California’s Paradox: if Immigration Creates Wealth, Why is California Poor?

immigration made california poor

California is a land of untold opulence and splendor.  Hollywood’s glitter dazzles the gawking masses, while the world’s most profitable companies, Google, Apple, and Facebook, funnel cash into the Golden State from every corner of the earth.  It is the apotheosis of decadence.

And yet California is also desperately poor.  One-in-five Californians live in poverty, the State’s income inequality is worse than Mexico’s, and untold thousands live on the streets.  It is dystopia.  How can so much wealth and poverty coexist?  This is the California Paradox.

It was not always this way.  California used to be home to America’s largest and most affluent middle class.  Now it is a playground for the rich and a prison for the poor.  This begs the question: how did the Golden State become America’s poverty capital?



Fear & Loathing in Los Angeles

According to the US Census Bureau’s Official Poverty Measure, California’s poverty rate hovers around 15 percent.  But this figure is misleading: the Census Bureau measures poverty relative to a uniform national standard, which doesn’t account for differences in living costs between states—the cost of taxes, housing, and healthcare are higher in California than in Oklahoma, for example.

Accounting for these differences reveals that California’s real poverty rate is 20.6 percent—the highest in America.  This is nearly twice the national average of 12.7 percent.

Many Californians live in abject poverty.  In fact, one-quarter of all homeless Americans live in California, according to a recent report from The New York Times:

More than one-quarter of the total homeless population nationwide lives in California, roughly 114,000. The vast majority are “unsheltered”—a more bureaucratic term to describe the thousands living on the streets, under freeways and tucked into grassy fields and parks in cities all around the state.

A drive through downtown Los Angeles reveals, in abhorrent detail, the true scope of California’s homelessness epidemic:

Finally, income inequality in California is the second-highest in America, behind only New York.  In fact, if California were an independent country, it would be the 17th most unequal country on earth, nestled comfortably between Honduras and Guatemala—Mexico is slightly more egalitarian.

Furthermore, California is far more unequal than the “social democracies” which it emulates: Canada is the 111th most unequal nation, while Norway is far down the list at number 153 (out of 176 countries).  In terms of income inequality, California has more in common with banana republics than other “social democracies”.  This is exceedingly ironic, and goes to show socialism’s failure in California.

political iatrogenics, or how California’s big government causes big poverty

High taxes, excessive regulations, and a lavish welfare state—these are the standard explanations for California’s poverty epidemic.  They have some merit.  For example, California has both the highest personal income tax rate and the highest sales tax in America.  Politifact reports:

California has the highest top tier income tax and the highest state sales tax in the nation. . . California’s top tier income tax rate is the highest in the nation at 13.3 percent. . . everyone who lives here or visits pays California’s highest-in-the-nation sales tax rate of 7.25 percent.

While few Californians actually pay the top marginal income tax rate, everyone pays the sales tax.  This means that people who spend a higher proportion of their income on consumables like gasoline or food, ie. the working man, are hurt the most by sales taxes.  Sales taxes are inherently regressive and make life more expensive for those who can least afford it.

Not only are California’s taxes high (and ill-conceived), but successive “progressive” governments have swamped the state in a sea of red tape.  Onerous regulations cripple small businesses and retard economic growth.

Kerry Jackson, a fellow with the Pacific Research Institute, gives a few specific examples of how excessive government regulation hurts California’s poor.  He writes in a recent op-ed for the Los Angeles Times:

Extensive environmental regulations aimed at reducing carbon dioxide emissions make energy more expensive, also hurting the poor. By some estimates, California energy costs are as much as 50% higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced … energy expenditures exceeding 10% of household income. In certain California counties, the rate of energy poverty was as high as 15% of all households.”

. . .Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022 — but a higher minimum wage will do nothing for the 60% of Californians who live in poverty and don’t have jobs. And research indicates that it could cause many who do have jobs to lose them. A Harvard University study found evidence that “higher minimum wages increase overall exit rates for restaurants” in the Bay Area, where more than a dozen cities and counties, including San Francisco, have changed their minimum-wage ordinances in the last five years. “Estimates suggest that a one-dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),” the report says. These restaurants are a significant source of employment for low-skilled and entry-level workers.

Some government regulation is necessary and desirable, but most of California’s are not.  There is virtue in governing with a “light touch”.

Finally, California’s welfare state is, perhaps paradoxically, a source of poverty in the state.  Market Watch notes that California’s welfare state is the most generous in America—part of this is because California is large, but mostly it’s because California spends more per capita on welfare than other states.  In fact, the Orange Country Register reports that California’s social safety net is comparable in scale to those found in Europe:

In California a mother with two children under the age of 5 who participates in these major welfare programs – Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program (food stamps), housing assistance, home energy assistance, Special Supplemental Nutrition Program for Women, Infants and Children – would receive a benefits package worth $30,828 per year.

. . .[similar] benefits in Europe ranged from $38,588 per year in Denmark to just $1,112 in Romania. The California benefits package is higher than in well-known welfare states as France ($17,324), Germany ($23,257) and even Sweden ($22,111).

In fact, California’s welfare system can be more generous than every country included, except Denmark. Moreover, this benefit package doesn’t include Medicaid, which would be worth roughly $4,459 for this household.

But doesn’t a welfare state help the poor?  Ideally yes—but reality is messy.  There are three main problems with the welfare state.  First, it incentivizes poverty by rewarding the poor with government handouts, handouts that are often far more valuable than a job.  This can be ameliorated to some degree by imposing work requirements on welfare recipients, but in practice such requirements are rarely imposed, and even more rarely enforced.

Second, welfare states are expensive: this means higher taxes and therefore slower economic growth and fewer job opportunities for everyone—including the poor.  The simple fact is this: working people don’t need welfare.  Therefore, the socialists’ goal should be to create jobs rather than care for the jobless.  Why this eludes the left is a mystery to me.

Finally, welfare states are magnets for the poor.  Whether through domestic migration or foreign immigration, poor people flock to places with generous welfare states.  This is logical from the immigrant’s perspective, but makes little sense from the taxpayer’s.  Welfare states attract people who want welfare, and this is the primary reason why socialism and open borders are fundamentally incompatible.



Into Snæfellsjökull, exploring the deeper cause of California’s poverty

High taxes, oppressive regulations, and socialism undoubtedly hurt California’s economy, but they are just the surface effects of a deeper cause.  In reality, immigration is primarily to blame for California’s abnormally high poverty level.

Since 1960 California’s population exploded from 15.9 to 39 million people.  The growth was almost entirely due to immigration—many people came from other states but the majority came from abroad.  The Public Policy Institute of California estimates that 10 million immigrants currently reside in California.  This works out to 26 percent of the State’s population.

This figure includes 2.4 million illegal aliens, although a recent study from Yale University suggests that the true number of aliens is at least double that.  Modifying the initial figure implies that nearly one-in-three Californians is an immigrant.  This is not to disparage California’s immigrant population—my mother is an immigrant.—but it’s madness to deny that such a large influx of people has changed California’s society and economy.

Important for our purposes is the fact that immigrants vote Democrat by a ratio higher than 2:1, according to a report from the Center for Immigration Studies.  In California, immigration has increased the pool of likely Democrat voters by nearly 5 million people, compared to just 2.4 million additional likely Republican voters.  Not only does this almost guarantee Democratic victories, but it also shifts California’s political midpoint to the left.  This means that to remain competitive in elections, the Republicans must abandon or soften many conservative positions so as to cater to the center.

California became a Democratic stronghold not because Californians became socialists, but because millions of socialists moved there.  Immigration turned California blue.

Revere’s last ride: California is America in twenty years

People often say: if you want to see America’s future just look at California.  In the past this was a message of hope, now it is one of warning.  Today, California is plagued with poverty and homelessness, and mired in high taxes and pointless regulations.  It is a place of extremes, where opulent palaces overlook tent cities and crumbling slums.  This is America’s future.

Right now America is home to some 45.6 million immigrants—and all-time high.  On top of this there are likely 12 million additional illegal immigrants (who cannot yet vote), and nearly 1.5 million more people arrive legally every year.  This is not to disparage immigrants, but we must acknowledge the political, social, and economic ramifications of mass immigration.

Consider that the last presidential election Democrats won without immigrant voters was that of Lyndon B. Johnson back in 1964 (excluding Ross Perot’s vote-splitting antics in 1992).  Immigration turned California blue, and will turn America blue too unless Congress reforms our immigration system to reflect the twenty-first century.

About Spencer P Morrison 136 Articles
J.D. B.A. in Ancient & Medieval History. Writer and independent intellectual, with a focus on applied philosophy, empirical history, and practical economics. Author of "Bobbins, Not Gold," Editor-In-Chief of the National Economics Editorial, and contributor to American Greatness. His work has appeared in publications including the Daily Caller, the American Thinker, and the Foundation for Economic Education.

29 Comments

      • If you’d lived in California before the air pollution laws were enacted, you’d know why it’s well worth the money to breathe clean air.

        • Can’t deny something had to be done. Problem is that it was ham-fisted: LA had a smog problem, the rest of the state was fine.

          Should have solved it with local zoning & municipal ordinances, rather than state-wide regulation which is simply a burden on the 60% of Californians who live elsewhere.

          • 1. The San Joaquin Valley is having a smog problem now.
            2. Yes the LA area has made an achievement it ought to be proud of. It is July, and often now mountains and islands loom on the horizon in summer that used to vanish fo months on end. I’ve been partly crediting global warming. If the ocean is warmer, the cool air coming in from the ocean isn’t quite so cool, and the inversion isn’t so sharp. Any takers?

    • Housing prices are definitely part of it, but why are housing prices so expensive? Immigration. High immigration into the state drives up the demand for housing, whereas supply is relatively inelastic & the state has constantly been playing catch-up.

      Likewise, cramming an extra 10 million people into the urban centers (immigrants settle overwhelmingly in cities) drives up prices even more.

      • And immigration fuels the economy of California, including the construction industry. People live in California because they still see opportunity there, and the state is quite nice. It’s an example of market economics at work on both counts.

        • Economic growth is driven by productivity improvements, not population expansion. Therefore immigration grows the economy only insofar as it increases productivity.

          California’s problem is that only a small fraction (about 10%) of its immigrants improve the state’s productivity in the long term. About 40% are economically neutral, and 50% detract from the economy (these figures from the National Academies of Science).

          Your “market economics” are unfortunately producing a dystopian economic landscape in what was once America’s most prosperous state.

          Source for immigration & economics:

          https://nationaleconomicseditorial.com/2018/01/14/america-doesnt-need-immigrants/

            • You’re confusing prosperity with size. It’s difficult to say that a state with a poverty rate over double the national average is “prosperous” in any traditional sense.

              Yes there are many rich people in California, and yes the economy is very large, but we can’t forget that there are a great many poor people there as well. The state is prosperous in the same way China is prosperous—big economy with many billionaires, but fundamentally dysfunctional.

                  • When you’ve decided to ignore state GDP and median family income, you’ve abandoned any effort at objective analysis. Quality of life issues are far more subjective. For example, the lack of urban planning and permitting in Houston results in homes being immediately beside places like metal plating shops or chemical manufacturing companies. That’s a significant quality of life issue, even though the cost of living is lower.

                    • Both the Public Policy Institute of California & the Pacific Research Institute note that while California’s median household income is relatively high, it is not high enough to compensate for the very high cost of living (high rent, high consumer prices etc.).

                      For example, if you make 50% more than someone in Ohio but the cost of living is 60% higher, you’re actually worse-off in real terms. That’s what we’re getting at here.

                      I agree with you, however, on Houston—their lack of zoning laws has led to some bizarre & unhealthy living arrangements. Although the Greater Los Angeles area is little better—I was down there last year & saw literal shanty-downs built of tin & tents on the side of the freeway between Anaheim & Burbank. They stretched for miles. It reminded me of Rio.

                    • PPIC and PRI are both far-Right “thinktanks” funded by the Koch network, just like the various “Watchdog” blogs and newsletters are. You’re basing your argument on what can, at best, be considered nothing more than political opinion polemics, and what probably fall well into the category of “fake news.” Garbage in, garbage out.

                      The homeless population in LA and Orange County is a well known problem. After all, if you’re living on the street would you rather spend the winter in LA, or Chicago? Honolulu has a similar homeless problem as well. Prices are always higher for housing where the weather is nice.

                    • California’s high poverty rate (adjusted for cost of living) was confirmed by Politifact, which is hardly a “far-right” outfit:

                      http://www.politifact.com/california/statements/2017/jan/20/chad-mayes/true-california-has-nations-highest-poverty-rate-w/

                      The income inequality measures I cited come from the Open Government Project & the World Bank—again, not “far-right” organizations by any means.

                      The homelessness issue was documented in a piece in the New York Times (which I quoted at length).

                      The figures for illegal immigrants come from Yale University & Pew Research, and the figures for immigration come from the US Census Bureau & the Center for Immigration Studies.

                      The data in this article is based on fairly objective—if not left-leaning—sources. I don’t think attacking the sources is a profitable line of argument for you, in this case anyways.

                    • The concept of a real wage has been understood for well over a hundred years. Pretty simple: a nominally high “median family income” is not in reality high if COST OF LIVING is high too. Places with a nominally lower income can have significantly higher REAL incomes if costs of living are lower.

                      Until you understand the difference between real incomes and nominal ones you won’t have anything meaningful to say on this issue.

                    • Income is dependent on more variables than you list. For example, there is the income inferred by social security programs, such as national health insurance, basic minimum income guarantees, etc. Unless you factor those into income, there’s really no way to accurately compare between nations. In the case of the US, higher minimum wages are generally present in states with higher costs of living. I know this offends you “invisible hand of the market” folks, but it is the reality on the ground for the people who rely on those income sources. It still doesn’t support your claim about California.

                    • Of course income is partly dependent on those variables and I never said that they weren’t! And studies of poverty in the US, like the one that found a higher rate of poverty in CA than previously once cost of housing was factored in, also look at such variables.

                      It’s not “my” claim about the high level of poverty in California. Read the studies cited by Morrison yourself. And those studies found that the “higher [nominal] minimum” wages of CA do not make up for the higher costs of living there.

                      I don’t use the term “invisible hand of the market,” and for good reason. You are confusing me with someone else.

    • And high housing prices are the result of over-regulation and socialism.

      It is very expensive and very difficult to build a housing development in California. It is not like there isn’t plenty of empty land. It is just hard to get permission to build on it.

      • High housing prices reflect the market reality that people like to live in California. It’s difficult to build a claptrap development like you see surrounding shotholes like Houston.

      • And though I agree that immigrants are a problem, they are not the main factor in the housing cost issue. The main factor is local land use law.

  1. California now deserves to be defunded and kicked out of the United States. Its leaders should be arrested and tried but the pussy california wanna be US DOJ and Congress will never do squat to uphold US citizen individual and property rights in their disgusting n word state of scum. F them and their government!

  2. Then the GOP is nothing than a wing of the democratic party. The answer is to persuades the nation conservative policies more effective than the policies of the left. “This means that to remain competitive in elections, the Republicans must abandon or soften many conservative positions so as to cater to the center”

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