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California Seen as a "Failed State"

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California's fiscal, governing, and economics problems have the UK's Guardian newspaper declaring that we might end up American's first example of a "failed state."

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If you wanted to feel bad about California's present and prospects, then by all means dive into this grim article. It tells of high unemployment, state budget cuts, overflow crowds for free days of health care at the Inglewood Forum, declining population, a humbled and confused Gov. Arnold Schwarzenegger, housing price crashes, depressed central valley towns with 40 percent poverty rates, and a general death of the Southern California dream.

Times are tough, undoubtedly. But even this depressing story can't honestly end declaring that good times shall come again no more. In all our experiences in modernity so far economic downturns, however harsh, do perk up. (For example, unemployment rates exceeded 10 percent in 1993, then began a mostly steady descent for the next eight years.)

California still has lots of people able and willing to work, and people tend to have needs; needs that they will be willing to pay other people to meet; that's how economies work, and California's isn't dead yet. We are still, believe it or not with all the bad news, growing in overall productivity as of the end of last year, as the state's GDP grew then by a small, but real, 0.4 percent. That puts us in the second lowest quintile of state GDP growth, but not the bottom by any means. And while plunging housing prices can be bad news to those invested in them, they are very good news to those struggling to find a home they can actually afford.

The state government will, to be sure, have to learn to live within its means. And as the state sees people and businesses fleeing its tax burden, a smaller state government may well be key to a healthier state economy in the long run.

Dean of the Paul Merage School of Business at the University of California, Irvine, Andrew Policano, has a blog entirely dedicated to signs of economic good news, for those who need some.

Past City of Angles blogging on state and local fiscal and economic troubles here and here.

The image associated with this post was taken by Flickr user Lou Angeli digital. It was used under user Creative Commons license.

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