The Reasons California’s Economy Ranks Last

From tax and regulatory burdens to Covid stringency

Letter to The WSJ.

"Your editorial “California Comes in Last” (April 7) reports that the Golden State ranks 50th in the Bureau of Economic Analysis’s recent report on 2022 net earnings growth by state. I thought this might be due to the increasing number of people and businesses leaving the state to escape its high taxes and regulatory policy. So I converted the BEA’s total net earnings growth by state to growth on a per capita basis. California still ranks 50th.

Digging a little deeper, I found that there is another explanation for California’s bottom-of-the-barrel performance besides the antibusiness political environment. Not only is California 46th in state and local taxes (per the Tax Foundation’s 2022 report), but it was also 45th in its Covid-stringency policy in 2022.

Oxford University’s stringency index measures the extent of government mandates, based on 11 different government responses to Covid. That lower earnings growth in 2022 is at least partly due to the degree to which a state government clamps down on an economy by imposing Covid-related sanctions is revealed by the following: The 10 states with the lowest average Oxford University stringency index in 2022 gained an average of 9.6% in earnings growth in 2022. For states that ranked 11th through 20th in Covid regulations, the average was 8.5%. For states ranking 21st to 30th, the gain was 7.8%. Those ranking 31st to 40th experienced growth of 7.3%. And for the states with the highest Oxford stringency scores, the growth was only 6.3%. Not surprisingly, California was in the middle of the last quintile.

Prof. Jim Doti

Chapman University

Orange, Calif."