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Please make predictive statements like: "California will go bankrupt by 2015 primarily due to social spending, and the testable metric I will use to measure this will be X (% of per capita GDP spent, or whatever)."

Ok, California will still be bullshit in 2015. I don't predict much better for many of you.

teflor the ranger wrote:Ok, California will still be bullshit in 2015. I don't predict much better for many of you.

I draw the line at personal attacks and by this point it's quite obvious you won't be attempting to be more rational. I see no reason to continue engagement with you.

Your testable metric is forecasted revenue vs. expenses. For California to avoid insolvency, it will need some combination of higher than forecast revenues and/or lower than forecast expenses. The implication is probably some severe cuts in social services and at the same time sharply higher taxes. The further implication is that people will leave the state for green pastures, which will provide a further strain on revenue. New York is likely in this boat as well, along with several other states. My feeling is Texas is best situated to weather the storm.

Todrael wrote:

teflor the ranger wrote:Ok, California will still be bullshit in 2015. I don't predict much better for many of you.

I draw the line at personal attacks and by this point it's quite obvious you won't be attempting to be more rational. I see no reason to continue engagement with you.

Sorry, but you seem to fail to understand that you didn't make a point or an argument, instead you made an empty and hollow challenge. And that's what you're going to get back unless I have something new to add, which, in this case, I don't. Not unless you need someone to tell you that debt comes borrowing to spend, or taking to spend, or really just spending. Socialist spending.

As someone who has been sitting on the sidelines for 7 years wanting to buy a house, but thinking the economics did not make sense (I live in Palo Alto, look it up), is it wrong to hope for a complete and total crash of the housing system so I can buy a nice 3-2 on the cheap?

Tanras wrote:As someone who has been sitting on the sidelines for 7 years wanting to buy a house, but thinking the economics did not make sense (I live in Palo Alto, look it up), is it wrong to hope for a complete and total crash of the housing system so I can buy a nice 3-2 on the cheap?

Probably...because the local housing market won't collapse in a vacuum. There are lots of great deals in Detroit, for example.

You don't need the location to turn into a slum to see the market crash. The market can crash simply because it was way overpriced to begin with. We see that in all the bubble areas where excess mortgage liquidity was yanked away and prices collapsed. Of course with Palo Alto, we are talking about something like median prices falling from over a million to 500k (not real #'s.. just hypothetical for conversation's sake). Detroit maybe from 10k to 5k. They were both overpriced to begin with.

Corth wrote:You don't need the location to turn into a slum to see the market crash. The market can crash simply because it was way overpriced to begin with. We see that in all the bubble areas where excess mortgage liquidity was yanked away and prices collapsed. Of course with Palo Alto, we are talking about something like median prices falling from over a million to 500k (not real #'s.. just hypothetical for conversation's sake). Detroit maybe from 10k to 5k. They were both overpriced to begin with.

Wait Corth, why is it that when an EMT is only getting minimum wage he can't be underpaid because he's willing to accept that salary, but a house can be overpriced when people are willing to pay that much for it?

the subsequent market correction where people refused to pay anywhere close to the same amounts of money for the same houses indicated that they had previously been overpriced.

So then a substantial increase in wages for EMTs would mean they had been underpaid, right?

You could expect a substantial increase in wages if there was suddenly more demand for EMT's or if there were less EMT's available. These are things that happen over time so I wouldn't necessarily say that in 2010 they are underpaid even if they are paid substantially more in 2015.

But you are right, my use of the term 'overpriced' in the context of home valuations is not very accurate. After all, someone was willing to sell at those prices, and someone else was willing to buy. They sold for exactly the price they should have given market conditions at the time. A more precise way of describing why I chose not to purchase a home from 2003 through 2009 is that I anticipated a market correction. It was essentially an investment decision. The data available seemed to indicate to me that the prices would go down over time, so I chose not to invest.

Of course, market conditions in housing are most influenced by the willingness of lenders to lend lots of money for cheap.

avak wrote:

Tanras wrote:As someone who has been sitting on the sidelines for 7 years wanting to buy a house, but thinking the economics did not make sense (I live in Palo Alto, look it up), is it wrong to hope for a complete and total crash of the housing system so I can buy a nice 3-2 on the cheap?

Probably...because the local housing market won't collapse in a vacuum. There are lots of great deals in Detroit, for example.

lol

Let us in on the joke, Tinky Winky

Corth wrote:Your testable metric is forecasted revenue vs. expenses. For California to avoid insolvency, it will need some combination of higher than forecast revenues and/or lower than forecast expenses. The implication is probably some severe cuts in social services and at the same time sharply higher taxes. The further implication is that people will leave the state for green pastures, which will provide a further strain on revenue. New York is likely in this boat as well, along with several other states. My feeling is Texas is best situated to weather the storm.

http://www.newsweek.com/id/236592

This article reflects some of what I am saying about California vis-a-vis Texas.

I got a kick out of this Economist Magazine cover art from last year when I originally saw it. Glad I was able to find a copy. Unfortunately, the article is by subscription only.

To me, Texas and California represent the culmination of a huge experiment in public policy. They are both huge states, but they have wildly different philosophies on how their respective states should be run. California (the people's republic of) has embraced huge beaurocracies, social progrms, etc., for decades. It is now bordering on insolvency. Many Californians find themselves moving now to Texas, which has historically embraced limited government. It is more than just coincidental that California nears collapse in the wake of a large recession, while Texas finds itself largely immune.

I'm a Texan who has lived in Northern California for ~14 years. I expect to move back in the next five to ten years once my current gig has run its course.

If you are planning to leave California in 5 to 10 years you probably shouldn't buy a house. Certainly not if you are leaving in 5 years. The transactional costs alone would probably make it a poor economic decision. You couldn't expect to break even in such a short period of time. 10 years is debateable.. but I think the uncertainty of the markets should create a bias against it. Better safe than sorry.

What are your thoughts about Texas verses California? It's kind of a tricky question because each state is so diverse socially, economically, culturally, etc. But roughly speaking, what are your thoughts on the relative quality of life between those two states?

Most of my mom's family lives in Texas, first generation immigrants that my dad helped come to America. They moved to so California after living with us about 2 years in Oregon (I stayed with them for about a month in the projects (ghetto) when I was 8 so I do actually know a little about life in the ghetto).

As a group they've probably ran 7 - 10 distinct businesses over the past 25 years in dry cleaning, sewing, convenience store, gardening, janitorial. They left California because of the gangs and business competition + regulatory issues/taxes. I think the main reason was an actual audit or revocation of business license or an immigration raid or something of that nature (they talk a lot about how much money they make (probably half lies), and don't give any details on anything else). Being 1st generation immigrants they did not (probably still don't) follow the business rules for labor, payroll taxes ect... I do remember them talking about the competition in socal being very intense.

They've prospered in Texas, but the 2nd generation are all college educated working in high level white collar jobs primarily in accounting and telecomm. I think that is one of the draws of texas, fertile ground for entreprenuers yet the high end jobs are available for their children. There is also the whole land issue, Texas has much more attractive prices on houses and warehouses even before you start thinking about everything else.

Corth wrote:If you are planning to leave California in 5 to 10 years you probably shouldn't buy a house. Certainly not if you are leaving in 5 years. The transactional costs alone would probably make it a poor economic decision. You couldn't expect to break even in such a short period of time. 10 years is debateable.. but I think the uncertainty of the markets should create a bias against it. Better safe than sorry.

What are your thoughts about Texas verses California? It's kind of a tricky question because each state is so diverse socially, economically, culturally, etc. But roughly speaking, what are your thoughts on the relative quality of life between those two states?

Tough question. Each has redeeming qualities when it comes to quality of life, let me try to break it down. As far as the house thing goes, I know the 10 year argument, but we have rented for a decade now and we want to own. We are lucky enough to have some extra resources so that all our net worth would not be tied up in a house. . .even where we live.


1. Job opportunities

I am an engineer and an entreprenuer. Out of undergrad, I helped start a company that has done quite well (300 people today) and that has made a huge difference in my life. California (at least back in 2000) was the only place that 4 22 year olds could actually pull that off. Despite a more active nation-wide venture process, California still today has a huge lead in this regard. Texas is trying to catch up, especially Austin, but is leagues behind. You can see that in annual venture spending in the two states. Starting companies is sort of what I do (I started a 2nd company that failed a year ago) so access to capital is a big deal for me. There are jobs in Texas that pay well and I have had offers to go there, but having done a ton of research on the subject, it is just easier to start companies in the Valley. I realize that for many people who do not do what I do, this may be different, but Silicon Valley is the best place to be if you want to start companies or work for high octane tech startups.


2. Raising a family

Texas wins here. No contest. I would rather raise my kids in Austin or Dallas or even Houston. The public schools are not as good as where I am, but there are great private options. Texas is certainly more family friendly than out here and you do not feel like an outsider there if you have more than 2 kids (we plan on 3-4 and have 2 today). Both of our families live in Dallas which is a positive and a negative for being in Texas. Austin would be a great compromise :)


3. Cost of living

Texas wins. I do not think I really need to explain this except to say that salaries do not scale as high as they should to compare cost of living from Texas to California.


4. Making an investment

I see the choice as to where to live live making an investment. You are investing in friends and relationships that pay off professionally and personally. I really do believe that California is going to face huge issues in the next decade and I am worried about making that investment here. It is getting harder and harder to be a working person in Northern California unless you haev the resume to work at a top tech firm or in finance. The middle class is all but gone from where we are. Those are big negatives for me both in terms of financial risk and in terms of exposiing my children to a more diverse set of people who maybe care a little less about status and money than most tend to up here.


For these reasons, Texas is likely the place we will end up. I am in a very good place job/career wise right now and I am going it a couple of years (maybe more), at least, before I move on. When that happens, 80/20 that move will be back to Texas.

Congrats on the business success, Tanras. As a fellow entrepreneur, the thought of 300 employees seems like a major accomplishment.

The only thing I would say about California is that the strict comparison is misleading due to the initiative process in California allowing so much direct government policy-making.

Silicon Valley thrives despite the California State government, not because of it. Frankly, it is sort of an enigma in my opinion.

That said. . .the valley is the valley. There is a ton of investment money here and there is a ton of high end talent. That may or may not change over time, hard to say.

Thanks for the post Tanras. I've actually been a customer of your's once or twice and have no complaints at all!

I live in the suburbs of NYC and I see a similar dynamic there. The state and local governments are bordering on insolvency. None of the politicians have the wherewithal to do what is necessary to get things on the right track. The infrastructure is crumbling. The cost of living is obscene relative to incomes. And yet, if you want to be part of several industries.. finance, publishing, fashion, etc., it's pretty much the only game in town. I would imagine that to some extent modern communication would serve as a decentralizing force. But I guess ultimately there is always something to be said for having human capital all in one place. Of course, if it turns into Detroit, which I suspect might be what happens, then these industries will relocate elsewhere.

I think that socially progressive politics can attract certain industry, particularly white collar R&D talent, where business issues like the cost of labor doesn't mean very much to the industry.

For example, if you have to already provide cadillac healthcare to all of your employees (say... Google), then you're not going to particularly care if the state requires you to provide health insurance.

Silicon valley is already the exception to a number of rules. Simply put, it's an industry that is far removed from most other industries. Of course, as the rest of the world catches up in R&D talent and English communication skills, it's becoming obvious that the industry is beginning to lose some of its youthful charm.