Recently, the States of California and Texas have been squabbling over an interesting situation. The State of Texas has been advertising in California denoting its business-friendly climate vis a vis California in an attempt to entice business enterprises to relocate to Texas. California has strongly objected to the tone of the advertisements and accused Texas of poaching. Both governors have been vociferously defending their respective states in the press.

On one level, one might find this situation to be amusing, akin to a family squabble, however, I think it has the potential to become quite serious. California and Texas have very little in common other than the fact that they are large states (numbers 1 and 2 in terms of population). Politically they are almost polar opposites. California is very liberal, has a big government philosophy and spends among the highest percentage of income of any state on government and social services. Texas is conservative, embraces small government and has no state income tax. I view the two states as an allegory for the national debate of nanny state and entitlements (Let the government do as much as possible.), versus capitalism, free enterprise, and risk-taking (Keep the government small and unobtrusive.).

Like many states, California is bankrupt, only they don’t know it and don’t act like it. The state continues to operate with its big government philosophy. For example, it imposes high taxes on businesses and wealthy individuals; it has the 4th highest cost of living, the 3rd highest income inequality gap, ranks 3rd to last in percentage of high school graduates and has a debilitating pension liability to public employees. In addition, due to Medi-Cal’s (state-sponsored health care provider) low reimbursement rate to doctors, one-half of them now refuse to treat Medi-Cal patients. This is indeed a formula for driving businesses and wealthy individuals out of the state.

On the other hand, Texas has a business-friendly climate, no state income tax, cheaper prices (so the lower salaries actually go further), lower unemployment, and a higher high school graduation rate. To be sure, California has great natural beauty, fantastic weather and the allure of the entertainment industry and celebrities. However, all this makes it a great place to visit, not necessarily to live in.


I believe it is simplistic to view this as merely a dispute between Califirnia and Texas. I view it as symbolic of the great divide in this country between two economic and social pholosophies – big government and entitlements versus small government, capitalism, free enterprise and reward for risk-taking. One can make political and philosophical arguments in favor of either, however, economically there is no contest. Texas is thriving, and California is bankrupt. Supporters of California who criticize Texas are missing the point. It is human nature to act in one’s own self-interest. If California-based businesses and wealthy individuals feel they will be better off economically in another state and they have the means to relocate, they will do so. If not to Texas, than it will be to another state with similar advantages. My prediction is that the country will experience a accelerated move of businesses and wealthy, mobile individuals from high-tax, big government states to low tax, small government states prospectively.


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