Economic Analysis of Bluebeam

In this paper we will take a Macro view of the state of the State of California. We will do this by
looking at the Snapshot, GDP, Inflation rates, and Unemployment. I will then provide some commentary
on some of the major issues that concerns that these numbers bring up, and will finish by providing
some insight into fiscal and monetary policies that California can pursue to help assuage or even
possibly solve the issues.

Looking at the numbers provided by the Department of Finance we can see that un a GDP value
California is by far the most dominant state in the Union, with a 2019 GDP value of over 3 trillion dollars.
This means that the sum of all spending (consumption, investment, spending and exports) minus
imports was over 3 trillion USD. Taking inflation into account we can see, using 2019 as a base, that the
adjusted GDP is actually 2.7 trillion but we will just look a nominal GDP since those numbers are easier
to find. Looking at the growth rate we see that the average annual growth of California’s GDP since 1998
is 3.3%. This is great as it is slightly above the target growth rate of 3%. Looking at a shorter term forcus
we can see however that since the 2008 recession that California has had a high GDP growth rate. With
an uncharacteristic dip in 2019. This brings some concern however as we can see a small slowing since
2015, of if the growth rate in 2019 was an outlier or a new trend. It will be impossible to determine that
this year though as a result of the COVID 10 pandemic, which is causing economic figures from 2020 to
be completely unpredictable and possibly irregular.

Comparing it to other states California as stated earlier is a powerhouse in nominal GDP, making
up for 14.6% of the US total nominal GDP in 2019. That is 14% of 50 states. This leads to California
having a lot of political power in decision making since they provide for so much of the US economic
power. However, its not really fair to compare states based on their nominal GDP as each state has a
different population. We can make this more of a fair playing field if we look at per capita GDP, which is
an average of GDP and population per state. In 2019 California had a GDP per capita of 70,662 USD,
meaning that on average a person in California provides a value of 70,662 to the economy. When
comparing this to other states California is in fifth, not bad but still not a large of an advantage that the
nominal GDP has.

The best way to get an understanding for the inflation rate in California is by looking at the
change in CPI over a few years. We can look at the CPI-U weighted average that is provided by edd.gov.
CPI-U weighted average is the average Urban CPI weighted more towards items the normal consumers
will purchase as opposed to companies. Looking at this number we can see the California has had a fairly
steady increase in their CPI around 6 per year since 1998. We can calculate the inflation rate by
subtracting the most recent year from the year prior and then dividing it by the year prior and finally
multiplying by 100. Thus, looking at the CPI for 2018 and 2017 we can see that over that time the
inflation rate was 3.7. This is higher than what we would want as a perfect inflation rate would be
around 2%. Continuing to look at this looking at the average inflation rate from 1998 calculated in the
attached excel spreadsheet we can see that it is 2.6% slightly about the 2% target. However as we look
this number is reduced by very low inflation over the year of 2009-10 and 2013-15. If those years are
removed the inflation rate rises over 3%, this is well over the 2% target.
 Looking at this tough we should put the inflation rate in California in contrast to the US average
to get an understanding of how California compares. Looking at the CPI-U for the US the most notable
thing is that the CPI’s are basically the same in 1998 however by 2018 there is a 20 point difference. This
essentially means that the price of items in California is on average 8% higher then the average in the
United States as a whole. This is not something that is surprising to people who live in California as we
all know that pricing in California are higher than elsewhere. But at what point did this split really
happen. And the answer is that its almost every year. The only real period of exceptions is from 2008-11
which is were California has a lower inflations rate. This again is caused by the impact that the housing
market crash had on California. This difference in a major issue for California in more ways than one and
it is something that I will discuss latter as we talk about how to help fix some of the issues that California
is facing.

We can find the unemployment numbers in California over the past few years by looking at
edd.gov. The first numbers that really jump out are the four years from 2009 until 2012 where the
unemployment rate jumped to double digits, with a peak of 12.2%. This number is well over the US
average at the time of around 9% but that is to be expected considering the amount of investment that
California had placed into real estate. Since then we can see a steady decrease in the unemployment
rate of around 1.5% per year leading to a low of 4% last year, still again slightly higher then the US
average of 3.7%. Over the past few months however we have seen unemployment sky rocket in
California as well as though out the US as a result of the COVID 19 pandemic. With California we have
seen unemployment starting to return to a more normal rate with a decrease of 1.5% over the last
month but that is still slightly lagging behind the US average, as a result of the reinforcement of stay at
home policies.

What does this mean? California represent around 12% of the US total work force population.
As a result, California has a massive impact of the US average. It also means that spikes in uncertainty as
well as economic recessions will have a larger total impact on California which can lead to a larger
multiplier of GDP reduction. For example a 1% increase in unemployment in other states might only
mean that a couple ten thousand are unemployed in California however a 1% increase in unemployment
based off the reported labor for population would mean that 190,000 people have lost their job. That
number would put a massive strain on an government system to provide unemployment befits and
would take a massive hit on the GDP of a region.

An additional interesting stat to look while looking at unemployment is the labor population.
These are all people who are of working age and are actively looking for/ or have a job (with total
unemployment being the number of people actively looking for a job). As we looked a unemployment
one of the factors that could possibly lead to a decrease in the unemployment rate is people leaving the
work force. This could be people who have just given up or one a more optimistic note have found that
they no longer need to work. We see this a little bit at the begging of the COVID pandemic as there are
slight decreases in the labor force between February and March as people were placed on leave and
said I just wont work until things go back to normal. We then see an increase in April as college students
graduate and enter the work force, slightly offsetting the number of people who are pushed out on
furlough. Then again in May we see an additional decrease followed by a large return this last month.
This means that while the unemployment rate is decreasing there are more jobs being creted then
would appear as there are more people entering the workforce. This could also be as a result of
companies who were keeping employees furloughed now being forced to lay them off. We will have to
watch over the next few months to see if this return to the labor population leads to a slowing of the
decrease in the unemployment rate or actually causes the rate to increase.

We can also look at the yearly growth rate of the labor population to draw some additionally
concusions about the state of California. Looking at the labor population growth we see that it has
started to slow over the last few years. With pre 2012 averaging a growth of around 200,000 per year,
since then the growth has slowed closer to 100,000 growth per year. This along with the total
population numbers is a potential disaster of California, and something that I will talk about later.

The most current issue that California has is the unemployment brought about by COVID 19. The
best plan to help with reducing that is to create a fiscal policy of a reduced tax towards business for the
next year with the added stipulation that they with in a short time frame upon return to work bring back
all furloughed or laid off employees. This would increase the amount of money in circulation and
increase hiring, the end result would in theory be an increase in GDP and a boost to bring the economy
back to a state of normality.

What are the major long term issues that California is facing. The core issue is the very high CPI.
CPI doesn’t take into account the cost of taxes as that is more focused on general household income.
While looking at household median income we see that California has a medium income of $70,489 USD
in 2018 relative to the US median of $63,179. When we look at that and compare it to the respective
CPIs we see that there is an 11% difference in median income relative to an 8% difference in CPI. So why
do we see everywhere that the cost of living in California is too expensive. Well, the only item that
comes to my mind is taxes. In 2020 California had a state and average local sales tax combined of 8.66%
and a marginal individual income tax of 13.30%. This means that on average the margins on consumer
income to spending are much tighter then in other states. Leading to a perception, and possible reality
that purchasing power is lower. This is leading to a massive issue that California is facing emigration.

From the article written by PPIC we see that over the past ten years since the last census in 2010
there has a large emigration to other states with the net domestic migration between California being
negative 900,000. This is an additional tend that we can see just by asking around, or watching popular
California figures. Many people are leaving or planning on leaving with in the next few years. This is an
interesting trend and something that could have a dramatic impact on California policy and the
California economy.

Most people who I have talked with or viewed site two reasons for their departure from
California. The first being the cost of living. As taxes and minimum wage increase this is forcing
companies to increase the prices of products leading to a cost push inflation. This it rampant throughout
California, and can be shown in a simple example. The other day I was ordering a pizza from a well know
global pizza chain, lets call them Pizza Mut. As I was paying for my pizza I stopped to look at the total
cost and all of the charges that were applied. The $20 order had turned into $40 so I was confused and
looked at the itemization. “$7 for delivery. Ok. Wait? What is this, $3 for a service fee?” After looking
into it I found that it was an additional cost to cover the increase costs of operation in California, and Los
Angles specifically. This is a perfect example of the cost push inflation principle. The pizza chain sets a
standard price for their pizza in the US. Since California has a high cost of production, employees have a
higher minimum wage that needs to be paid, business have higher taxes levied, and most importantly
the cost of rent is much higher, they will end up passing that cost on to the consumer and increase
prices. This is what is providing the visceral awareness that there is a high cost of living in California. And
perception is 90% of peoples opinions on the economy.

But why is people leaving a bad thing. Well even though I just said that there is an over
population in urban areas in California, the number of people leaving the state is not good. California’s
political power resides from its massive population. As was said earlier California has a GDP that makes
up 14% of the US GDP but it only has the fifth highest GDP per capita. When people leave, so does their
spending. With spending decreasing, business go under as money no longer comes in. People now no
longer have a job so they look for work else where leading to more people leaving and so on and so on.
Though this wont fully kill California, the weather is too nice so people will always want to be here. The
interesting and unpredictable part of the emigration is two part. First what is going to happen to the job
market, and second what is going to happen to the housing market.

The job market in California is an interesting thing, as I said earlier California has a fairly stable
unemployment rate, with the exception of major economic crisis that seem to be more impactful.
However, the world is in an interesting place coming out of COVID 19. In previous history people would
move for their job. You need to be near an office or job space to go to work every day. That might be
very different as we leave quarantine. Now because people will be able to work from home they will no
longer need to live near a job site. This means that people can move for any number of reasons,
weather, family, or most importantly cost of living. As we see this emigration one would expect to see
an increase in unemployment, if people are leaving their jobs to move elsewhere then those jobs,
ceteris paribus, should need to be filled creating an increase in unemployment. But now that you can
work form home and many companies are becoming more open to the practice of working remote,
someone who moves would not need to leave their job. This means that the unemployment numbers
will in fact act as a mask to hid the emigration issues. It also means an even larger decrease in GDP and it
reduces business spending in California and moves it with the now remote employee.

When someone moves their have two options as what they will do with their house. They could
sell it, using some of the returns to pay for their move and new house. They could also choose to hold it
and then rent it out. This seems to be a trend in California amongst the middle class. Its passive income
and makes sense with how expensive property is in urban California. This combined with the emigration
terrifies me. I believe that as the middle class leaves for greener pastures, they will not sell their former
houses and will instead rent them out. This will continue to spike the price of housing and create a
system where California becomes even more of a renter state with very few houses being owned and
more of them being rented and controlled by owners outside of California.
 So, what can be done to stop this. First create an increased tax credit for individuals who work
from home. This would make it more viable for the population who is most likely to leave to stay in
California. Additionally, it would cut some of the cost in the cost push inflation possibly cutting down the
CPI. Next California needs to provide an incentive for current homeowner who have decided to leave
California to sell. There is no real way to do that since any plan would either encourage home owners to
sell, which means they are leaving, or would create cost push inflation by increase the price of rent. I
think the only way would be to create a tax on rent of houses not on rental properties, while at the
same time, creating policies that restrict who can rent. Though that didn’t work well for the taxi tokens
in New York, hopefully someone smarter than me can solve the problem that think is coming.

What ever policies, fiscal, or monetary that California choses to pursue, the next few years will
be interesting. And while it could be a great opportunity for other states, in could very quickly change
the landscape of political and economic power in the US.
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