Tuesday, April 2, 2013

Krugman's California Turnaround

I have a lot of respect for Paul Krugman as an economist, and I have spent many hours defending him and explaining him to business people.  However, his commentary on California published yesterday was not very good.

Below is a graph of California per capita personal income as a percentage of U.S. per capita personal income.  The 2012 data was released last week, but has not been updated in this graph.  It showed that California per cap income held steady at 105% of U.S. per capita income in 2012.  Hardly a comeback story.

This graph does not account for the changes in the cost of living.  According to the CPI, since the 1982-84=100 benchmark, the CPI increased by 5% more in major California metro areas than the rest of the U.S. over the past 30 years.  Thus, if this graph were recreated as real personal income, California real per capita personal income dropped from 115% of the U.S. average to even in a generation.

There are some disturbing signs for the future too.  Education worries me the most.  Levels of education for Californians under 35 are not great, and education funding in the state has gone from good to very low by any measure.  The relative high skills and education level of California's workforce is skewed upwards by the older population which is not the workforce of the future.

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