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 160 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.