On Joe Rogan, Peter Thiel has an interesting answer to conservatives wondering why California hasn’t collapsed already: California is essentially Saudi Arabia.
Joe Rogan: “California just jacked their taxes up to 14[% at the highest marginal rate], what was it, 14.4[%]?”
Peter Thiel: Something like that, yeah. 14.3[%] I think.”
JR: “You want more money for doing a terrible job, and having more people leave for the first time ever.”
PT: “But it gets away with it.”
JR: “I know! People are forced with no choice. What are you going to do?”
PT: “There are people at the margins who leave, but the state government still collects more and more in revenues. You get 10% more revenues and 5% of the people leave you still increase the amount of revenues you’re getting. It’s inelastic enough that you’re actually able to increase the revenues.”
PT: “This is sort of the the crazy thing about California. There’s always sort of a right-wing or libertarian critique of California that it’s such a ridiculous place, it should just collapse under its own ridiculousness and it doesn’t quite happen.”
PT: “The macroeconomics in it are are pretty good. 40 million people, the GDP is around 4 trillion. It’s about the same as Germany with 80 million, or Japan with 125 million. Japan has three times the population of California same GDP means one-third the per capita GDP, so there’s some level on which California as a whole is working, even though it doesn’t work from a governance point of view.”
PT: “The rough model I have for how to think of California is that it’s kind of like Saudi Arabia. They have a crazy religion, wokeism in California, Wahhabism in Saudi Arabia. You know not that many people believe it, but it it distorts everything.”
PT: “Then you have like oil fields in Saudi Arabia and you have the big tech companies in California, and the oil pays for everything.”
PT: “Then you have a completely bloated, inefficient government sector, and you have sort of all sorts of distortions in the real estate market where people also make lots of money, and sort of the government and real estate are ways you redistribute the oil wealth. And that’s the big tech money in California.”
PT: “It’s not the way you might want to design a system from scratch, but it’s pretty stable. People have been saying Saudi Arabia is ridiculous, it’s going to collapse any year now. They’ve been saying that for 40 or 50 years. But you know, if you have a giant oil field you can pay for a lot of ridiculousness.”
PT: “I think that’s the way you have to think of California. There’s things about it that are ridiculous, but there’s something about it. It doesn’t naturally self-destruct overnight.”
JR: “There’s a lot of people that are still generating enormous amounts of wealth there, and it’s too difficult to just pack up and leave.”
PT: “I think it’s something like four of the eight or nine companies with market capitalizations over a trillion dollars are based in California: Google, Apple, now Nvidia, Meta…I think Broadcom is close to that.”
Thiel also points out the great weather, and notes that there’s no large enough city in a zero income tax state tempting enough (at least for him) to move to. Austin he dismisses because “Austin’s a government town and a college town and a wannabe hipster San Francisco town, so in my books, three and you’re kind of out.”
Of course, the big difference between Apple, Nvidia, etc., and Saudi Aramco, is that all those tech companies could still move to another state, as Elon Musk proved by moving much of Tesla and SpaceX to Texas. But that oil isn’t going anywhere until the Saudis (or the western companies they hire) pump it out.
Also, under Crown Prince Mohammed bin Salman, the Saudis have sidelined the Wahhabist clerics, so that the state religion is moving (if slowly) in a more modern direction.
Alas, since the pact between Muhammad bin Saud and Muhammad bin Abdul Wahhab dates back to about 1745, this metaphor suggests that wokeism still has a quarter millennium to run.
Let’s hope that the poisoned cult of social justice has a much shorter stretch until its richly deserved demise.
One of Peter Zeihan’s points about California (yeah, he is better at macro trends than particulars, FWIW) is that it is geographically positioned to capitalize on trans-Pacific trade. So the rise of CA dovetails with the fall of Europe’s share, and the rise of east Asia’s share, of global gross economic product. Those trends have stalled, CA has strangled its agricultural sector, ate the seed corn of its tech sector, and the entertainment industry is in secular decline.
I would also point out (as Tom Wolfe did in /Hooking Up/) that CA’s tech industry has always relied on imported social capital from hardscrabblle midwesterners. Of the Fairchild 8, only Gordon Moore was born or educated in CA. Can you imagine a similar situation happening today?
Without continuous renewal, economic dominance fades. The Rust Belt didn’t get rusty because no one needed steel anymore. Detroit fell into decrepitude as US automakers prospered. Coal production in WV grew 25% 1960 to 1990 even as the state became impoverished. South Africa is as mineral-rich at it ever was.
One notable difference is that Saudi Arabia builds nuclear power plants and desalination plants to support their population. Not so California. Right now Southern California, which is as much a desert as Saudi Arabia if more pleasant, has 24 million people and and a power and water infrastructure headed the ability to support somewhere between 10 million and 15 million. It won’t be pretty to watch.
One of Peter Zeihan’s points about California (yeah, he is better at macro trends than particulars, FWIW) is that it is geographically positioned to capitalize on trans-Pacific trade. So the rise of CA dovetails with the fall of Europe’s share, and the rise of east Asia’s share, of global gross economic product. Those trends have stalled, CA has strangled its agricultural sector, ate the seed corn of its tech sector, and the entertainment industry is in secular decline.
I would also point out (as Tom Wolfe did in /Hooking Up/) that CA’s tech industry has always relied on imported social capital from hardscrabblle midwesterners. Of the Fairchild 8, only Gordon Moore was born or educated in CA. Can you imagine a similar situation happening today?
Without continuous renewal, economic dominance fades. The Rust Belt didn’t get rusty because no one needed steel anymore. Detroit fell into decrepitude as US automakers prospered. Coal production in WV grew 25% 1960 to 1990 even as the state became impoverished. South Africa is as mineral-rich at it ever was.
One notable difference is that Saudi Arabia builds nuclear power plants and desalination plants to support their population. Not so California. Right now Southern California, which is as much a desert as Saudi Arabia if more pleasant, has 24 million people and and a power and water infrastructure headed the ability to support somewhere between 10 million and 15 million. It won’t be pretty to watch.
Except California’s central valley is a huge source of agriculture. Some 40% of the state is arable land, as opposed to maybe 1.6% of Saudi Arabia.
[…] THIEL: California As Saudi Arabia. “It’s not the way you might want to design a system from scratch, but it’s pretty stable. […]