth brings it to 5th and California dropped to 6th.↵
4 2022 data from the U.S. Census Bureau.↵
5 data from The Rockefeller Institute of Government, which is a public policy think tank.↵