California Update: The World’s 4th-Largest Economy – and the Home of “Shaq State”? - Matters of Policy & Politics

Episode Transcript
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(00:00):
[MUSIC]

>> Jonathan Movroydis (00:03):
It's Thursday, May 1, 2025 and you are listening to matters
of policy and politics at HooverInstitution podcast devoted governance and
balance of power here in America andaround the free world.
I'm Jonathan Movroydis ofthe Hoover Institution.
I'm sitting in the chair of Bill Whalen,
the Virginia Hobbs Carpenter DistinguishedPolicy and Fellow in Journalism, so
that he can answer questions and providecommentary about California policy and
politics in which he is well versed.

(00:24):
Bill Whalen, in addition to beinga Washington Post columnist,
writes weekly for Hoover's Californiaon your Mind web channel.
Whalen is joined today by Lee Ohanian,Hoover Institution Senior Fellow and
Professor of Economics andDirector of the Edinger Family Program in
Macroeconomic Research at the Universityof California, Los Angeles.
Ohanian also writes weekly about thepolicy environment of the Golden State for
California on Your Mind.

(00:45):
Good day.How are you guys doing today?

>> Bill Whalen (00:47):
Good, thanks.
Happy meeting.

>> Lee Ohanian (00:48):
Yeah, doing well.

Gentlemen, let's jump right into it.
Governor Newsom has a new talking point.
According to data fromthe International Monetary fund and
the U.S bureau of Economic Analysis,
California has supplanted Japan asthe world's fourth largest economy.
Newsom boasts that quote, californiaisn't just keeping pace with the world,
we're setting the pace.
California's economy grew by 6%,outpacing growth rates of the U.S.

(01:11):
china and Germany.
Newsom's economic management has beena subject of criticism on this podcast,
as well as swarms of individuals and
businesses who have leftthe state in the post Covid era.
Lee have those criticisms nowbeen dispelled by Newsom,
who has underscored California'snew economic world standing?

Jonathan, so that data got an awful lot of press.
I must have done four or five interviewsabout that because it presents California
is just a remarkable economy,becoming the fourth largest.
It passed Japan.
Now, what underlies that headline isperhaps not quite so shiny for California.

(01:50):
One reason is because the waythe measurement is done,
which is measuring the othereconomies in terms of dollars,
I don't know exactly how the IMFput together their numbers, but
the World bank is a commonly used sourceof data for international comparisons.

(02:13):
And if you look at Japan'seconomy measured just in dollars,
they haven't grown in about 30 years.
If you measure Japan's economy taking intoaccount differences in purchasing power,
then Japan's economy isstill above California.
So that's a little bit in the weeds.

(02:34):
And that didn't get reported.
I mean, the other issue is that Japan isan economy that's losing population and
losing workers.
So there's a little bitof a sense in that, hey,
passing Japan is using dollars as yourcurrency is not all that big of a deal.
What also didn't come out in thosenewspaper headlines is that India

(02:58):
is going to pass California as the fourthlargest economy probably next year.
So our 4% distinction is going tobe one that's this short lived.
So it's so even though this got a lotof airplay, it's not quite as stunning
of an accomplishment as I thinkmost people take it to be.

You know Lee, I'm an old political hack and I can tell you back in
the 1990s I would be writing speeches leftand right and would take full advantage
of this because we love to brag aboutCalifornia as a world class economy.
Frankly, it's good for self esteem,counting on your chest and so forth.
And here's the governor doing the same.
He said, quote, California isn'tjust keeping pace with the world,
we're setting the pace now.

(03:39):
Gavin Newsom has a point.
Lee And Jonathan in 2024,California's economy grew by 6%.
The nation overall Li 5.3% China 2.6.
So before we get into the obligCalifornia bashing, Lee,
what is California doing right?
In other words,what accounts for the 6% growth?

Well, some of that's inflation.
And God knows we live in a state withvery, very, very, very high living costs.
But that said, I mean we do haveremarkable unicorn businesses such
as Google and Apple which were startedin Silicon Valley and remain here.
We have an awful lot of highly qualified,extremely productive workers to work

(04:20):
in those businesses andmany other businesses.
So there's no doubt that there's a lot ofremarkable economic activity that's taking
place in California.
But that's been California fordecades and decades is really
nothing new under Governor Newsom orreally under any governor.
This goes back to the 1940s.

Right.

The problem areas that we need to think about in terms of California
are the aspects that aren't soworld class.
So if you're very high income household or
if you're a very cash rich businessthat can really lever what's going
on in Silicon Valley, then Californiais a remarkable place to be.

(05:05):
The issues that we want to becareful about are those households
that are struggling in terms of income,
those businesses that are havinga hard time making it in the state.
Just to give you an example,about 22% of full time
California workers earnunder $50,000 per year.

(05:27):
So we can just pause fora moment, think about how,
how easy is it to live in Californiawith a salary of $50,000.
And if we go to the household,if we go to the household level,
about 26% of Californiahouseholds have under
have 50,000 or under of earned income.

(05:52):
So with those kind of statistics,it's not so hard to see how
roughly one third of Californiahouseholds are living in poverty or
near poverty and thus requiringsubstantial public assistance.
So California is a little bit ofa have versus have not economy.

(06:15):
The governor understandably wantsto highlight the half part.
But when we think about the overalleconomic health of the state as well as
the social and cultural significanceof the state, it's those businesses and
struggling households that wereally have to worry about.
Looking forward.

Yeah, you know, the, the best term for California's economy,
I probably stole it from one of ourbrilliant economists here at Hoover is it
was described to me, Lee,as a barbell economy.
A barbell in that it's heavily weightedat two ends, poor and rich, and
it's awfully thin in the middlebecomes the middle class.
Let me throw this question at you, Lee.
So talking about size and the fourthlargest economy in the world for

(06:54):
Newsom and really his fellow Democratsreally like to use this really as
kind of a defensemechanism in this regard.
In fact, here's the governor,
he likes to talk about how Californiais number one in all sorts of stats.
New business starts,access to venture capital, manufacturing,
high tech and agriculture.
The ones insights out.
So Lee, let's talk aboutthe flip side of the coin.

(07:16):
If Newsom is going to praise businessstarts, venture capital, manufacturing,
high tech and agriculture,that's five items.
Give us three or four or
five items that you think go onthe reverse side of that as problems.
And I'm going to probably give youtwo right now, which are housing and
cost of living.

Absolutely.
The median,the median price of a California home,
I believe is around $880,000.
Only I think 15 or16% of California households can afford
that house under,under industry standard conditions.
And that affordability statistic,which is 15 or

(07:55):
16%, presumes the household has 20% cash.
Cash to be able to qualify foran 80% down payment.
I'm sorry, 80% loan,20% down payment, mortgage.
So that's just remarkable, Bill Whalen.
And Bill, when you mentioned the Barbaraeconomy, yeah, there's a number,

(08:16):
as we talked a moment ago, there'sa number of low income households here.
There's a number of very,very high income households here, and
then within the middle, we're losingthat part of the distribution, which is
really important because that means we'relosing a large part of the tax base.
I'll just give an example.

(08:37):
A couple months ago Iwent to see my internist.
My other position is at UCLA.
So I go to UCLA health is here inSanta Barbara, and he and I are chatting,
and what he revealed to me is that notone person in that medical office,

(08:57):
including the five physiciansthat are in that medical office,
live in Santa Barbara.
They all live outside Santa Barbara andcommute in.
So that's just, I think, a veryinformative data point about how housing
affordability is really creatingsubstantial problems within the state,

(09:18):
homelessness remains a very,very expensive problem for the state.
We've spent tens of billions onhomelessness since, since Mr.
Newsom became governor.
The Legislative analyst office andthe state auditor has,
have written reports about where those,about wondering where those dollars went.

(09:40):
They can't all be accounted for.
And homelessness continues to increase.
So it's as if we're pouring more,more money in the problem, and
the problem is getting worse.
We also have a budget that increasedenormously since the governor took office,
probably about a 60% increase since 2019.

(10:03):
And yet we still face substantialinfrastructure problems,
including an awful lot of deferredmaintenance for our roads and for
water storage, water conveyance,which not only is not doing right for
California residents, but it alsopresents substantial public health risks,

(10:25):
such as a few years ago when the OrovilleDam failed after it was revealed for
a long, long time that there weredeficiencies and cracks on that dam.
So those are some of the challengesthat are facing the California economy.
And they're ones that tend to getswept under the rug when California
politicians talk about justhow remarkable the state is.

I'm glad you mentioned the budget, Lee,
because here we are onthe first day of May and
the big news in Sacramento this monthwill be what is called the May Revise.
That is the updated versionof the governor's budget.
For those not familiarwith how California works,
the governor submits a budget proposalto the legislature in early January.
Then they Both kind of stare eachother down for a few months,
waiting until April tax returns come in.

(11:09):
And then you adjust your budgetbased on revenue you have.
In good times, you have more revenue soyou can spend more.
In bad times, you have less.
And so you have to decide where to cut and
it's gonna be a very tricky one this yearbecause we have the issue of tariffs.
And, Jonathan, I think that's a good timeto segue now into what the governor is
doing vis a vis tariffs.

Yeah, so the governor followed up the statement we
spoke about earlier by saying,while we celebrate the success that is of
the state's growth, we recognize that ourprogress is threatened by the reckless
tariff policies of the currentfederal administration.
California's economy powers the nation,and it must be protected.
Meanwhile, Newsom and

(11:48):
Attorney General Rob Bonton have suedthe Trump administration administration
federal court being the first state to doso, claiming he doesn't have the authority
under the International EconomicEmergency Powers act to invoke tariffs.
To invoke tariffs.
Newsom also held a live stream on TikTokearlier this week to talk to small
businesses about the challenge of tariffs,so
is this a bit of a misdirectionplay on the part of Newsom?

(12:12):
What is exactly doing here?
And also how much are terrorists expectedto impact the state's economics?

Let me take the political side, then I'll defer Lee.
On the economic side,the political side is this.
The Democratic Party has suddenlydiscovered that there is gold to be had by
embracing small businesses in America.
So you've seen Democrats across thecountry hold town hall meetings to invite
small businesses to talk abouthow awful tariffs gonna be.
The governor did a podcast this week witha woman who claims that tariffs are going

(12:44):
to destroy her business.
Now, that's a very tricky roadto go down as a politician.
I can tell you anytime you turnto human anecdotal stories,
you better make sure thatthat person is clean.
You don't wanna find out that the personwho you're turning into a martyr is
declared bankruptcy 12 times or she'sa fraudster or something like that but
you do see the shift of Democratsunderstanding that there is potency in

(13:04):
terms of going after small business.
But, Lee,this is a headache in this regard.
The California economy is driven by, or
at least the budget is driven by capitalgains, what happens in terms of taxes and
in terms of stock sales, butalso what happens in terms of real estate.
And tariffs can potentially put a realdamper on capital gains if tariffs

(13:26):
drive the markets crazy.

Bill yeah, 100%.
An awful lot of personal incometax payments come from the top 1%.
And if you go deeper into that,the top one, 10 to 1%,
a lot of the, a lot of that tax revenue isrealized from capital gains, as you note.
And when tariffs were first implemented,the stock market dropped substantially.

(13:52):
It's recovered a bit, but capitalgains tax revenue comes in when people
are realizing capital gains andpeople realize capital gains when there's
substantial increase inthe value of their assets.
So California financesare going to be under pressure
if the stock market continuesto be somewhat laggard.

(14:12):
And then in addition, an awful lotof Chinese imports come through come
through California as well asimports from many other countries.
So we have a sizable aspect of oureconomy are people who directly
are indirectly are involvedwith international trade and

(14:32):
tariffs are going to depressthat that line of business.
So the the governor is rightlyconcerned about this, he's not,
he's obviously not the only one.
There's limitations interms of what he can do.
Bond to file the lawsuit, I'm notan attorney, but based on what I know

(14:53):
about the International EconomicEmergency Powers act, they may,
they have I think they havea chance to be successful on that.
We will see but this couldn'thave come at a worse time for
this couldn't have come at a worse timefor the California economy because we,
cuz even before thosetariffs went into play,

(15:14):
private sector job creation wasreally struggling in the states.
And yeah, I was just going tomention the California center for
Jobs has been analyzing privatesector job creation by month and
they've been comparing our economytoday to just before COVID and

(15:35):
they have identified significant privatesector job losses within our economy.
Finance, information technology,business consulting,
hospitality, services, manufacturing.
And it's not just California center forJobs, it's also Legislative Analyst Office

(15:55):
has also expressed a lot of concernabout the underlying strength of the.
The California economy.

Yeah, well, this is where the misdirection comes in and
that he has a legitimatepolicy gripe with Trump.
But if you're going to fix the name Trumpto something that takes the pressure off
the governor.
So I think that's part of wherethe mixed direction comes from.
But I was listening toa podcast that Newsom did.
I'm not sure why Ilistened to his podcast.
Remember Lee, I wrote a column forthis recently.

(16:22):
The podcast is calledthis is Gavin Newsome.
And this was much ballyhooedwhen it came out because he was
talking to the likes of Steve Bannon andRepublican MAGA Rabble Rousers.
And this was his shtick, that he was gonnatalk to people on the other side and
kind of understand them.
Well, I'm going to write a column for
this because I think the governor'skind of gaslighted us here.
He stopped talking to Republicans,he's now talking to Democrats and

(16:45):
people who kind of seethe world the same as him.
But what's interesting is that hedid one recently with Ezra Klein.
He is the co-author of the book Abundance,and
this talks about blue state management andYIMBYism and NIMBYism.
And what's interesting isyou look during this and
Newsom is talking about how sure wehave NIMBY problems in California and
go ahead andpick on San Francisco if you like.

(17:07):
But he also has mentioned, quote, buthe can look at almost any city and
he mentions including a Republicanheld city like Huntington beach.
And these are the same rules andrestrictions apply there as other places.
He kind of has Huntingtonbeach on the brain, Lee.

Yeah, Huntington beach has pushed back a lot on the governor in
a number of policy aspects.
Bill, fordecades California has had a policy called
the Regional Housing Needs Allocation orAssessment,
and that's called RHNA, R-H-N-A.
And what essentially happens in a nutshellis that the housing development

(17:44):
people in Sacramento tell countieshow much housing to build.
And then local government within thosecounties tells particular cities and
unincorporated areas howmuch housing to build.
If you, if you think about how successfulthis has been before we had Rena,

(18:05):
before we had all the housing regulationsthat had been in place in California for
so long, California had no,had no problem whatsoever building
affordable housing even in,even during the period of time,
in roughly the 30 years in which the statepopulation came close to tripling, right?

(18:27):
The average, you know, the median price ofa California home relative to the rest of
the country didn't really change much.
It's only been this period of, you know,
remarkably high regulationthat this has happened.
And so I, I, so yeah,Huntington beach is a Republican area.
They have been pushing back onthe requirement to build, quote,
affordable housing in their city.

(18:48):
And I can understand why they pushed back.
Affordable housing, which is relatedto what the state of California wants,
can cost up to a million dollars a unit.
The people who occupy that housing in noway can afford the market price of that.
And there's a legitimate interest hereregarding local control versus state
control.

(19:08):
So I think there's much, much betterways to expand California housing
affordability than what the state'sbeen doing for these four decades.
But, but Huntington beach is indeedan easy punching bag for the governor.
They take turns filinglawsuits against each other,
there's a more productive route.
And I think it relies in just an entirelydifferent approach to thinking about

(19:32):
affordable housing going backto what worked before so
many regulations were in place.

Gentlemen,
let's continue on inthe sphere of local politics.
Lee, in your latest column forCalifornia on Your Mind,
you analyze the outcome of the 2022 LosAngeles Mayoral race, asking, quote, so
why did Obama, Clinton,Biden, Sanders, Harris and
Warren all pick the Democrat Karen Bass,without CE experience to manage the city
of Los Angeles over the one who did haveCEO experience, Rick Caruso, unquote.

(20:02):
Your answer, Lee, quote, because Carusowas not part of the party faithful,
unquote, you conclude, quote,
caruso is indeed the oppositeof this failed status quo.
The city may be remarkably differenttoday if he had been elected, unquote.
Lee, how do you think that in just threeyears Caruso would have turned everything
around in the city of Los Angeles?

Well, the La Mary's race was fascinating on a number of dimensions.
One is that Republicans are essentiallyone out of four voters in California.
So oftentimes, given California has a noparty preference voting in most races,
oftentimes two Democrats will face off.
And this is what happened inLA Karen Bassett Democrat and

(20:44):
Rick Caruso a Democrat.
Rick Caruso has been headeda extremely successful
development firm that he started back,I believe,
in 1987 when he was around the age of 28.
Is built the Grove near Hollywood andWest Hollywood Beverly Hills.

(21:06):
It built a large centerin Pacific Palisades.
I mean, he's really moved the needlein terms of the state's economy and
really was recognizable in termsof development within the state.
Now Caruso ran as a Democrat.
He's remarkably qualified in my opinion.
He, he has,he has what it takes to be a mayor.

(21:27):
Because being a mayor in California,being a mayor in Los Angeles
is really being a CEO ofa 50,000 person organization and
making very rapid,high organizational decisions,
being able to delegate, being ableto get an organization to deliver.
And for those who live in California,we know that California is a state where

(21:52):
it's anything but easy to get developmentand to get construction done.
And yet Caruso has been able to navigatethat world at an exceptional level.
So Caruso is a recent Democrat.
He was not considered to bepart of the party faithful.
And imagine we haveformer President Obama,

(22:13):
former presidential candidateHillary Clinton, current at that time,
President Joe Biden, Bernie Sanders,Kamala Harris, Elizabeth Warren,
all coming to California orissuing an endorsement for Karen Bass.
And this was, in my opinion, fundamentallyimportant because Caruso was,

(22:36):
was within three points in the pollsin the summer just before the election.
So Bass ended up winning.
She, she got about 53% of the vote.
And Jonathan, when you ask, how couldCaruso have made such a big difference?
Well, at the time of the LA fires,Karen Bass was in Ghana for the, for

(22:57):
the inauguration of the Ghana president.
Rick Caruso understood what was going on.
He hired private fire teams fromArizona with private water tenders.
Those teams arrived in Los Angeles intime to protect some of his developments.

(23:18):
So on the one hand, you have Carusobeing extremely aware of the fires,
doing what he could toprotect his property.
And Karen Bass said,I had no idea we were in a fire.
We had fire danger.
If I had known,I wouldn't have gone to Ghana.
My team never told me, and I think shewould hope that would absolve her.

(23:39):
But what does that say aboutthe organizational failure of a,
of, of the city in which over100 people throughout that,
throughout that complex enterprisereceived emails several days
beforehand indicating severe fire risk,wind gusts up to 80 miles per hour and.

(24:01):
And those emails included a forecastfrom the National Weather Service that
had a big red fire graphic on top.
So I believe that, forexample, the Palisades fire,
you have ten additional fire trucks anda few crews stationed in the Palisades.
I think that fire would havebeen contained promptly, and

(24:22):
we could have avoided over$200 billion worth of damage.
So in my opinion, in my opinion, I thinkthings would have been very different.
And in the column that ran yesterday,what I closed
by saying is that I wonder howformer President Obama and
former presidential candidate Clinton and

(24:44):
others feel about their endorsement.
Given that Karen Bassis a wonderful person,
I think she really cares about California,but she is not a CEO.
And that's what Los Angeles NEA did inearly January to protect itself and
we didn't get that.

I don't want to diminish the great city of Los Angeles, Lee,
but I've got to believe that the formerpresidents have kind of bigger fish to fry
right now,which is the overall state of their party.
You're talking about a Democratic Partynationally, that it's.
It's a pool of ratings,anywhere from about 25 to 38%,
depending on whose poll you're reading.
But it was interestingly, I would notethat mayor's races in San Francisco,

(25:24):
California's other super city,
are historically been very differentanimals in this regard from Los Angeles.
You saw in the 90s and early 2000s thatit came down to choices between two
people who were not conservative.
But one candidate representedthe mainstream, if you will,
at least as far as local businessinterests saw them versus somebody who was
a radical departure.

(25:44):
And you saw this with the electionof Willie Brown in 1999.
I'm not sure you guys werewith Hoover at that time, but
I remember George Shultz goingup to endorse Willie Brown.
It's kind of a funny event.
He went into the West Endof San Francisco,
which is kind of the Republican pocket,and gave his endorsement.
That I think kind of got out of there andmaybe burned his shoes afterwards, because
I think it's the only time in his lifethat George Schultz endorsed a Democrat.

(26:06):
If you're asking why, I think it'sbecause his wife, Charlotte Schultz,
was the city's chief of protocol.
And so anyway, she knew Willie.
She liked Willie.
In 2003, Gavin Newsom, he runs formayor of San Francisco.
He's up against a Green Party candidate,Matt Gonzalez.
Local business comes to conclusion, yeeks,
the city's gonna fall apart if this guyGonzalez wins, they get behind Newsom.

(26:26):
Now, Newsom was a differentcreature back in the early 2000s.
He was much more of businessfriendly that he sounds now.
But you know, Lee,you talk about endorsements here and
why Caruso didn't get endorsed.
Gavin Newsom did not endorse in that race.
Why?
Well, easy out Democratic governor cansay I don't endorse Democratic primaries.
And historically governorshave not done that.

(26:47):
Presidents have not done that as well.
But there also was a very personalconnection in that Caruso's consultants
were also Newsom consultants.
And oftentimes you have tolook behind the scene and
see who's consulting whom to kindof find out how these things move.
But I wanna briefly segue into somethingthat happened in California last night
which ties in the idea of endorsements.
And that is as we're talking about,you know, the mayor's race in 2026.

(27:08):
There's also, by the way,a governor's race.
And the would be front runner for thegovernor's race in 2026 is Kamala Harris.
And she gave a speech in San Franciscolast night to a woman's group and
this was kind of her first quote unquotereemergence since she lost the election
last November.
Gave kind of a typical Kamala speech.
But what was interesting, Lee andJonathan, was what she didn't talk about.

(27:31):
She didn't talk about Calif.
Eleni Kunalakis, lieutenant governorwho's running for governor,
she was in the audience.
She must have loved what she didn't hear.
Katie Porter, the former congresswoman whoran for the Senate last year and lost,
she's also a gubernatorial candidate,she was there.
So if we are going to overreactto Kamalu's speech and
think at this moment that, well,she didn't talk about California,

(27:54):
there's a tell that she'snot gonna run for governor.
The question then would be Lee andJonathan,
is she going to endorse somebody?
And in her case, endorsements do matterbecause she might sway some votes, but
she could also push a lotof money to some candidate.

Yeah, Billy, it's interesting.
I view I just don't see whatthe payoff to her would be for running.
I think in terms of her skill set, I don'tthink it's a good match for the job.
It's a policy heavy job.
It's a state that is behind is behindthe eight ball in a number of areas.

(28:32):
So I don't think it would be ineither party's interest for that But
I agree with you.
I think she could do an awful lotregarding an endorsement because many
people are either running or potentiallyrunning, and there's not really
a whole lot of name recognition outthere in terms of, in terms of voters.

(28:53):
Porter, of course, is known, but ElnieKunalakis has been lieutenant governor,
but she's been relatively quiet.
Lt.Governor doesn't get a lot of press, so.
Yeah, so we'll see.
I think, I think she could really move theneedle in terms of, in terms of how that,
in terms of how that evolves.
But it is interesting.
Bill, do you think, I mean,it would almost be impossible for

(29:17):
her to run for governor andthen to run for president again in 28.
Do you think that's playing much of a rolein what she's thinking about right now?
If you have, if you had an insight into,into your thought processes?

If I had any insight.
My guess is she's still kindof thrashing around and
trying to figure out what went wrong and
her party is trying to figure out the samething in terms of why did we lose?
Did we, did Trump get the better of us?
Were we bad at messaging?
What did you know, what went wrong here?
And for her, that's very much the same.
I don't see, Lee, how she could becomegovernor of California and then run.
And why is that?

(29:52):
If you go back to 2020, the Democraticprimaries, the Democratic field
started to take shape in January of 2019,that' Kamala jumped in.
So if you apply the samestandard to 2028 is 2020,
that means Democrats are pilinginto that race in January or so.
So, Lee, she would have to take the oathof office in early January of 2027, and

(30:14):
then one of two things.
Have to decide very early that she's inbecause longer she would sit, the more
she would lose potential endorsements orshe would have to sit around and wait for
the fantasy that we all fall forevery four years.
And that's the idea of an unsettledprimaries and a brokered convention, blah,
blah, blah.
So look, your guess is as good as mine.
My guess is right now she's notgoing to run for governor for

(30:36):
a lot of reasons you mentioned.
She's a bad fit for it.
But I wanna get back to Karen Bass fora second, Lee,
because she has a problem now.
It's just a mayor, she's run fromone problem, which is wildfires,
to another one.
She has a billion dollar deficit in herbudget that she has to deal with now.
She wants to lay off 1600 city employees.
That's not going to sit wellwith unions in Los Angeles.

(30:56):
But one thing that caught my eye, Lee,
is that she is also targeting DEI relatedspending in city's fire department.
So I wonder, Lee, if she's looking aheadto next year and she's kind of caught on
to the vibe shift and that she's goingto have to kind of move a little bit
to the center and get away fromissues like DEI to stay in office.

Yeah, it's interesting, Bill.
I mean, the city of LA's budgetis in remarkably bad shape.
And the fires are obviously makingit just much more difficult,
the continuation of thatproblem where relatively few,
at least as of last month, relatively fewnew building permits had been granted.

(31:38):
The individual whom she hired tospearhead the Palisades recovery and
to coordinate that,his name is escaping me right now.

Steve Silver.

Yeah. Yes.
And he, I believe he's already left,hasn't he?

Yep, he's already quit.

Yeah.
So he's quit within a couple months.
So that's just.
That is just.
Continues to bite her.
So maybe she's understanding thatwithin a well-functioning government,
government DEI spending is goingto have a relatively low return.
And what people are looking for is,number one, above all, protection.

(32:19):
I've heard, I've heard from friends and
from friends of friends thatvery well healed, very wealthy,
longtime democrats living inWest Los Angeles are absolutely furious
about what happened because itfinally hit them they've lost homes.
They may have not lost a home.

(32:40):
They might be in a neighborhoodthat's essential and inhabitable now.
So I personally think about herpolitical career is going to be over
unless she wants to morphinto something else.
I'm glad she's looking atefficiency-related aspects of her budget,
but I suspect it's goingto be too little too late.

Yeah, by the way, in an alternate world,
it could have been Karen Best who lost toTrump last year and not Kamala Harris,
because she was on the short list of vicepresidential candidates at one point.
So shows you how much things couldchange in the course of a couple years.

Gentlemen, Bass also wants to mandate that cars be used to
transport attendees tothe 2028 Summer Olympic Games,
only public transportation.
She wants people to use to transport, but
that will require billions in federaltransportation funds to improve and
support infrastructure forall those riders who are attending.

(33:36):
Would she be able to acquiresuch funding from the feds?
And if so,could this be completed on time, Bill?

Next question, please.
If I were president of the United States,I was that first scary thought.
I would be very fixated on how the countryis going to celebrate its 250th
anniversary next year.
I would make sure it's decidedlypatriotic and decidedly positive and
decidedly tasteful.
I think Trump will checktwo of those three boxes.
But then I would then turn myattention to the 2028 Summer Games,

(34:06):
which I'm not gonna callit a car crash here, but
they're really troubling signs onthe horizon, including this no-cars games.
There's one thing I can sayabout the Summer Olympics.
There is no chance in Hades that you'regoing to be able to take California's high
speed rail to get to the Olympics.
And that was the most recent California ofmine that I wrote about high speed rail.

(34:27):
LEE and Jonathan Low hanging fruit.
And this one of those stories you couldjust kind of write about any time
of the year.
But as a protectionpractitioner of public policy,
somebody should teach a class on this andthat you have a train
that was promised decades agoto cost about $33 billion and
was gonna be constructed by 2020.

(34:50):
And was gonna get people from Los Angelesto San Francisco in 2 hours and
40 minutes.
And I'm all in for that.
It sounds great.
And here we are in the year 2025, fiveyears after it's supposed to be online and
the $33 billion cost is nowestimated to be 128, $133 billion.

(35:10):
Nobody can figure out how to get $100billion without maybe going to the Chinese
hat in hand.
So, Jonathan, getting back to yourquestion, about $3 billion for
Los Angeles, good luck with that.
But where's California Lee,gonna find $100 billion for this?
And it really our colleague VictorDavis Han, high speed rail, he lives
in the Central Valley, so he's very closeto where the construction is going on.

(35:33):
But he likes to say that Ilive 10 miles from Stonehenge.

Bill, I don't know where that $100 billion is gonna come from.
It's certainly not gonna come fromWashington with President Trump.
He may, I suspect he may try toblock some of the promise money that
came during the Biden administration.
And Bill, you know, it's interesting.
In 20, in late 2023,I gave testimony to the House of

(36:00):
Representatives Transportation Committeeabout California high speed rail.
And I laid out what the facts were.
Well, some of which werewhat you summarized,
it looks like the taxpayers weresold to bill of goods in 2008 for
agreeing to fund a $10 billionbond that was supposed

(36:24):
to be roughly one-thirdof the entire budget.
Now we're looking at about $35 billionto get from Merced to Bakersfield.
I suspect the worst casescenario is that's ready in 2035.
Given the history of the project.

(36:45):
I don't think it'll be 2035.
But I mean, can you imaginegonna voters in 2008 and saying,
hey, if you're willing to spend$35 billion, we can give you
high-speed rail between Bakersfield andMerced in roughly 27 years.
Nobody would ever vote for that.
So I think there's,there's been just a lack of,

(37:08):
just a remarkable lackof credibility there.
But Bill,
I'll tell you one thing that came fromwhen I gave testimony about this.
The next day, I get an emailfrom a fellow in Washington,
D.C, who is the U.S representative for
lobbying forthe French high-speed rail company.

(37:28):
And he emails me and says, I was hearing,I really enjoyed what you were
talking about, and our CEO would liketo have a chance to speak with you.
And I thought, this is interesting.
So we set up a zoom andand the CEO and I, and
the person who they have in D.C.,we shared a Zoom and Bill.

(37:49):
I've learned a lot more aboutCalifornia high speed rail.
The French were out here around 2010, so
they would be interestedin helping us out.
They said, they said, we've havebuilt the exact kind of systems,
200-mile-an-hour trains.
We built those not only France butin other countries, we'd be happy to help.

(38:13):
And, so they had their people herein California for a while and
weeks go by, months go by andfinally they just pulled,
they just pulled the, andin an interview the company said.
We're taking,not to sound like LeBron James, but
we're taking our talents to Moroccobecause Morocco is a less dysfunctional

(38:33):
governance situation than California.
Bill it's interestingwhat they told me is, and
I don't think this is a secretin any way that they said, what,
building the kind of railway system thatCalifornia wants has never been done
before in the US, you simply don't haveany systems traveling at this speed.

(38:54):
And it's a totally different ball gamebuilding what you envision versus
building, say,the fastest trains for Amtrak.
And he said,you simply have no idea what you're doing.
And I suspect he is 100% rightabout that because this has just
been an unmitigated disaster, andit is obviously an easy talking point for

(39:17):
those who are critical of California forthe Republican Party.
And it's interesting, the governor was,was somewhat skeptical when he first
talked about this back what it wasin 2019 or 2020 when he first talked
about about a Bill andtalked about really scaling it back.

He comes in office in 2019.
Actually, Lee,in his first State of the State address,
he says the way it's set up right now,it's not gonna work.
And all of a sudden all heckbreaks loose in Sacramento.
It's my God,Gavin Newsom opposes high-speed.
And he had to kind of very quickly Humida,humida, humida and backpedal from that and
say, no, I support high speed rail.

(39:54):
And the problem is you havea Democratic state and
this is a big public works project.
It's good union money to be had out there.
But you know, the problem.
So you mentioned France, by the way.
Interesting thing about the French,they looked at it, Lee, and they said,
basically, there's one way to do this and
that's build a line from San Franciscostraight to Los Angeles.
That's the easiest way to do this.
And that never flew in Californiabecause from the beginning,

(40:15):
the idea was to build this, you know,through the Central Valley.
The original plan was to build up the i5.
Then no, we had to build it along the i99as to go through the ultimate pass,
the Ultimat Pass.
Now it's going to gothrough Pacheco instead.
At all times, lawmakers are kind oflooking at votes, among other things,
that we're going to try to put thisthrough as many constituencies as we can.
So the high speed rail kind of lookslike a big subway map for a city.

(40:38):
But Lee, it's very easy to killprograms if they are kind of ethereal,
if you don't see them.
But this is a very physicalprogram as a different animal.
So I'm not sure exactly how you'regoing to put the animal down.
If it's going to have to go on the ballot,you're going to have to starve it with
lack of money, ormaybe you just have to go to the ballot.
And that would probablybe my solution here.
Put a measure on the ballot andsay high speed rail is over with and

(40:59):
we're going to repurpose the moneyinto local transportation.
We talked about before.
It would spark a huge fight withinCalifornia because unions would fight to
the death on this.
And that was part of my premise about the,about the column.
I was kind of busting and having fun withthe thought of maybe Elon Musk could
come back to California andeither try to rescue high speed rail or
at least put the money intokilling it once and for all.

Well, California, I've written before,
California really needsa taxpayer accountability,
politically independent office toadvise taxpayers on public policy,
much as the LAO is a nonpartisanagency advising on fiscal policy.
Bill in 2022, when Newsom ran for a secondterm against Brian Dali, I had talked to,

(41:43):
you know, I was talking to Dalle andwe talked about high speed rail.
And he said,you know what is just remarkable?
So Dali was serving on the TransportationCommittee at that time, right?
And he said, you know,we would have these discussions and
he would bring out the statistics.
And the responses were noteconomically literate.

(42:05):
The responses were,we've just gone too far.
We've gone too far.
We Just have to continue it or we reallyneed to do this for climate change.
Just think about how much you could do forclimate change.
Well, it's going to do nothing forclimate change.
California is a drop in the bucket fortotal carbon emissions.
And Bill, when this, when the,when the high speed rail was planned, and

(42:28):
this planning goes back to the 1990s, but
when it was first sold in 2008, no onehad any idea about electric vehicles.
And of course the governorhas put in a mandate for
all new cars being soldin 2035 as being EVs.
No one had that in their mind when theythought about the carbon reduction.
So even if you're the most ardentcarbon reductionist person,

(42:53):
high speed rail is going to do nextto nothing on this background.
And Dolly said, yeah,I mean I'm talking to all these people and
they simply either wouldn't listen or theysimply had no logical response to this.
And you know, we're talking aboutdollars that could be used to help bring

(43:13):
clean water to roughly,I don't know, I think about 600,000.
California still don't have clean water.
There's all sorts of deferredmaintenance in schools.
We could pay for more science,STEM teachers in K through 12,
we could, we could pay formore after after school kids programs.

(43:34):
There's no shortage of legitimate policyinvestments that the state can make.
But this one has just beena complete albatross.

You know Lee, politically I think I just try to keep on an Apples
argument and then I've just tried torepurpose the high speed rail money into
local rail money andjust kind of keep people on that front.
But one final thought on this,we can move on to high speed rail.
Why do members of Congress,
why do legislatures loveto do transportation money?
It's very simple.
It's money that goesback to your district.
So said lawmaker can brag aboutdelivering for their people and

(44:05):
you build something,you get to go to ribbon cutting.
And soCongressman Ohanian has a nice photo op.
Keep in mind that every lawmaker right nowwho is clinging to high speed rail, he or
she is probably not going to be in office.
He or she may not be alive ifthis thing ever is completed.
So they're clinging that it's nevergoing to bear that many political fruit.

No. And a winning proposal would have been
establishing high speed transportationfrom areas which have more affordable
housing to areas with high paying jobssuch as from the Central Valley to
Silicon Valley or to San Francisco orfrom the Inland Empire to Los Angeles.
Right.Now,
if people worry about carbon emissions,tens of thousands of people every

(44:48):
day commute from their homes at leastthree hours, hour and a half each way,
minimum, because they're living inan area where they can afford to live,
but they're working in an areawhere the salaries are much higher.
So that would have been the way to do it
rather than just the completedebacle that we're facing now.

Yeah.
By the way, Lee, the governor and otherlawmakers getting heat about people having
to work in the office four to five days.
So this adds to the conundrumthat is high speed rail.
The five day work week is probablydestined to be a thing of the past.

Yeah. >> Bill Whalen
at least I should say inoffice five days a week.

Gentlemen,
does the high speed rail projectunderscore the argument for CEQA reform?

Yeah, I mean we've needed CEQA reform really forever.
Interesting, was signed inlaw by President Reagan.
In my opinion,it wasn't particularly well crafted law.
We've talked about CEQA a number of times.
Jerry Brown called todoing the Lord's work.
There's super majorities in bothhouses in the state legislature.

(45:52):
It could be done with,it could be done in a nanosecond,
literally with the governorsigning off on it.
And in my opinion, the reason it hasn'tis because there's a very powerful,
there's a very powerful environmentallobby that's blocking that.
You know, it's interesting thatthe Sacramento Kings stadium was,
was built, I believe with CEQAexemptions as well as the Clippers,

(46:14):
as well as parts of the Clippers new,new arena.
So yes, SQL reform, absolutely.
We keep dancing around it.
The governor has spoken about,you know, many, many CEQA reforms.
They're not moving the needlebecause we've had over,

(46:34):
over 100 new housing laws since 2016,2017.
The Turner center, the Turner centerat Berkeley keeps track of this stuff.
So over 100 new laws andthere's really been hardly any,
maybe no change whatsoeverin building permits issued.

(46:55):
Housing is much more expensivethan when the governor entered.
So yeah, if, if, if, if the failurehigh speed rail can get us could
get a secret reform, then,you know, then that would be great.
I still worry that meaningfulCEQA reform will not take place.

I'm glad you mentioned the basketball arenas, Lee.
I've been watching the NBA playoffs andthe Clippers,
who may be out of the playoffs bythe time this podcast comes out.
Their arena is really cool.
I'd love to go see a game there.
But yeah, doggone it.
They got a big old CEO exemptionto get that thing built fast.
And that's the reality of California.
If you are a sports franchise,
you mentioned other teamsthat go through this as well.

(47:36):
You go to Sacramento hat in the endyou say, please get me out of CEO.
It's the only way we can get somethingbuilt in three, four or five years.

Yeah, it's really, I think the many, many politicians in the state
proclaim they worry a lot about the,the little person.
But this is really, at some level,it's really elitism at its greatest.
The Clippers are highly connected.
In Sacramento andSteve Ballmer got what he wanted.

(48:06):
Yeah.
The little person.
No, but Steve Ballmer.
Yes.

Yeah.
And on that note, Lee, a moment ofsilence for the Lakers RIP well.

Yeah, my son and I were talking about that last night.
Yeah, for Bas.

Yeah, I don't know where the Lakers go from here.

They have two extremely high priced, super superstars and
they have a coach who in myamateur basketball opinion,
I tried to play college basketball butI wasn't, I wasn't good enough.
A, a rookie coach with noreal coaching experience who,

(48:45):
who fielded a team with no center andinterestingly enough,
the center for Minnesota,they had 27 points and 24 rebounds.
Literally, keel type of stat sheet becausethere was no one room, I think six inches.

His name is Rudy Gobert, and he is French, and
he has one of the great nicknames inbasketball, which is the Stifle Tower,
which is a great nickname.
But you know who the Lakers dated?
They need a Shaq.
They need a center.

They need a center.
But, but Shaq is actually goingup to weirdly up to Sacramento.
Not staying in his.
Is he the place of his Laker?

Is he running for office?
Jonathan what's->> Jonathan Movroydis: No,
he's not running for governor or senator.
He's not running for.
He's not going to compete withEleni Kunalakis or Kamala Harris for
the governor's role.
He's going to be the new general managerof Sacramento State's basketball team.
Joining, joining Andrew Luck,who's now the GM of Stanford football.

(49:46):
Steph Curry, who's assistant GM at hisalma mater at Davidson College, and
a string of new celebrity athletesto become new sports executives.
Gentlemen, just sort of the funway to conclude this podcast.
Who would you choose tohelp with the management?
Which former athlete slash sportsexecutive would you choose for

(50:06):
the management of California government?
I know who I would choose andthat would be Buster Posey.
It's perfect because he's turnedaround the San Francisco Giants.
He's from a liberal city, so that wouldallow him to easily triangulate and
figure out the policy mess in California.
Bill?
Okay, the Giants are off to a good start, Jonathan.
But get back to me about 80 games.

(50:27):
We'll see where they stand.
Okay, Posey's a good choice.
He's a nice guy.
My choice is gonna be Shaq'ssidekick on the NBA post games.
And that's Charles Barkley, who has a bitof a Political connection in that for
years Barkley was talked about running forgovernor of Alabama.
He is from Alabama.
He went to college at Auburn, andat one point he was linked to Republicans.

(50:48):
And so he was kind of a great hope forRepublicans in Alabama or on Chuck.
I picked Bartley simply becausethis Barkley has no filter.
He loves to call people knuckleheads.
And I'd love to have himjust in Sacramento and
have lawmaker after lawmaker comeup to him with a spending bill and
just have him say,get that out of my face, you knucklehead.

Yeah, I love Posey and Barkley.
I think Berkeley at onetime was a Democrat.
But it's interesting, once he hasa quote that goes something like,
poor people in the south have been votingfor Democrats for the last 50 years, and
they're still poor.
He has a quote, something like that.
Yeah, Posey and Barclay are great names.

(51:28):
I might pick Curry, Steph Curry.
Remarkably popular inthe state of California.
And Curry has suffered the wrath of
the regional housing needsallocations in Atherton.
We don't have time to go into that.
But he very well knows justhow damaging that has been.

(51:48):
So I'd love to see him provide someinsight on that and get us out of that.
That regulation that justhas not worked well at all.

Good choice.

As always, gentlemen,
this has been an interestinghour of timely analysis.
Thank you for your time andhave a great weekend.

Thanks, fellas.

You have been listening to matters of
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Spread, please spread the word.
Get your friends to have a listen.
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(52:26):
His handles it's at BillWhalen CA andLee Ohanian is also on X.
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Also check out California on Your Mind,where Bill Whalen and
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Again, this is Jonathan Movroydis sittingin Bill Whalen's chair, this week.
He'll be back for another episodeof Matters of Policy and Politics.

(52:48):
Thank you for listening.

>> Presenter (52:49):
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