How to Save California From Itself

– February 24, 2020 Reading Time: 5 minutes

So many people have left California on net that if the state wasn’t more concerned with its aggregate (rather than its per capita) greenhouse gas emissions, the Golden State might consider building a wall, a la North Korea or East Germany, to dissuade its over-regulated denizens from fleeing to freer pastures. I kid, of course, because SCOTUS and POTUS presumably would prevent the construction of such an obvious violation of the Constitution. Moreover, Californians themselves could kill such an onerous violation of their human rights with a ballot proposition.

But why haven’t ballot props or the power of the federal government yet been employed to kill the many metaphorical walls that “commie Cali” has erected over the years?

Many Western states allow citizens to initiate legislation but California is by far the most important and the ripest for reform. Although a few states endowed with direct democracy have egregiously restricted economic freedom, California is perhaps the worst offender as shown by its relatively low economic freedom score and the relatively high cost of its education, healthcare, housing, and transportation.

So why haven’t Californians used ballot propositions to regain some of their lost economic freedoms and to reign in their state’s out of control cost of living? It may simply be, as the in-the-weeds work of The Cicero Institute is showing, that the state’s policies have grown too numerous and complex for the median voter to comprehend, resulting in reform sclerosis.

With that sclerosis in mind, I offer the following modest ballot proposals. Irish babies remain off the menu, but swift results should be anticipated if passed in California (or anyplace else, with appropriate substitutions).

Prop 1:

Whereas healthcare costs have for decades increased far faster than general prices to the great detriment of Californians, especially the most vulnerable ones:

Henceforth, any business model, treatment technique, software or other technology expected to reduce the real cost of healthcare treatments, procedures, medical devices, or insurance, holding quality constant, that does no injury to others, shall be presumed legal, any state law or local ordinance to the contrary notwithstanding.

Furthermore, any incumbent healthcare insurer, provider, or regulator that attempts to hinder any new entrant into the healthcare provision or insurance industry in any way, other than competing for consumer dollars on the basis of price and quality of product or service, shall be subject to suit.

Prop 2:

Whereas education costs have for decades increased far faster than general prices to the great detriment of Californians, especially the most vulnerable ones:

Henceforth, any business model, pedagogical technique, software or other technology expected to reduce the real cost of education or job training, holding quality constant, that does no injury to others, shall be presumed legal, any state law or local ordinance to the contrary notwithstanding.

Furthermore, any incumbent educational institution or regulator that attempts to hinder any new entrant into the education industry in any way, other than competing for consumer dollars on the basis of price and quality of product or service, shall be subject to suit.

Prop 3:

Whereas housing and transportation costs have for decades increased far faster than general prices to the great detriment of Californians, especially the most vulnerable ones:

Henceforth, any business model, construction technique, software or other technology expected to reduce the real cost of housing or transportation, holding safety constant, that does no injury to others, shall be presumed legal, any state law or local ordinance to the contrary notwithstanding.

Furthermore, any incumbent construction or transportation company or regulator that attempts to hinder any new entrant into the housing or transportation industry in any way, other than competing for consumer dollars on the basis of price and quality of product or service, shall be subject to suit.

(The Independent Institute’s Lawrence J. McQuillan recently independently divulged a similar idea, which he positioned as a “right to build” constitutional amendment.)

Prop 4:

Whereas prison incarceration and recidivism rates have grown to the great detriment of Californians, especially the most vulnerable ones:

Henceforth, any business model, rehabilitation technique, software or other technology expected to reduce the real cost of maintaining public safety, that does no injury to others, shall be presumed legal, any state law or local ordinance to the contrary notwithstanding.

Furthermore, any incumbent prison, convict rehabilitation service, or criminal justice institution that attempts to hinder any new entrant into the prison and convict rehabilitation industry in any way, other than competing for revenues on the basis of price and quality of product or service, shall be subject to suit.

I admit that I am no lawyer but what the four propositions attempt to do is to fully deregulate four key industries where costs have spiralled out of control for decades. The idea is to allow competitors to enter without fear of regulatory retribution so long as they run legit businesses and to constrain incumbents to competing on price and quality and not their crony capitalist connections.

Would Californians vote for one or more of those propositions? Props if they do.

If they don’t, perhaps they could be nudged along with catchy slogans like “Deny supply and people die,” “Let them build it and they will come,” or “California needs Silicon Valleys in every economic sector.”

If slogans and commonsense fail, then maybe Americans living in other states hurt by California’s policy regime need to start suing in federal court. According to economists Chang-Tai Hsieh (Chicago) and Enrico Moretti (Berkeley) (“Housing Constraints and Spatial Misallocation,” American Economic Journal: Macroeconomics 11(2): 1-39), constraints on new housing construction in America’s two most productive metro areas, New York City and Silicon Valley, has reduced the nation’s per capita annual output by an estimated $3,685. (Which bolsters my view that America’s annual per capita income could already be $100,000 if its many governments hadn’t restricted economic freedom so much over the last half century plus.)

In the peer-reviewed words of Hsieh and Moretti: “Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities [my emphasis].” Reduction of commuter transportation costs would help, as it did in London and Tokyo, but in America transportation improvements are often squelched by the same forces that limit new housing construction.

In other words, Bay Area and Big Apple land-use regulations impose large negative externalities on the rest of the nation, much as chattel slavery once did. We don’t need to fight another uncivil Civil War, but it may be time to admit that in a tightly integrated economy, land-use rules are not just a matter of local concern.

Employers in our most productive cities could learn how to hire, monitor, and raise the productivity of substantial numbers of remote workers but state laws like California’s AB5 threaten to interfere with that strategy as well. At least the federal government’s supremacy in matters of interstate commerce could be brought to bear if those remote workers lived outside the Golden State.

But hopefully Californians will choose to deregulate instead.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.