How California Got Rich
The always thought-provoking David Brooks turns his attention to The Golden State in his latest New York Times column. Citing Kevin Starr, the accomplished historian of all things California, he gives this overview:
Between 1911 and the ’60s, California had a series of governors — like Hiram Johnson, Earl Warren, Goodwin Knight and Pat Brown — who were pro-market and pro-business, but also progressive reformers.
They rode a great wave of prosperity, and people flocked to the Golden State, but they used the fruits of that prosperity in a disciplined way to lay the groundwork for even more growth. They built an outstanding school and university system. They started a series of gigantic public works projects that today are seen as engineering miracles. These included monumental water projects, harbors and ports, the sprawling highway system and even mental health facilities.
In reflecting on any era, it is common to credit the person at the top of the political hierarchy. Just as presidents are lauded for presiding over times of national prosperity, governors are the ones mentioned in discussions of notable successes within individual states. A closer look at California in the era Mr. Brooks mentions affords a particularly good opportunity to see the shortcomings of that approach. Best to focus on the Hoover Dam, arguably the most important and far-sighted public works effort of the era, and the Colorado River Project. Absent these engineering triumphs Greater Los Angeles as we now know it wouldn’t exist.
On the whole, federal and municipal efforts were far more important than anything done at the state level. In 1918, Secretary of the Interior Franklin Lane commissioned a report on an irrigation canal that would tap into the Colorado River. The Bureau of Reclamation did the early geological surveys. A Californian, Herbert Hoover — then Secretary of Commerce for Warren Harding — was instrumental in negotiating an agreement among western states about how water and electricity would be shared if what was then called The Boulder Dam was built. Hiram Johnson helped, but as a United States Senator, having already finished his term as governor. What about Los Angeles’ bid to benefit? Its chief water engineer, William Mulholland, obtained a local bond issue to fund a study into how his city could get water and electricity from the project. The most persuasive public advocate for building the dam was Arthur Powell Davis, who wrote what Starr calls “the establishment rationale” in a February 1929 piece in The Atlantic Monthly.
California also benefited from the rise of Herbert Hoover to the presidency, and the fact that his Secretary of the Interior, Ray Lyman Wilbur, hailed from the Golden State. “Had Wilbur come from Wyoming, Utah, Nevada, Arizona, or Colorado, he might have been influenced toward a different decision,” Starr writes. “As it was, he allocated 36 percent of the water and power to the Metropolitan Water District of Southern California. To the City of Los Angeles, which operated its own Department of Water and Power, he allocated 13 percent of the hydro-electrical power. He allocated another 15 percent of the hydro-electricity to the Southern California Edison Company and a handful of other Southern California cities.”
Or to put a sharper point on it:
Thus a President and a Secretary of the Interior from California set in motion a project which a California senator and a California congressman had pushed through Congress, to be supervised in its construction by a government agency headed by a former California professor, with financing from revenues paid by Southern California water and power organizations, with construction being performed by a consortium dominated by California-based companies, with the eventual recipients of the water and power made available by the dam, once completed, being millions of Southern Californians.
The federally financed dam was built on the Arizona-Nevada border.
The 1930s were an extraordinary era in California public works. Herbert Hoover was instrumental in getting the San Francisco—Oakland Bay Bridge built too. Also federally financed, it was the largest bridge and the most expensive public works project ever built. The Golden Gate bridge, as beautiful as any on earth, was conceived and designed locally, and funded by bond issues in the counties it would serve. (The Italian immigrant who founded the San Francisco based Bank of America deserves credit for buying the entire bond issue despite the timing — the early years of the Great Depression). California’s first freeway, The Arroyo Seco, connected Los Angeles and Pasadena thanks to efforts in the two communities, and help from the WPA. And various New Deal agencies would poor untold millions into the state as much of the Dust Bowl’s poor migrated here.
As World War II arrived, California became strategically vital — the landing point for a theoretical Japanese invasion that prompted all sorts of defense spending, the center of America’s aircraft industry, home to various military bases, and the point of departure for the Pacific rim. During World War II, the aircraft industry became the biggest in the United States, producing more than 300,000 military aircraft. The Golden State got almost half of this business.
In the period from 1911 to 1965, any halfway competent series of governors would’ve presided over a prosperous California. In the passage I excerpted, Mr. Brooks isn’t wrong — California’s governors did ride a wave of prosperity, and they did spend its fruits a reasonably responsible way, along with the various legislatures. (Their faith in direct democracy also laid the groundwork for certain pathologies identified later in the column.) But their example isn’t one that can guide us toward prosperity today. The successes of the past are best explained by forces outside the statehouse. And even today’s lackluster state leaders would manage to preside over a return to prosperity if the federal government again sent us amounts like what flowed here from the beginning of the Depression through the end of the Cold War defense buildup.
Today California has a spending problem, a public employee problem, a business regulation problem, and a constitutional problem. The state’s prosperity and its pathologies alike flow from the Progressive Era. It’s the latter that we’ve got to address now.
Conor,
To paraphrase Al Pachino, just when I think I’m out, you pull me back in. Good post — attacking the Progressive pathologies (which back in the day knew no party boundaries, e.g. Hoover) is something every smart conservative today should be interested in doing. As a side note, Glenn Beck has your back!
— Jeff Singer · Sep 29, 10:52 AM · #
As a follow-up to Conor’s short, but excellent post, this longer piece by Joel Kotkin, is also excellent:
http://www.city-journal.org/2010/20_3_california-economy.html
— Jeff Singer · Sep 29, 12:07 PM · #
Good post. You should expand this into an article.
This Easterner wonders how much of Southern California’s prosperity from 1945 – 1990 was based on the defense industry. With that industry in decline what industry could be a source of new high paying jobs? I have heard CA economists say that the only economic growth in the region in the last decade was in residential real estate and closely related industries. If the LA metro area does not generate many high paying jobs how can home prices still stay well above the national average? With real estate prices and tax rates among the highest in the country why would any business choose to open or expand operations there?
— Mercer · Sep 29, 06:03 PM · #
You say:
“The 1930s were an extraordinary era in California public works… Also federally financed, it was the largest bridge and the most expensive public works project ever built… thanks to efforts in the two communities, and help from the WPA. And various New Deal agencies would poor untold millions into the state as much of the Dust Bowl’s poor migrated here.”
So you concede that federally funded public works programs, financed by deficits, can create real wealth for businesses and communities, Conor? You have seen the light! Surely you will now allow that the federal government ought to be doing the same kind of infrastructure projects now, so that we can grow our way out of the glut and repair state revenues? I welcome your conversion to Team Keynes.
— The Voracious Rationalist · Sep 29, 07:27 PM · #
As the state gets more crowded, the cost and slowness of infrastructure projects goes through the roof. For example, the only new University of California campus to open in a generation and a half, UC Merced, took from 1985 to 2002 to construct. The whole campus had to be moved when an endangered minnow was discovered on its site. And that’s way out in godforsaken Merced. If they’d tried to build the new UC campus where students would actually want to go, such as in the wine country, they’d still be in the permitting stage.
This kind of thing is inevitable as population density goes up.
Underpopulated California in the middle of the 20th Century was completely obviously to everybody the most promising place in the whole world. The one big change that could have been made would have been to cut way down on immigration after 1965 so that American citizens got most of the subsequent benefit of populating California, as they had gotten most of the huge benefits from moving to California in 1848-1965, rather than random foreigners. That would have slowed down overpopulation and fulfilled the Preamble to the Constitution that explains that the purpose of the federal government is to promote the general welfare of “ourselves and out posterity.”
— Steve Sailer · Sep 29, 10:38 PM · #
In general, I notice that contemporary policy discourse is sapped by a refusal to engage with fundamental land/population questions.
I mean, of course California in 1960 with only 17 million people was a paradise for the average American. It doesn’t particularly matter who was in charge. Anybody sensible would have done well in such a positive situation.
Whereas in 2010 with 20 million more people, many of the newcomers poorly educated Third World proles, the state has become tremendously expensive, with huge inequality, and a hard time getting anything done. High Speed Rail from LA to SF? Yeah, right, that will just provide full employment for environmental consultants and lawyers for decades.
— Steve Sailer · Sep 29, 10:46 PM · #
So you concede that federally funded public works programs, financed by deficits, can create real wealth for businesses and communities, Conor? You have seen the light! Surely you will now allow that the federal government ought to be doing the same kind of infrastructure projects now, so that we can grow our way out of the glut and repair state revenues? I welcome your conversion to Team Keynes.
— Replica Swiss Watch · Sep 30, 03:07 AM · #
Hey Rationalist,
There is a growing body of scholarly economic literature that suggests that all that federal spending, which may have been good for place X or Y, actually prolonged the Great Depression.
As for what we should do now, in 2010 to solve America’s fiscal and economic problems, why assume what worked for one set of unique circumstances in the 1930s would still work for different circumstances now?
— Arminius · Sep 30, 08:52 AM · #
That “scholarly work” is not taken seriously even by most conservative economists.
— Freddie · Sep 30, 10:18 AM · #
Freddie sez: That “scholarly work” is not taken seriously even by most conservative economists.
I would like to see the data behind that statement of yours. I took a look at two websites of conservative economists (Cafe Hayek and SCSU Scholars) and searched for “Shlaes.” I didn’t find a full-throated endorsement of her work, but then I wouldn’t expect to. After all, she isn’t a professional economist. But they do take it seriously.
I’m not sure of anything that constitutes a “growing body of scholarly economic literature” on the topic, though. Maybe there is, but I don’t happen to know what it would be.
— The Reticulator · Sep 30, 01:26 PM · #
Reticulator,
Actually, I had Barro’s work in mind:
http://online.wsj.com/article/SB123258618204604599.html
But I also had Friedman’s work and others (e.g. Romer’s work, cited by McArdle here: http://www.theatlantic.com/business/archive/2009/02/did-world-war-ii-end-the-great-depression/4724/) that it was ultimately monetary policy that got us out of the Great Depression, not fiscal policy.
I suppose I was being cheeky when I said that spending “prolonged” the Great Depression and there I was thinking of Shlaes and others who do convincingly argue (in my mind) that the crazy economic policies (not all of which were stimulus) of FDR hindered rather than helped economic growth. Although I did read a Price Fishback piece recently that suggested that stimulus crowds out private investment/employment:
“How successful were they at stimulating the economy? As yet, the only estimates we have are for the combined effects of the public works and relief programs. Studies that examine their success at the county level suggest that an additional grant dollar per person distributed to a county for public works and relief during the period of 1933 to 1939 contributed to a rise in in-migration and an increase in income per person in the county of about 80 cents in 1939. We should remember, however, that this was during a period when there were huge numbers of unemployed workers available for work. Even during this period, some studies find evidence of crowding out of private employment. Today, with unemployment rates below 7 percent, it is likely that such public-works spending would crowd out a significant amount of private construction.”
— Arminius · Sep 30, 07:16 PM · #
Arminus-
I did not claim that fiscal policy ended the Great Depression. However, it is true that fiscal spending ended the Depression. Not the public works programs like the PWA, TVA, CCC, and so on, but the fiscal stimulus of war spending starting in 1941. The public works were never spending enough money to offset contraction elsewhere in the early New Deal years, particularly contraction of state and municipal spending. The argument that fiscal policy extended the Depression, though, is crap.
My point was that public goods can be really useful and increase the wealth of people and businesses in the long term. Like the WPA-built sidewalks outside my apartment that I use to walk to the record store. Like the history of Oakland that the WPA put together in 1939 that I use to do research on the ferry monopoly that the city spent years fighting against. Like the Hoover Dam. Faced with high unemployment, now would be a good time for us to be spending on new public works of general utility.
— The Voracious Rationalist · Oct 5, 02:54 AM · #