this is California the third largest U.S state home to just under 40 million people and some
of the most influential Industries in the world California alone is the fourth or fifth largest
economy in the world beating out every other country in the world apart from China Japan
potentially Germany and of course the USA itself measuring the exact output of the state is always
up for a little bit of debate because the regular International organizations like the IMF or the
World Bank that usually document National output figures don't do it for California because well
California is not a country even still by the most conservative estimates the golden state
has an output of over 3.5 trillion US Dollars which means on a per capita basis the average
Californian has an output of almost a hundred thousand dollars making them amongst the most
economically productive people on the planet only really falling behind true outliers like
Monaco Lichtenstein and Luxembourg these other countries despite being independent countries
of their own are still far smaller economies with far smaller populations and a good part of their
reported economic success is simply due to nuances of how economic figures like GDP per capita are
calculated on top of its Shear scale California is also doing something that a lot of large and
highly advanced economies fail to do it's growing and it's on average growing at a faster rate than
the rest of the United States which itself is doing quite well like Global Advanced economy
standards but of course California is not without its issues or its challenges the industries that
have made the state what it is today may be starting to get as big as they possibly can
or while facing more pressures from around the world in a range of different ways in recent years
California's population has been declining for the first time in its history with record numbers
leaving for States like Texas Nevada Idaho and Oregon citing over-regulation the highest personal
income taxes in the country Rising housing costs and some pretty overt social problems that could
be bad not only for a state simultaneously dealing with a lot of internal issues but the rest of the
us as well and to understand why we need to always answer a few simple questions what is
it that makes the economy of California so special on a state National and Global level has the state
just been lucky or is there a method behind the Californian Madness and finally Will's long list
of current challenges see it lose out to other Rivals within and outside of the USA once we've
done all that we can update California's spot on the economics explained National leaderboard
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complex economic issue like what made California so economically prosperous it's nice when there's
one simple underlying reason and everything else is built on top of it like fantastic geography
a clever economic policy or even just natural resource discoveries having one simple takeaway
normally makes for a memorable lesson and an enjoyable video to watch so you have to trust us
when we say that unfortunately there's no Silver Bullet that got California to where it is today
just a series of Lucky breaks that the state has capitalized on well throughout its history that
also means that California economic dominance is not guaranteed and unlike a sovereign National
economy there are certain advantages but also some serious risks that California faces purely because
it's part of a union that is the United States the state as we know today really got started before
it was officially a state when widespread gold deposits were discovered around what would go on
to be San Francisco San Jose and Sacramento before this time the area was sparsely populated because
there was nothing driving settlers from the more abundant Plains of the Midwest or the industry
and civilization of the East Coast there area had also only just been acquired by the United
States as a territory a year prior but once gold was discovered there was a reason for people to
make something of the plays in its most basic form this is the concept of comparative advantage in
economic output when considering the factors of production land labor and capital the region that
would go on to be California basically sucked in every metric its land was not much better
than the Abundant land that was available closer to the East Coast and its total labor pool was
measured in the tens of thousands there was little Capital to make any of us better like Railways or
factories because there was no reason to invest out there when there was so much space available
everywhere else a situation that is particularly ironic given the state's problems these days this
means that everywhere else had a comparative advantage over the region and the production of
everything but that changed when gold made the land of California incredibly lucrative giving
it a comparative advantage in the production of precious metal as soon as there was a reason for
the economy to exist it quickly developed around this industry within two years the population
more than doubled and people were moving not only to dig for gold but also to build businesses to
support the people that were digging for gold the development of the Region's economy was so rapid
that just two years after being acquired by the US California was able to successfully apply for
Statehood and receive the representation that came with that on a federal level now resource-rich
economies eventually face major problems if they become overly dependent on just that one industry
for a long time California ran the risk of losing its gold and then losing all the businesses that
had sprung up to support it now obviously gold mining in California is today basically
completely inconsequential compared to its other world-leading Industries so we know that it was
able to successfully transition its economy away from resources but that was far from guaranteed
today a lot of countries and even other regions within the US are struggling to transition away
from resource economies the Californian lesson can teach us a lot about how to successfully
make that switch but it's also important to recognize that it had a few advantages that
a lot of resource which economies today don't one of the biggest things that I had going for it was
just how hard it was to get to and get back from before air travel or even railroads the options
for getting to California were horse-drawn wagons along sparsely populated land routes all going the
entire way around South America through some of the most perilous oceans in the world in a ship
from the 1800s basically once people had moved to California they were pretty committed to making it
work fortunately the region is also very arable so farming quickly became self-sustaining and as
transport infrastructure developed it became possible for the state to trade more actively
with the rest of the country it must be remembered that really before the mid-1950s global trade and
even trade between regions within physically large countries like the USA was far less intense than
it is today as soon as food production was sorted and local Industries sprung up to support the
existing population there is little pressure to be globally competitive because it was just easier
to make basic consumer goods of the day locally than it was to transport them on small ships or
early rail networks fortunately however that did not mean that the state became complacent from
its resource Boom the state made him investments into education pioneering Universal higher studies
and founding universities like Berkeley and the University of California it was a wise investment
at the time but the policymakers probably had no idea just how much of an impact it would have on
the state a century down the track the isolation from the rest of the economy also had some
advantages Motion Pictures using new technologies invented on the East Coast were becoming a big
deal and California became a popular destination to produce these movies as they would go on to
be known the location was no accident either it was easy to transport films once they had been
made but early Studios could use film cameras without paying licensing fees to the companies
that produced them on the East Coast because it was unlikely for inspectors to travel so far
this almost quaint industry of course went on to build Hollywood today one of the most economically
valuable Industries in the world in the aftermath of the second world war the technology to create
films had Advanced significantly and given that Europe had been bombed to Rubble it was really
only Hollywood that could produce high quality movies for the entire world movies were easy to
transport and basically cost nothing to replicate once the film itself had been shot today we take
value-adding products like this for granted but back then making something that cost the producer
the same amount of money to sell something as many times as they wanted was an extremely big deal and
California had become the de facto home of this new economic Innovation Beyond just providing
the growing economy with the ultimate export it gave it something arguably even more important
influence today 50 of the top 50 highest grossing films of all time were produced in
Hollywood there have been the occasional hits from other countries but nothing really comes close to
matching the entertainment industry in California this creates jobs for millions of people that on
average pay quite well by U.S standards and extremely well by global standards it also
makes especially English-speaking countries quite in tune with American norms and Customs now from
the perspective of a rational Economist that only concerns themselves with quantifiable data points
that may not seem like a huge deal but it's a major piece of the puzzle as to why the US and
in particular California are as successful as they are today the US is a magnet for
investment and skilled workers if people around the world are moving somewhere to start a better
life it's normally the USA the average U.S worker is significantly more productive than the average
worker from other economies because U.S companies invest more into making them make more stuff the
reason they can make those Investments is because money pours into the USA from around the world
because people want to invest in their trees I personally as an Australian feel a sense of
familiarity with the US market despite not having been to the country in over a decade if I was
to move somewhere else to try and get a real job as an economist it would probably be the USA and
California with its high-paying job opportunities would be a logical destination skilled migrants
that on average make above average contributions to economic output move to California more than
any other state in the U.S which creates a chicken and egg skilled people moved to California because
they're a world leading Industries there and world-leading industries can operate in
California because that's where all the skilled people are the same goes for making Investments
and the entertainment industry centered in California is a Big Driver of This Global
recognition now these days an industry that's arguably even more influential in entertainment
is Tech and no country even comes close to the USA and by extension California the universities that
the freshly founded State of California funded in the 1800s just so happened to attract researchers
working on thinking machines and semiconductors in the early 1960s in economic Comics there is a
principle called agglomeration which means all other things been equal Industries run
more efficiently when institutions that make that industry operate are located close together early
technology companies were built by students from Berkeley in particular as people were figuring
out what these new machines could do it became easier to find experts and suppliers and investors
and also customers are being centered around the region that was becoming known for this technology
technology is a multi-trillion dollar industry and some of the most valuable companies in the world
have been created in Silicon Valley Apple alone is as of the time of making this video worth more
than every public company listed in Australia combined these companies have achieved the
success because black the entertainment industry that was built before it they create value from
practically nothing even Apple it does still deal primarily in physical products with material costs
adds a significant markup to the raw material something like an iPhone is made out of better
still the company outsources the entirety of the manufacturing supply chain to other countries so
the economy of California is only left with the highest paying jobs that come from this
industry as a whole if the entertainment and Tech Industries weren't already Enough by themselves
California has also taken this highly valuating approach to other more traditional Industries as
well California still has a major agricultural sector but they have a focus on high value crops
in particular their wineries are world famous and The Vineyards that produce a 50 bottle of wine are
adding a lot more value within their business than a farmer who grows commodity crops like
corn if nothing else the Californian economy shows that economic success is rarely if ever attributed
to just one lucky break the state would not be the fourth or fifth largest economy in the world
today if it didn't capitalize on multiple gold rushes not just one but it also isn't without
some serious problems California by many accounts is a state in Decline its population is shrinking
the companies that have made it so successful in recent decades are expanding Beyond its borders
or simply moving out and the industries themselves are starting to struggle as there's not much room
left to grow after they've effectively dominated the global markets in many ways California today
has the same problems that it had 170 years ago the same thing that many other countries
around the world have as well Dutch disease now Dutch disease is normally associated with
resource-rich economies California does have that but as we explored earlier it's only a
minor component of its economy today but that doesn't mean that it can't have the same problems
there's nothing inherently wrong with having a lot of natural resources of course all other
things been equal that can be a great benefit to the economy but it does come with some serious
side effects which need to be carefully managed or else the economy can end up worse off than
it started as is the case with dozens of resource-racial economies around the world
today the first side effect is an over-dependence on natural resources which means economic ups and
downs become determined by commodity prices which are inherently unstable so they make the
economy unstable as well the second side effect is crowding out of other Industries for investment
and labor when one industry is bringing in practically unlimited Revenue investors are going
to want to put their money into that industry neglecting any promising businesses in other
Industries workers are also going to seek out high-paying jobs in that industry often forcing
other businesses to raise wages to compete or reduce their output due to lack of Staffing highly
compensated workers also have more purchasing power which when combined with constrained Supply
pushes prices up beyond the reach of people that are not working in the natural resource sector
both of these forces in turn make the economy even more dependent on the one industry bringing
in Revenue which again creates a very unstable economy now this is most commonly a problem with
natural resources but there's no reason that it's exclusively a problem with natural resources the
tech and entertainment Industries in California represent a significant portion of the state's
economy and have caused exactly the same set of problems cost of living is high and people working
regular jobs can't afford to live there anymore which reduces a supply of regular goods and
services further harming cost of living the big difference today is that people are not stuck in
California anymore moving is cheap and easy and it seems a lot of people working in these industries
came from out of state or out of the country they're no stranger to moving where there are
better opportunities and unlike a Sovereign Nation there are fewer restrictions to moving elsewhere
within the us as well the economically advised best course of action for a country dealing with
Dutch disease is to ensure that the whole economy benefits from the export industry through taxes
that are then used to support the whole country the problem for California Fournier is that it's
not a country none like natural resources tech companies don't need to operate in an area where
they dig stuff out of the ground major employers have already shown that people can work from home
or in extreme cases the entire operation can be moved to states with looser business restrictions
and fewer taxes now nobody can predict the future least of all economies but California is almost
certainly not going anywhere anytime soon but today more than ever it's facing International
and domestic challenges and it needs to present a compelling reason to maintain its Industries
for a long time the assumption that California was just the place that people went to develop
Tech and produce entertainment was good enough that it probably won't be forever okay now it's
time to put California on the economics explained National leaderboard which we have done before but
that was over two years ago and a lot has changed since then starting as always with size California
has an estimated GDP of 3.4 to 3.6 trillion dollars making it comparable with the fourth
or fifth largest national economy in the world if it was to be counted as its own country of course
it's not so these figures are less accurate than regular World Bank figures because things like
imports and exports which are major components of economic output are harder to measure over state
borders where unlike International borders almost no records are kept of what is coming or going
even still the state gets a 9 out of 10. taking those GDP estimates and spreading it out over
California's population of 39.2 million people means that the state has a GDP per capita of just
under 90 000 which puts it in line with countries like Norway and Switzerland so it gets a 9 out of
10 only really falling behind the true outliers with six-figure gdps stability and confidence is
both helped and hurt by being part of the large largest and most influential economy in the world
help because it uses the global Reserve currency it has a huge domestic market for its products and
it has the protection of the US federal government if it finds itself in trouble but it's also hurt
because it has to compete for talent investment and spending with other states that have some
unfair advantages like Texas with its lower taxes subsidized by natural resources it's focused on a
few huge Industries has caused social issues and they may cause economic issues long term
as well but for now the state gets an 8 out of 10. growth has been strong and consistent only
shrinking after the 2008 financial crisis and the global lockdowns of 2020 it's also maintained a
growth rate above the U.S average which itself has outpaced most advanced economies California
gets an 8 out of 10. finally industry there isn't much to say here California is home to
more world-leading companies than every other country on Earth apart from the United States
itself not only are the companies massive they are also in highly technical industries that
don't rely on extracting value from limited resource California gets an easy 10 out of
10. altogether that gives California an average score of 8.8 out of 10 a marked improvement from
two years ago considering it had a great score back then too if you like this video you'll like
the one that we did recently on areas inside the us that are shrinking even faster than
California you should be able to click to that on your screen now thanks for watching mate bye