ARTICLE
It is an interesting exercise to read how various economists determine the economic trends leading into a precarious time during the last quarter of an election year. Typically, the economic trends slow as we move closer to election day. According to the UCLA Anderson Forecast, “With the nation’s growth rate not expected to accelerate until after the presidential election in November, California will ultimately experience a full year of subpar growth in 2024, according to the UCLA Anderson Forecast’s latest analysis of the California and U.S. economies.” The U.S. economy overall faces some headwinds going into the fourth quarter of 2024 due to the convergence of several factors, including a strike by employees at Boeing and uncertainty over the presidential election and its aftermath, which has led firms to be more precautionary in their hiring and investment decisions as they adopt a wait-and-see approach. Given that the election is currently a toss-up, with different policy prescriptions depending on the outcome, the Forecast assumes that gridlock in Congress will continue regardless. Even so — and conditional on whether the labor actions are resolved smoothly by year’s end — the economists expect that after somewhat tepid growth in the fourth quarter of 2024, both 2025 and 2026 will be banner years for U.S. GDP growth, driven in part by growth in residential investment. Mark Schniepp, the California Forecast report from October reflects on the surge of immigrants over the past two years (but reported slowed these past few months). Schniepp notes, ”The volume of immigrants coming through these ports of entry was originally dismissed simply as pent-up immigration from pandemic-closed borders. The official Census record did not report much change in the flow of immigration over the last 3 years. However, in January of this year, the Congressional Budget Office reported revised numbers of immigrants for calendar years 2021, 2022, and 2023. The total is 7.1 million. The current estimate for 2024 will be lower than 2023 at 2.8 million “encounters,” which will bring total 2021 to 2024 immigration to 10 million. The revised numbers representing an immigration surge is the largest volume of immigrants per year in the history of the U.S.” immigration has now jumped to the most important issue cited by Americans, surpassing inflation and the general economy. Schniepp comments, “The volume of immigrants coming through these ports of entry was originally dismissed simply as pent-up immigration from pandemic-closed borders. The official Census record did not report much change in the flow of immigration over the last 3 years. However, in January 2024, the Congressional Budget Office reported revised numbers of immigrants for calendar years 2021, 2022, and 2023. The total is 7.1 million. The current estimate for 2024 will be lower than 2023 at 2.8 million “encounters,” which will bring total 2021 to 2024 immigration to 10 million. The revised numbers, which represent an immigration surge, is the largest volume of immigrants per year in the history of the U.S. The issue regarding the alleged need for more immigration to sustain the U.S. GDP growth may be entirely countered by the coming era of AI that is just ahead of us. With more automation in both the workplace and in the think space, will we actually need more workers? Robots are already replacing maids at hotels. iPads have replaced waiters at restaurants. It is likely that the size of the workforce will ultimately shrink as more mundane and repetitive jobs are mechanized, and more AI tools can substitute for jobs in education, professional services, customer services, manufacturing, warehousing, transportation, and retail trade. A bigger fear may be how we find jobs for lower-skilled workers. Immigration has been the backbone of the U.S. labor force for more than 100 years. However, we need to consider a more discerning immigration policy that will admit newcomers who will pay their way and fill jobs that will be necessary in the evolving economy of today. So let’s take a quick snapshot comparison of economic analysis from Beacon Economics and how a couple of state ballot measures may have an impact on our economy. Beacon’s latest October report states, “Since the pandemic, there have been countless proclamations and headlines claiming that California is on the decline—tech is supposedly leaving, Hollywood is fading, and businesses are fleeing the state. This is affecting how Californians view the state’s economy. A recent poll from the Public Policy Institute of California (PPIC) reported that 55% of respondents believe the state is going in the wrong direction and expect bad economic times in the coming year.” PROPOSITION 32 With the state minimum wage now set at $16 per hour, with a special carve out for fast-food workers to receive $20 per hour, and with an initiative on the November ballot (Proposition 32) to raise California’s minimum wage to $18, the question is how will employment be affected? Beacon Economics’ recent white paper, California’s Minimum Wage and the Long-Run Consequences for the State’s Youth (2024) highlights that California’s rising minimum wage may be worsening unemployment, particularly for younger workers. Their report suggests that when a state’s minimum wage is below a certain threshold—$10 or $12—raising it can positively impact youth employment. However, when the minimum wage exceeds this range, further increases tend to create higher youth unemployment rates. PROPOSITION 33 One of the few topics that nearly all economists agree on is rent control. Economic theory and years of empirical research concur here: rent control creates more problems than it solves. And yet, the topic of rent control continues to be debated across the nation, with some of the most fervent debate taking place in California. The concept of rent control began to take shape in California in the 1970s, spurred by rising housing costs and the inflationary environment of the decade. Several California cities implemented local rent control ordinances in the 1970s and 1980s, initially with the intention that they would be temporary measures: Beverly Hills (1978), Los Angeles (1978), Hayward (1979), San Jose (1979), San Francisco (1979), Santa Monica (1979), Berkeley (1980), East Palo Alto (1986), and West Hollywood (1985) all enacted city-wide rent control policies. The passing of the Costa-Hawkins Rental Housing Act in 1995 was a saving for California’s housing market. This act provided much-needed clarity and consistency for landlords and tenants across the state. Beyond standardizing rent control regulations statewide, Costa-Hawkins offered a balance between the interests of landlords and tenants through (a) an exemption of properties constructed after February 1, 1995, (b) an exemption of single-family homes and condominiums, and (c) an allowance for vacancy decontrol. Despite this compromise between renters and tenants, there have been several attempts to reverse Costa-Hawkins – none of which have been successful. Yet again, Proposition 33 on the November 2024 ballot will allow Californians to repeal the act, clearly showing that the debate on rent control is not over. California’s housing affordability crisis is fundamentally a supply issue. While rent control aims to protect tenants, it leads to unintended consequences – discouraging property investment and the construction of new housing – which hurt tenants in the long run. Essentially, rent control takes the very problem it’s trying to solve and makes it worse, as it leads to higher rents and fewer available rental units. The lack of new construction is not just a housing issue; it impacts the economy. Without new homes, California can’t attract new workers, and without new workers, we’re stuck in low gear when it comes to economic growth. Unless we see a dramatic uptick in housing construction, the affordability issue will continue to hold the state’s economy back, more Federal Reserve rate cuts or not. Proposition 33, if passed, could make these issues worse by further restricting new housing development and driving up prices. PROPOSITION 36 With the 2014 passage of Proposition 47, also known as the Safe Neighborhoods and Schools Act, the threshold for misdemeanor shoplifting was lifted from $500 to $950 in California. While the rationale for the change was to reduce the state’s prison population and allocate savings from reduced incarceration costs to other statewide costs, the policy may have very likely generated unintended consequences. More specifically, the proposition could have led to increased crime and challenges for businesses dealing with frequent thefts in certain areas, such as in the City of Los Angeles – even if overall, shoplifting crime rates are below pre-pandemic levels in California. California’s economy is healthy but complex, and many of the November ballot propositions don’t provide the answers we need. They indeed mean well, but ideas such as raising the minimum wage and expanding rent control are likely to backfire. History and basic economics tell us that policies like these create unintended consequences, including more housing shortages and higher unemployment. Voters need to think about how these propositions could impact the state’s economy.
It is an interesting exercise to read how various economists determine the economic trends leading into a precarious time during the last quarter of an election year. Typically, the economic trends slow as we move closer to election day. According to the UCLA Anderson Forecast, “With the nation’s growth rate not expected to accelerate until after the presidential election in November, California will ultimately experience a full year of subpar growth in 2024, according to the UCLA Anderson Forecast’s latest analysis of the California and U.S. economies.”
The U.S. economy overall faces some headwinds going into the fourth quarter of 2024 due to the convergence of several factors, including a strike by employees at Boeing and uncertainty over the presidential election and its aftermath, which has led firms to be more precautionary in their hiring and investment decisions as they adopt a wait-and-see approach. Given that the election is currently a toss-up, with different policy prescriptions depending on the outcome, the Forecast assumes that gridlock in Congress will continue regardless. Even so — and conditional on whether the labor actions are resolved smoothly by year’s end — the economists expect that after somewhat tepid growth in the fourth quarter of 2024, both 2025 and 2026 will be banner years for U.S. GDP growth, driven in part by growth in residential investment.
Mark Schniepp, the California Forecast report from October reflects on the surge of immigrants over the past two years (but reported slowed these past few months). Schniepp notes, ”The volume of immigrants coming through these ports of entry was originally dismissed simply as pent-up immigration from pandemic-closed borders. The official Census record did not report much change in the flow of immigration over the last 3 years. However, in January of this year, the Congressional Budget Office reported revised numbers of immigrants for calendar years 2021, 2022, and 2023. The total is 7.1 million. The current estimate for 2024 will be lower than 2023 at 2.8 million “encounters,” which will bring total 2021 to 2024 immigration to 10 million. The revised numbers representing an immigration surge is the largest volume of immigrants per year in the history of the U.S.” immigration has now jumped to the most important issue cited by Americans, surpassing inflation and the general economy. Schniepp comments, “The volume of immigrants coming through these ports of entry was originally dismissed simply as pent-up immigration from pandemic-closed borders. The official Census record did not report much change in the flow of immigration over the last 3 years. However, in January 2024, the Congressional Budget Office reported revised numbers of immigrants for calendar years 2021, 2022, and 2023. The total is 7.1 million. The current estimate for 2024 will be lower than 2023 at 2.8 million “encounters,” which will bring total 2021 to 2024 immigration to 10 million. The revised numbers, which represent an immigration surge, is the largest volume of immigrants per year in the history of the U.S.
The issue regarding the alleged need for more immigration to sustain the U.S. GDP growth may be entirely countered by the coming era of AI that is just ahead of us. With more automation in both the workplace and in the think space, will we actually need more workers? Robots are already replacing maids at hotels. iPads have replaced waiters at restaurants. It is likely that the size of the workforce will ultimately shrink as more mundane and repetitive jobs are mechanized, and more AI tools can substitute for jobs in education, professional services, customer services, manufacturing, warehousing, transportation, and retail trade.
A bigger fear may be how we find jobs for lower-skilled workers. Immigration has been the backbone of the U.S. labor force for more than 100 years. However, we need to consider a more discerning immigration policy that will admit newcomers who will pay their way and fill jobs that will be necessary in the evolving economy of today.
So let’s take a quick snapshot comparison of economic analysis from Beacon Economics and how a couple of state ballot measures may have an impact on our economy. Beacon’s latest October report states, “Since the pandemic, there have been countless proclamations and headlines claiming that California is on the decline—tech is supposedly leaving, Hollywood is fading, and businesses are fleeing the state. This is affecting how Californians view the state’s economy. A recent poll from the Public Policy Institute of California (PPIC) reported that 55% of respondents believe the state is going in the wrong direction and expect bad economic times in the coming year.”
PROPOSITION 32
With the state minimum wage now set at $16 per hour, with a special carve out for fast-food workers to receive $20 per hour, and with an initiative on the November ballot (Proposition 32) to raise California’s minimum wage to $18, the question is how will employment be affected?
Beacon Economics’ recent white paper, California’s Minimum Wage and the Long-Run Consequences for the State’s Youth (2024) highlights that California’s rising minimum wage may be worsening unemployment, particularly for younger workers. Their report suggests that when a state’s minimum wage is below a certain threshold—$10 or $12—raising it can positively impact youth employment. However, when the minimum wage exceeds this range, further increases tend to create higher youth unemployment rates.
PROPOSITION 33
One of the few topics that nearly all economists agree on is rent control. Economic theory and years of empirical research concur here: rent control creates more problems than it solves. And yet, the topic of rent control continues to be debated across the nation, with some of the most fervent debate taking place in California.
The concept of rent control began to take shape in California in the 1970s, spurred by rising housing costs and the inflationary environment of the decade. Several California cities implemented local rent control ordinances in the 1970s and 1980s, initially with the intention that they would be temporary measures: Beverly Hills (1978), Los Angeles (1978), Hayward (1979), San Jose (1979), San Francisco (1979), Santa Monica (1979), Berkeley (1980), East Palo Alto (1986), and West Hollywood (1985) all enacted city-wide rent control policies.
The passing of the Costa-Hawkins Rental Housing Act in 1995 was a saving for California’s housing market. This act provided much-needed clarity and consistency for landlords and tenants across the state. Beyond standardizing rent control regulations statewide, Costa-Hawkins offered a balance between the interests of landlords and tenants through (a) an exemption of properties constructed after February 1, 1995, (b) an exemption of single-family homes and condominiums, and (c) an allowance for vacancy decontrol.
Despite this compromise between renters and tenants, there have been several attempts to reverse Costa-Hawkins – none of which have been successful. Yet again, Proposition 33 on the November 2024 ballot will allow Californians to repeal the act, clearly showing that the debate on rent control is not over.
California’s housing affordability crisis is fundamentally a supply issue. While rent control aims to protect tenants, it leads to unintended consequences – discouraging property investment and the construction of new housing – which hurt tenants in the long run. Essentially, rent control takes the very problem it’s trying to solve and makes it worse, as it leads to higher rents and fewer available rental units.
The lack of new construction is not just a housing issue; it impacts the economy. Without new homes, California can’t attract new workers, and without new workers, we’re stuck in low gear when it comes to economic growth. Unless we see a dramatic uptick in housing construction, the affordability issue will continue to hold the state’s economy back, more Federal Reserve rate cuts or not. Proposition 33, if passed, could make these issues worse by further restricting new housing development and driving up prices.
PROPOSITION 36
With the 2014 passage of Proposition 47, also known as the Safe Neighborhoods and Schools Act, the threshold for misdemeanor shoplifting was lifted from $500 to $950 in California. While the rationale for the change was to reduce the state’s prison population and allocate savings from reduced incarceration costs to other statewide costs, the policy may have very likely generated unintended consequences. More specifically, the proposition could have led to increased crime and challenges for businesses dealing with frequent thefts in certain areas, such as in the City of Los Angeles – even if overall, shoplifting crime rates are below pre-pandemic levels in California.
California’s economy is healthy but complex, and many of the November ballot propositions don’t provide the answers we need. They indeed mean well, but ideas such as raising the minimum wage and expanding rent control are likely to backfire. History and basic economics tell us that policies like these create unintended consequences, including more housing shortages and higher unemployment. Voters need to think about how these propositions could impact the state’s economy.