 Hello and welcome to this year's Baxter Liberty Initiative event. We're delighted to bring this event back for its 12th year. My name is Raka Ray and I'm the Dean of the Social Sciences here at Berkeley. For those of you who are new to the Baxter initiative. As an alum, Frank Baxter recognized that our conservative students and community members needed additional outlets to build community and to express themselves. I want to thank my predecessor and former Dean Carla Hesse for partnering with Frank Baxter to address these issues on campus. Universities were always meant to be spaces for ideas to be tested out against each other, so that the best new ideas can emerge as they do out of debate argument and reflection. Universities are the very place where we can showcase the marvelous range of ideas that exist in the world and to do so with our intellects and with civility. So I'm grateful to the vision and curiosity of Frank Baxter, because of whom we now have a space where diverse viewpoints are explored and challenged. Over the years, Dean Hesse and Frank Baxter have worked to genuinely maintain Berkeley's legacy and the Chancellor's commitment to free speech on campus. And tonight, their success is evidenced by the largest turnout we have had in the last 12 years. It is of great importance to me that all of those in our community feel that they belong. So thank you, Frank, for your collaboration and commitment to Berkeley over the years. I look forward to the evolution of this initiative. And now, I'm delighted to turn the virtual podium over to Gabe Lenz, Professor of Political Science, who has been the faculty coordinator for this event. Thank you, Gabe, for your efforts over the past several years and for your commitment to this initiative. Thank you for having me. I look forward to this evening and over to you. Thank you, Dean Raqqa. It's with tremendous pleasure that I welcome everybody to the Baxter of the video initiative. Unfortunately, it's virtual. It's a pandemic lecture, but we're thrilled that we can still make it possible and thrilled to reach an even broader audience, maybe because of it. I'm a political science professor in the Charles and Louise Travers Department of Political Science. And if you haven't heard, this is one of the great political science departments in the country, and it's headed by or chaired by Chris Ansel, who is here in the audience today. We're also happy to have Chuck and Beth Travers in the joining us today. And Chuck's colleague and UC Berkeley Foundation board member, Mark Thesser joining us. Thank you, Mark. We also would like to thank and recognize for their support of this program, Chancellor Carol Christ, Provost Paul Alivisados, and Vice Chancellor of Research Randy Katz. Now I'd like to introduce you to Frank Baxter. Frank is a Cal alum class of 1961. He is chairman emeritus of Jeffrey's and company, a global bank where he was chief executive officer for many years. He was the ambassador to the Republic of Uruguay from 2006 to 2009. A member of the board of NASDAQ and former director of the Security Industries Association. Ambassador Baxter is deeply engaged in philanthropic and leadership activities, including chairman of the Alliance of College Ready Public Schools, a charter organization of 28 schools, serving 12,000 low income students. Ambassador Baxter is also emeritus member of the Letters and Sciences Advisory Board, a member of the Southern California Chancellor's Cabinet, and serves on the UC Berkeley Foundation Board of Trustees. Ambassador Baxter has been at the forefront of some of the most important issues facing society, and he's done that here again by facilitating a forum encouraging free discourse and diversity of thought on campus. And we're absolutely thrilled and thankful for his sponsorship of this program. And now I will turn it over to Frank. Thank you very much, Gabe. And hi everybody. It's so great to be here. I was thinking that our forefathers had a really good sense of mankind and its limitations and its problems and how to deal with them. And there's the wonderful thing about them is that was the skepticism and a young fellow about my age named Benjamin Franklin, when asked, is it going to be a dictatorship or a republic and he said, a republic if we can keep it and I think this set of the forefathers is just talking about how we can keep it, when we can keep it. And we started with the wonderful Nobel Prize winner Gary Becker, and it's just gotten better and better ever since. And certainly that is the case today with Professor Leo Ohinium. He's Professor of Economics and Director of the Edensure Family Program of Microeconomic Research at UCLA, a neighbor of mine in Los Angeles. He's also a senior fellow at the Hoover Institution at another university across the water. And the Associate Director of the Center for Advanced Study in Economic Efficiency at Arizona State University. He's an advisor to the Federal Reserve Bank of Minneapolis, and previously has advised other Federal Reserve banks, foreign central banks and the National Science Foundation. Professor Ohinium has been an economic advisor to state and national political campaigns and has testified to the US Senate and the California State Legislative Assembly. His research, which has recently been discussed in the New York Times, the Wall Street Journal, the Washington Post and other media sources focuses on economic crises, and has been published widely and a number of peer review journals. He is a frequent columnist for the Wall Street Journal, the San Francisco Chronicle, and other media, and he's certainly very well qualified to discuss this particular issue. We're really anxious to hear from Professor Ohinium. Ambassador Baxter, thank you so much for your warm introduction, and I'm delighted to join you today and have the opportunity to contribute to the Baxter Liberty Lectures. Today, I'd like to share some ideas with everyone about how California has changed. In my lifetime, I've seen enormous changes in our state. Not all have been have been for the positive. I think about the California that I grew up in, and that I and millions of other Californians had the good fortune to succeed and to enjoy what I'll call the California dream. And today that California dream is available to far fewer people. I'll discuss some ideas. I'll discuss some ideas why that has been the case, and I'll try to present some nonpartisan solutions that I feel will help restore that dream. I'll do this by comparing two periods of time. In 1970 when California had extremely rapid growth and a very successful economy. And after 1970 when growth slowed and both the cost of living for households and business costs rose remarkably. I'm going to talk about my thesis and what I'll try to convey to you is that is that policy missteps and governance missteps are the primary reasons why the dream is ended for so many. And I would like to get across and convey to you is that this is really deeply rooted in lack of incentives or the proper incentives within government in a lack of accountability within government organizations. And it suggests that it's not going to take a magic wand to fix this rather the restoration of common sense economics and policymaking and more specifically and tightly focused leadership is the way we can make the California California dream attainable again for so many more. Let's start by setting the stage and give you a one slide one century backdrop of California. And let's go back to 1900. At that time there was just 2 million people in California, it was a median size state is two and a half percent of the US population, believe it or not Alabama and Mississippi were larger. California was nearly four times as large and Chicago with 1.7 million people was nearly as large as the entire state of California. Now between 1900 1960 something remarkable happened. California took off like no one had even possibly expected those 2 million people became 16 million of us. And that was about 9% of the entire country's population. And to put that in perspective, if California had just grown at the same rate as the entire country. We would have had just 4.4 million people in California 1960 roughly one quarter of what we had achieved. It seemed like everybody wanted to be in California. The most amazing whether you can imagine just gorgeous beaches and rapidly increasing and high paying job opportunities and a place where business was thriving. Now, as the 16 million people flooded into California managing that growth was challenging for our state government. The population was very young 50% of us in 1960 were 24 were under 24 years of age. And what that means from the standpoint of a state budget is that they were relatively few taxpayers. The per capita inflation adjusted state budget at that time is just 20% of today's budget. So many of us 24 years or younger. There were a lot of budget demands K through 12 schools, colleges and universities, hospitals, substantial infrastructure investment was needed, including that and water roads, electrical utilities. Despite all these challenges, half of our population being so young they weren't paying taxes, enormous growth. The state government found a way to accomplish all of this. Now they were able to do this because at that time there's a principle of governance in place within the state that was based on investment and being remarkably careful about how government use taxpayer dollars. And there are really two principles in place at this time in the 1950s and 1960s. Government spending should be based on what people really want. And it should be done very efficiently. Use that revenue wisely. Don't waste it. At this time, capital investment was a remarkable 25% of the state budget almost unheard of. And that was required because of all those young people the need for hospitals and schools and roads and water infrastructure and universities. And those investments were remarkably efficient. California's K through 12 schools at that time were the top rated in the country, and US schools were the best in the world. And while some universities were created before that time, we managed to build new community colleges, new state universities and some new UCs. We made major water road and utility investments. At that time, there was a remarkably effective public private partnership between state and local governments and between households and businesses. And working together, we created the California dream. There is a shared bipartisan vision at that time. It was held by both Democrats and Republicans and that vision was one of sensible limits on government and a real focus on public investment and creating new infrastructure. What I'm going to share with you here on this slide are some budget statements from Covenor Pat Brown's budgets in the early 1960s. And here's what he had to say. We must invest to accommodate our magnificent growth. So there's a realization that people were pouring into California. And new California babies were being born every minute. And there was a recognition that investment had to take place if we're going to be able to take care of these people. And Governor Brown also noted, government's priority is to protect and invest. And he also noted the importance of using tax dollars efficiently. We can't abuse taxpayers. We must use their precious tax dollars. We must use their precious tax dollars wisely. Well, this is a period that people poured into California and government working together with the private sector created a dream. California flourished. As a kid growing up in California in the 1960s, my friends and I thought that anything and everything was possible. We were part of the California dream. And we knew we were very lucky. Every time we turned on the Rose Bowl on January 1st and the TV camera would pan to somewhere in Minnesota where it was zero degrees. And there was three feet of snow. And we looked at the Rose Bowl and it was 70 degrees. And we had just great lives. And we knew it had something very, very special. Now let's contrast that with California today. Spending his, well, it skyrocketed. California state government spends five times as much today. Adjusted for population growth and adjusted for inflation. So I'm making this comparison on an apples to apples basis. There's been a five times increase in government spending. But basic government functions are just not getting done. The focus on investment that was discussed by Governor Pat Brown, that's just no longer here. We don't spend 25% of our budget on capital investments or 20% or 10% is closer to 4%. And that 4% is probably a bit too high. And spending at 4% of the budget. Well, that doesn't cover the depreciation of capital goods. Not surprisingly, our infrastructure is graded a D plus by the US society of civil engineers. 1,680 of our dams are considered to be in risky condition. And I'm glad all of you are home and don't need to drive because one out of 18 of our bridges are considered to be structurally deficient. Basic functions such as taking care of our infrastructure is just not getting done. And because we're not investing in infrastructure, that infrastructure that was built in 1950s and 1960s during the heyday of California investments, that's now failing. And of course, endanger life, and they are extremely costly to fix. So as one example, I'm a refer to the Orville Dam, which failed in 2017. When a spillway was breached and engineers had to release 200,000 gallons of water per second to try to preserve it. That dam was built in 1968. 188,000 people were evacuated because of fear that the entire dam would fail and spill and just and have a catastrophic failure. Well, in 2005, 12 years before the before the spillway failed, there were recommendations to retrofit that dam. It wasn't done. In 2013, 14 and 15 cracks began to develop in that dam. And in 2017, the spillway failed. It costs $1.1 billion to fix the failed Orville Dam. Why weren't those recommendations followed? Why weren't the cracks that developed? Why weren't those taken more seriously? We should be able to do better than this. And where's the accountability? Accountability is important in any organization because people in organizations have to own what they're responsible for. And when they're required to own it, that puts additional incentives in place for them to do the right thing. If that dam had been retrofitted prior to 2017, it would have cost somewhere around $40 million. Not to mention not having to evacuate 188,000 people and not to mention how much water we lost in a state where every drop seems to matter. Well, without water investments, water becomes really scarce. Within our state, most water pipes are now 60 years old or more. Most of these are cast iron. They have a lifespan and expected lifespan of somewhere around 50 years. So if you're driving around and you find where you're going, you've been rerouted because of a flood from a burst water pipe. There's no surprise about that. They're in overtime. As a state, we've really made no new major water investments since the California Water Project, which was dreamed up by California political leaders in the 1950s and early 1960s. That was largely completed by the late 1970s. And I really shouldn't say completed because the entire California Water Project, well, part of it just remains a dream. The state ran out of money. And this is an issue this entered to Diane Feinstein has pointed to a number of times when she's talked about the drought situations that we face and the fact that we haven't invested in new major water investments since the California Water Project. Well, what's happened is we've added 12 million people to our state in the last 35 years, but water capacities unchanged. We now have what I'll call semi regular drought. We have a drought once every four years, once every five years. That brings water rashing to our state, which is very, very costly for brought for private homes and for businesses. And in particular damages state agriculture. And when we look at this, we should be asking ourselves, why haven't we made those investments. California was so much poorer and so much more budget stress back in the 1950s and 1960s, yet those investments were made. Why aren't we making them now? Where's the accountability. Now the flip side of water, we go to fire. Well, nine of nine of the 10 biggest fires in California that have consumed the most acreage have been just in the last eight years. And fire experts have concluded there are two major reasons why wildfires have become such a horrendous problem for us in the last few years. One is a failure to thin forests, create new fire breaks and conduct prescribed burns, which would limit the extent of these fires and make them easier for firefighters to control. Another reason is that our regulators, we put our trust in these people did not provide adequate oversight of public utilities to maintain their equipment, maintain their power lines. These two reasons have the conclusion my most fire experts is these these two reasons the main reasons why we're having so much difficulty. So here we are living in California it's the most technologically advanced state in the most technically advanced country in the world. And we're living with chronic drought and wildfires as a way of life. So again I ask, where is the efficiency and where's the accountability. Our failures to invest go beyond thinning forests and investing in water infrastructure. We're also not investing in transportation infrastructure. The civil engineering society I mentioned just a moment ago, they grade our roads as a D. And this is the statistic that really grabbed me deficient roads. So potholes and cracks cost California drivers $27 billion annually in repairs and higher insurance premiums higher insurance premiums because those insurers know our roads are not in good condition. And you might hit one of those potholes and break an accident and axle on your car. And this is $27 billion annually over and above relative to the rest of the country. If you live in Southern California like I do and you walk the sidewalks of Los Angeles, there are 4600 miles of LA sidewalks that are broken. And I don't mean a little little hairline cracks or even cracks about the size about about the diameter of a nickel. These are truly broken sidewalks 46%. LA doesn't have an adequate repair budget to fix these. And as a result, there's about 400 personal injury lawsuits annually that the city faces. Sadly, many of them, they just hope they'll go away. Some have paid out as much as $3 million to $5 million. If we go back to Governor Pat Brown's statement in his budget when he said government's priority is to protect and invest is hard to look at these statistics and believe that that's the case. Seems like government priorities have changed and changed a lot since the day of Pat Brown. We've also failed to invest in just the normal day to day things the government does. So this year, on top of the COVID pandemic, about 1.5 million unemployment claims became backlogged for months. So these are folks who have been laid off their jobs because they've been sent home to try to create a solution for COVID. And the reason they're backlogged is because the employment departments, 40 year old IT system crashed couldn't keep up with the amount of claims that were coming in. And not only were 1.5 million unemployment claims backlogged creating real hardship for individuals. 400 billion in fraudulent claims were paid out. Now, this wouldn't happen in the private sector, and not to suggest that the private sector is perfect. But because within the private sector, businesses must compete. In the private sector, there wouldn't be an IT system that would be 40 years old and obsolete, because competition incentivizes efficiency. You just can't survive if you're not efficient, you'll lose your market, you'll have to exit. Incentives and accountability are the reason why we don't see a 40 year old IT system within the private sector. And this really highlights the important need to improve incentives and improve accountability within our public sectors. Perhaps the biggest problem that California's face today is in affordable housing. California is 49th in the country in construction, adjusted for our population. And perhaps not surprisingly, we're 49th in housing affordability. To give you an example of just how extreme this is, let me point to San Francisco and Silicon Valley. Incomes in those locations are by far the highest in the state. But despite the highest incomes in the state, only 18% of San Francisco and Silicon Valley households can afford the median priced home in those locations. Just 18%. 82% unable to afford that home compared to the rest of the country where about two thirds of households can afford the median priced home in their location. Now we haven't been building enough housing for 20 years or more. Question we should ask is why, why aren't we building enough housing? Well, in a couple of moments, I'm going to describe why state and local government policies are a big reason why we're not building enough housing and why we have a housing crisis. Expensive housing has made it incredibly costly to live in California today. California living costs are 49% higher than the national average. And while we enjoy higher than average wages, they're only about 15% higher than the rest of the country. And that 15% doesn't make up for 49% higher costs of living. Not only is housing expensive, California has the seventh highest electricity costs. The second highest gasoline prices and a statistic that is remarkably sobering and just deeply sad is that 38% of us live in poverty or near poverty. Sadly, we're home to at least 25% of the country's homeless, 17,000 alone in the city of San Francisco, the most productive city in the country. Which is the government insurance program that's available to very low income households. Well, Medicaid is provided to 14 million Californians. And the only reason they qualify for Medicaid is because they have very low incomes they're below, they're below the poverty limit that Medicaid requires. And if those 14 million people were to be a state, they would be the fifth largest state in the country. So as we look at these statistics, the conclusion that I draw and that I hope you draw is that California dream is is no longer attainable for most people. Something is deeply wrong. So what happened? You know, how did we lose our way? We had such a remarkably successful model of governance in the 1950s and 1960s. At 20 cents on the dollar, we were able to make these enormous investments that supported a rapidly growing population, one that had very few taxpayers. So how did we lose our way? Well, the shared principles of reasonable limits on government and efficiency and accountability in governance began to change. And that changed around 1970. And around 1970 a very important change began to happen and one that we should have recognized far sooner. As a society, particularly in California, we became aware that environmental damage was becoming increasingly important and that we should do something about this. Fair enough. This is important. And this should have been part of the policy playbook. But as we evolve past 1970, the environmental movement became politicized. And in that process of politicization, the standard economic analysis that had guided us was issued. And as the environmental movement really took on a life at its own and became an enormous political and social and cultural movement. This abandonment of standard economic thinking. Prioritizing what citizens really need. Being really efficient. Treating tax dollars as precious. Well, those ideas seem to fall to the wayside. Not just in the not just environmental policymaking but in other state and local government policymaking as well. So since around 1970 we've gradually lost efficiency in government accountability and reasonable limits. And when I say reasonable limits. When people are able to focus on a narrow set of problems, great things can happen. Any organization, I don't care which organization it is, the state of California, or Google, or Apple, the most remarkably successful companies, they have to be focused and specific if they're going to be able to do a good job. In 1970 we began to lose this shared vision of governance that was so remarkably successful. And I'm going to pick the 1969 Santa Barbara oil spill is really the tipping point that made such a difference. An oil direct just a few miles off the Santa Barbara coast failed and 3 million gallons of crude oil spilled into the Santa Barbara channel. This was an event that was horrific. World Wide Media covered it. As a kid, I remember seeing the morning paper and seeing images of pelicans that were covered with crude oil and it was heartbreaking. This was a failure that had a huge effect on people within California and outside of California as well. Now, from the standpoint of what this is economically, there's a really, there's a really standard solution. This is what economists call an externality is when some individual or some government or or some organizations actions have a substantial effect on others, and it can be positive or negative. In this case, the Santa Barbara oil spill was more remarkably negative. Now within economics, even in 1969, there is a standard way of dealing with externalities, which is to internalize them, which is to say the air, the air and the water need to be cleaned, and they need to be cleaned according to sensible benefit cost analysis. So the solution method was already part of the economist tool back at that time. That solution procedure didn't get implemented. If it had, if we had used standard cost benefit analysis in a sober way, we could have protected the environment, and we could have maintained the previous shared vision of governance. We should have done this much earlier. We didn't. And what we and we suffered from the Santa Barbara oil spill. Now it was so dramatic that standard economics was issued in a different approach was taken more of a political or cultural or social approach and approach, which I would like to call do whatever it takes. Now this do whatever it takes approach to protect the environment became something much bigger. And the point where activists would say growth and corporate and corporate greed, those are the problems, economic growth and corporations, they're not our friends, they're not making decisions that are consistent with our interests. And they had a point, but what could have been a very focused way of dealing with these issues became a much larger vision of what state and local governments could do. And what we saw emerge was many more business regulations, many more labor regulations, which were intended to help workers but in which, in many cases which hurt workers, higher government spending and higher taxes. Now, much of this was more associated with the Democratic Party, rather than the Republican Party. After the mid 1990s California largely became and still is a one party state. And that occurred pretty much right pretty much after proposition 187 was passed I believe that was in 1996. That was viewed as an anti immigrant bill was within proposition 187 people were supposed to report on undocumented immigrants. As California became a more diverse state and had more immigrants, the Republican Party was viewed as an anti immigrant party. Well, Republican Party had about a 40% voter share back in the early 1990s, that shares dropped to 24% today. And what I would like to propose is, you know, whether you remember the Republican Party or the Democratic Party, or independent or your member of another political party, political competition is central. Whether the left is earned power or whether the right are empowered because political competition provides discipline on what the other party wants to do. It provides a voice to those who might disagree with the party who is empowered. And so today, and for many years we haven't really had political competition. As a consequence, this new vision of government more regulations higher taxes that went well beyond the environmental movement, and the abandonment of standard economic principles, that vision has gone unchecked. Now in 1970 after that Santa Barbara oil spill, the California Environmental Quality Act CEQA I'll call that sequel. That was passed in 1970. And I'm going to, I'm copying in here one, one part of that legislation which says adopt all feasible measures to mitigate the environmental impacts of development. Well, in economics, feasible doesn't necessarily mean practical. And the way to deal with government policies again is cost benefit analysis, government programs that provide benefits that at least offset the costs can be implemented. Those that don't should be reconsidered cost benefit analysis was not practiced. And around this time, when common sense economics was abandoned. And we began to abandon as a state fiscal discipline and ensuring that government was efficient. Let me now speak about how environmental regulations have, in some sense unintentionally created California's housing crisis. Now, a large literature has emerged in the last 20 years that has studied how CEQA has impacted building. And the conclusion is that CEQA has reduced housing supply and substantially increased construction costs. Now many in the state legislature know this. Last year when a housing reform bill was advanced within the legislative assembly. The assembly noted that CEQA has been weaponized to fight development. To give you an idea of how important this has been between 1940 and 1970. Now this was really the heyday of California growth. When California added over 10 million people during that time the California housing price premium California housing cost about 35% more than the rest of the country. So it's always been more expensive to live here, but only by about one third. Now, despite that remarkable growth we had between 1940 and 1970 that 35% premium didn't change. And the reason is because simple economics supply was able to grow and accommodate that huge population influx. In 1970 construction dropped. And that 35% house price premium rose to 80% by 1980 just a decade. Today California is home to 10 of the 10 of 11 of the most expensive housing metro areas in the country, and 10 of the 12 most most expensive rental markets in the country. As well as restrictive zoning that often is based on environmental reasons, but deep down might reflect more than not in my backyard view. These aspects of policy are viewed as the primary reasons why supply hasn't been able to expand, and also for why construction costs have become so high. According to California California Association Realtors, the average single the median price single family home in the state is $711,000 the median condo $520,000. Well, in the rest of the country is single family home median prices $297,000 that 35% premium increased to 137%. To put that to put that perspective, if that 35% premium had just continued today, the median price single family home wouldn't be over $700,000 it would be about $400,000. And as we have failed to build enough housing that spills over into the rental market, median California rent of $2800 twice as much as in the rest of the country. An example of just how efficient sequel has been in terms of impacting housing and why costs have gone up so much in 1994, a 60,000 population plan community was plans were submitted for an area near Valencia, California about 35 miles outside of LA. So this was going to be a Los Angeles bent bedroom community. It was known as new hall ranch. And that was in 1994. I like to say that in 1994, your go to place for entertainment was blockbuster video, only one in four homes had a personal computer and the internet was was was unheard of. No Amazon. No, no, no Google, no smartphones. Later, sequel related lawsuits have been finally resolved. Maybe in 2021 we'll see the first homes. This has been enormously inefficient and socially costly. It didn't have to be this way. Our policymakers paying attention. Where's the accountability. Now, here's a statistic if you're in the construction business or if you built a home recently or if you remodel a home recently this is going to grab you. And this really points to how policies have affected efficiency and also the loss of fiscal discipline. Today building affordable housing in our state costs about $700 per square foot. It shouldn't be it shouldn't be nearly that costly. John Cox who ran for governor in 2018 once remarked, I build I build very, I build very solid quality housing in Illinois for $180 a square foot. The plan seems to cost $700 per square foot to give an example. Santa Clara County, just this past summer, bought an extended stay motel. They purchased it for $14 million. The plan was to convert that motel with it's a two room, it's a two room motel units have two rooms there's a kitchen net there's a small living area there's a bedroom is 300 square feet. So we're going to convert that to apartments for affordable housing for the homeless. Well, in the in the parlance of the real estate industry, this should be considered as a flip. It's purchasing a motel, but it's going to is going to just converted into apartments. Nothing was going to be done, except adding a communal kitchen. Turners on a range and two or three Evans laundry facilities and some outdoor recreation. Well this entire project is going to cost 29 million 14 million to purchase the motel and the land and then 15 million to add in a communal kitchen laundry facilities and a little bit of outdoor recreation. So something is doing something's terribly wrong here, but no one in government seems to be questioning this again where's the accountability. Well, speaking of loss of fiscal discipline immediately after 1970 the state budget began to skyrocket. It rose 142% between 1970 1978 and voters responded by passing proposition 13 which limits property taxes. That was done to try to slow tax increases but it didn't really work as slow down property tax increases but the legislators responded by raising income taxes corporate taxes and sales taxes. Today California second only to New York and government spending per person. And this is for states of at least 1.8 million population states such as Alaska have very high government spending per person but that's a special situation. So California second New York has the fifth highest personal tax burden and the third highest business tax burden. And taxes and the budget are not only going up but we've been implementing regulation upon regulation and we've been losing businesses. Bank of America Hewlett Packard Toyota, Occidental Petroleum are just some of the major companies to have left California and they have already located the low cost states primarily Texas. And as we're finding out in COVID, as we figure out how to run businesses with workers who are remote. This is just going to continue unless we make changes. Why are they leaving. We're 49th and business friendly policies according to the tax foundation, and we're 48th and economic freeing code according to the Kato Institute. Again, our policymakers listening. Where's the accountability, it doesn't have to be this way. Now returning the environment, this is very sad and ironic because some environmental policies are actually damaging the environment. And this is why we haven't thin forests, as much as we should have, or we haven't conducted as many prescribed burns or we haven't created as many fire breaks. Well, those are made difficult by environmental policies. A very sad statistic is that since 2005 the last 15 years, California has worked very hard to reduce is carbon footprint. And the policy regulations have been implemented to reduce that footprint. Well, the carbon emission reductions that we've seen since 2005 have been roughly offset by carbon emissions from the wildfires that occur annually now. Not to mention the particular pollution that comes from these wildfires, not to mention the lives lost or other lives that are forever changed because of these wildfires. So a better illustration for why cost benefit analysis is so important. Our policymakers paying attention. Where's the accountability. Our failure to invest in transportation also ironically damages the environment. In California has been estimated the consumers burned 300 million additional gallons of gasoline annually relative to the national average by sitting in traffic. In three California counties, 10%, almost 10% of commuters are what's known as super commuters. We have people who live in Stockton who drive 90 minutes, two hours each way from Stockton to San Francisco or from Stockton Silicon Valley to be able to access those high paying jobs. But they live in Stockton because they can't afford the 1.5 million median priced home in California or the 1.1 million median priced home in Silicon Valley. So ironically, we're burning tons of gasoline and creating a bigger carbon footprint because we failed to invest in transportation. A hope was that high speed rail passed by California voters in I believe 2006 was going to make was going to be a game changer. Well, as many of you know, high speed rail which was which was supposed to have been a $33 billion budget completed by 2018 and that was the vision that was sold to taxpayers who approved the bond to do that. That's morphed into 98 billion today to be completed in 2029. It won't be completed. It will soon be out of funding. What we might have is rail service between Bakersfield and Berset. What happened Pat Brown's dictum respect the taxpayer use those precious tax dollars wisely. Incentives, efficiency and accountability. It doesn't have to be this way we should have been able to do better. Let me spend our many time talking about restoring the dream. No magic ones needed. We just need to return to the application sensible economics and cost benefit analysis and focus our leadership, the way government Pat Brown did back in the 1960s. We've got to incentivize efficiency within government organizations increase of accountability. And policymakers newly need to understand the budgets are sacred those tax dollars are precious. We have amazing technologies available now so that we can protect the environment and make investments and support our growth. Housing build more, not just affording, not just affordable housing bill more of everything. We need to reform sequel and other regular and other regulations to make it easier and less costly to build. And we need to develop inland California. San Francisco is about 900,000 people. It's never going to be home to three or four million. And we could easily fill San Francisco up with three or four million. But we have remarkable resources and interior California. We should leverage remote work. The silver lining to the covert crisis has been to show that we can run businesses with workers were working remotely. And this is a big plus and we can repurpose commercial buildings that might no longer be needed for housing. We have to restore efficiency and accountability. Two thirds of our state budget is just for three areas K through 12 health and human services in the prison system. And I think everyone has looked at these areas, unbiasedly agree that all should perform much better. And the way that we can make them better is by implementing efficiency and accountability and reviewing compensation standards and shifting to a compensation system where we really make use of merit based pay. Right now, state worker compensation is twice as high as in the private sector. And there's not to say the state workers are overpaid, but it does indicate that we should have a broad base review of how we're setting compensation schedules. Let me just let me just note, let me just begin with the prison system and you'll get a sense again of efficiency and accountability. California prisons cost $85,000 per inmate twice as much as the rest of the country. Why is that? Well, one reason is the California prison guards using is incredibly politically powerful. They've been able to negotiate compensation that's twice as high as the national average. And sadly, they've also resisted reforms that reduce that would reduce recidivism. In California right now felony recidivism is two thirds within two years, meaning that the chance of a felon who's released will be back within prison within two years at about a 67% chance. Even though we spend $85,000 per inmate only 3% of that budget is spent on edgy on prison on inmate education job training and behavioral therapy combined just 3%. So it seems obvious what what to do here repurpose the budget review compensation and make sure that the incentives to reduce recidivism do a better job in helping inmates and make sure there's accountability that's got to be part of the solution. This is 10% of the budget 14 million Californians are on Medicaid. It's it's known in a series of auditor reviews that it's inefficient and that there's inadequate accountability, including 4 billion paid in eligible claims. The 2016 review found that integrity and compliance remain problematic remain being the keyword because that was the same complaint found in the 2012 review. There's very poor patient satisfaction with California Medicaid patients increasingly use the ER and urgent care for basic health services. And one notable study shows that health outcomes for those under Medicaid about the same as people that don't have insurance whatsoever. There's a number of market based recommendations that have been made by people are experts in this area. I'm just going to focus on one which is requiring pricing transparency by providers. It's been shown that this can reduce costs by 40% or more. People often talk about the market for health care. Well, it's an incredibly distorted market. It doesn't I wouldn't even call it a true market because in what type of market can you fail to find how much is going to cost. This is what health care has become. So we need to require price pricing transparency and give consumers the tools and incentives to shop around and choose cost effective health care. K through 12 education back in the day California schools were the top today were 44th and math were 38th and reading. And yes, California is it's challenging to provide quality education, but it can be done. Marshall tuck who nearly lost the 2018 state school superintendent race had a platform of merit and specialist based pay. The best teachers are incredibly important pay them what they're worth. Someone who really can teach math or science, they're incredibly important. Make sure we can pay those specialists what they're worth. He also advocated sensible teacher tenure reform, and he has remarked that how K through public education hasn't been very innovative. So he wants to create a mindset of innovation. These people people are finding these changes very interesting tuck narrowly lost the state super school superintendent race in 2018 so I'm optimistic about those changes. There's many things I didn't get a chance to cover but I appreciate your patience. I'm saying, there's a better way. Return to standard economic principles and guiding policy making the kind that worked well that served us the 1950s and 1960s priorities what we prior prioritize what we really want. We want lower costs of living good schools, the ability to find good jobs the ability to keep businesses here, and we want to protect the environment, and we can do all that. We do it by increasing efficiency by making sure incentives within within the organization of policymakers are in line with the incentives of citizens and making sure there's a California and making sure there's accountability. This will help restore the California dream. Thanks so much special thanks to Ambassador Frank Baxter and to my colleagues at Berkeley UC Berkeley social sciences and political sciences for making all this possible has been a privilege to have this opportunity, and I really enjoy spending my time with you and I'm looking forward to your questions comments. Thank you very much for that very thoughtful and very provocative presentation and really the topic of your talk provoked a real cord among among people at Berkeley and in the broader Berkeley community because we've had so much interest in this talk and had I think 130 questions submitted even just before your talk started. So I've spent a little bit of time going over those questions and and trying to look for the broad themes and probably the biggest theme that people wanted to ask about and I think it follows pretty well just right on your conclusion slide there is they they want to know if you were governor. What would you do first what what are the sort of practical or practical steps that could be implemented in California that would start to improve all these problem with housing costs and homelessness of wildfires infrastructure. This is the, you know, it's easy for me to sit down and say all these things. And now I'm saying I'm going to take Governor Newsom's place. You know, interestingly, Governor Brown, in his last couple years in office came up with some very very I think very interesting and common sense suggestions to reform sequel. And I think I would start there because housing costs become just just so difficult for many Californians to deal with. I'm the dad of I'm the dad of three and when I look at the chance of my kids being able to live in California, when they grow up. I just say this is going to be really really difficult. So I would reform sequel I would expand ministerial review so that would essentially allow local local areas to just avoid sequel. I would really try to incentivize development, just off the coast because a lot of the challenges we face in building new housing is an area such as San Francisco which as I mentioned is, it's 900,000 we're not going to put 80 story skyscrapers and they're going to house people. It'll be much easier to do this off the coast into inland California and California is is not a particularly densely populated state. Once you get inside 30 miles of the coast. It's really there's a lot of open space. So, developments such as New Hall Ranch 60,000 people. I would really try to promote creating new communities where we can implement the newest technologies that would be the most environmentally friendly most ecologically sensitive. I would implement really implement high speed internet and technological technology investments throughout the Central Valley so those folks don't have the same advantages as we do. You know, so build and build more is what I would really focus on. Governor Newsom knows this he had what he called a Marshall plan for housing and it hasn't really taken off because the fundamental problem CEQ a and local zoning has been the challenges so I would really try to promote investment or development away from those areas where it is where it's been fought so much. I would bring cost benefit analysis into government decision making more broadly. I would try to make sure that those who run organizations, make sure they're accountable and make sure that efficiency is demanded. We talked about the employment, the employment department and paying out nearly half a billion dollars in fraudulent claims while 1.5 million unemployment claims don't go addressed. That just shouldn't happen so whoever's running organizations need to make sure that they're accountable and that and if they know they're accountable, better things will happen. Finally, I would try to, you know, I would have a real heart to heart with both parties and try to create a vision of more bipartisanship. Neither one listens to each other very much. Democratic party doesn't really need to listen to Republicans and the Republicans become increasingly strident. They're frustrated because they don't get listened to so I would try to create a vision bipartisanship and also try to make a sense of how do we make California competitive again. Do we have regulations that are much more onerous than other states? The evidence says we do. We should reform those. So those are, I think those would be the areas where I would start. Thanks. So if Governor Brown and Governor Newsom both think that some of those reforms and you mentioned CEQA in particular are good ideas. What can, and this is a question that also probably the second most often asked question is what can we do? What can members of the audience do to help get those reforms through? Seems like if the governor is supporting it should be easy, but obviously that hasn't happened yet. Yes. Yes. So there is a group within the state legislature both in the assembly and the Senate. There's a lot of legislation. This is this politically tricky. There's a lot of legislatures who are willing to pull the trigger and reform CEQA or implement new legislation will make it much easier to build. We don't have quite enough yet. So to, so what I would say is that those who listen just make sure your elected officials know that you make sure they know what your priorities are and make sure they really know. You know, the politically, it's politically, you know, this has gone on for so long as a politically tough problem because you have people who have, who put their life savings into a home. So they're living, you know, they're living in Silicon Valley and they're living in a 2000 square foot three bedroom two bath house and they paid $1.2 million for it. And they've have their nest egg is in that house and, you know, by God they want to protect their investment and they don't want to bus station next door they don't want to high rice next door. And I get that. And, you know, we're sort of in this vicious circle now so that's one reason why I think trying to incentivize more development away from, you know, the whipped cream on the pie. San Francisco, Sunnyvale, Los Gatos, Santa Monica, trying to move a little bit out will be politically much more acceptable. And now this would be difficult financially but buying up an entire block. So, so for example, if I'm sitting there and not saying hey I don't want this high rise right next door to me. But you buy up a whole city block and there's areas in Los Angeles that where one could do that, and one could create new communities that would be high density communities that would attract mixed use that would track new businesses. So trying to say hey, this single family home that's eight feet away from you. This is going to become a 12 story apartment building. That's tough to do buying up a whole city block. But again, financially is challenging but we could make we could make that work that would be that would be easier. But but first and foremost, I think people should be telling their elected officials about these issues I spent most of my time trying to identify these issues because I think just as I go through the stages not a lot of people know about this and they'll say wow is it that bad. Wow they didn't pay those unemployment claims. It costs $700 a square foot to build affordable housing. What's wrong here. So I think the first part is really identifying the issues and making sure the elected officials know that we're aware and we expect changes. Thanks. So we also got a number of questions about concerns with failing infrastructure and you brought up some just startling numbers. And I've also seen startling numbers for the US as a whole about low percentage of spending on on infrastructure. What's the evidence around the world or more generally about the benefits of that and how do any sense for how California compares to other states and other similar countries. Yes, the, you know, we get a grade of D, and it's not as if we're the only D student in the class in the classroom. There's been across states but there's been a shift away from infrastructure investments as state budgets are more shifted towards health care and health and human services. California, our share of the budget that goes to health and human services is about a third. And I don't know if that's the very top but it if it's not the very top is certainly within the top four or five states, and certainly much higher than states in the south, including Texas. We just stay on the track run right now, health and human services will probably eat up 40% of our budget within five years. And you know that statistic I gave you that two thirds of the budget right now is prisons K through 12 and health and human services. You know, and then that's just remarkable sissy because people should be asking, how does the other stuff get paid for well, you know, it's not the investments are not being made. So it is a it is a it is a national issue. We're worse off here in California. But there are some reforms that can be made in health care, you know, well, again, politically challenging a lot of hospitals and health care providers, you know, don't want pricing transparency and you ask yourself, well, what kind of, you know, what kind of market is it where I can't get a clear answer from the seller, but how much this is going to cost but the savings could be substantial political leadership from government Newsom and those in the Assembly and Senate is needed. But the sooner we deal with this, the better because that two thirds share of the state budget is just going to continue to grow and really squeeze out investments and all the other stuff that government can do is if we don't make some changes. So another theme in in many, many questions was about immigration and maybe one way of sort of posing the question would be that California has had a very large, large immigration and economists tend to be very pro pro immigration economy, but undoubtedly it raises the costs to government in some ways. And so we had a bunch of questions about how much of California's problems or struggles with government policy are driven by the sort of sizable immigration into the state in the last 30, 30 or four years. So California has, you know, certainly become a state with a much larger immigrant share than than other states. And gave you mentioned economists usually pro immigration and yeah, absolutely. You look at the Fortune 500 today the 500 largest companies measured by market capitalization. Both of those were founded by an immigrant or the child of an immigrant. So here in California we have Google and Sergey Brin, and we have Elon Musk and Elon Musk from South Africa and Tesla. So those are people who not only starting businesses but you know transform the world we live in. And we want to get as many of those people as we possibly can. We do face challenges with unskilled immigrants. And, and this is an issue that the United States has has has faced, you know, for over 40 years for those who are old enough to remember I personally don't remember this but but I read about it recently that during the 1980 presidential race in the Republican Party was George Bush senior and Ronald Reagan, and of course Reagan prevailed and he was elected of Jimmy Carter in 1980. But during one of the debates they talked about undocumented immigration, and this was 40 years ago. So the problem has been with us for a long long time. We would love to get more highly creative highly skilled immigrants into California United States more broadly. There are costs associated with lower skilled immigrants. And, you know, it's a politically challenging hot button issue. They create economic value here, but they also use services that are costly. I wouldn't pin California's housing crisis on on those folks. And I wouldn't point to the losses of efficiency accountability. Those are really separate issues. I've actually tried to find good estimates of the net cost of immigrant of low skilled immigrants. I'm not sure anybody has any so I wish I could cite some numbers but but I haven't found any as yet. Thanks. So another theme that came up in a lot of a lot of questions that would be great to hear your, your take on and you touched on it a couple times during your presentation is about the role that concentrated interests play in causing trouble and generating these problems with California public policy. I think you mentioned prison unions in the questions who are many other concentrated interests came up. And this is not only a California issue but it's an issue that people worry about more generally in California is a big state it's hard to organize a, you know, millions of voters against sort of concentrated interests that can spend all their time in the state legislature, working to achieve their goals. How do we, how much of that drives the kinds of public policy failures that you've been talking about and what, what can we do about it. That classic question it faces us it faces the rest of the country. It's almost in principles almost easier to address in the rest of the country, because there's some obvious changes that one could make such as, you know what eliminate subsidies, or maybe keep them if they pass a really obvious cost benefit test. We say we're committed to climate change. And yet we offer all sorts of subsidies to fossil fuel producers so it's just, it's the right hand doesn't know what the left hand is doing. So, at the national level of meeting subsidies and having a real simple tax schedule, a real simple tax schedule that really minimizes, you know, so that really reduces the size of the tax book from you know this thick down to this thick. So at the state level is harder to do that because I would love to say, Hey, you know what, let's stop subsidizing. Let's let you know, let's just end it you know just somebody comes and ask for it and you say, Hey, what, I can't do it I just can't do it. The problem then is that other states offer those offer subsidies. So at the state level so very difficult to do. So I would love to see a coordinate effort at the national level to say, you know what, everybody wants to get rid of everybody wants to limit special interests. One way, one way we do that is by drastically reducing subsidies drastically making taxes and regulations might simpler, but it has to be done at a coordinated national level across states. I'll defer to you guys in the political science department how we get that done. But it's a huge problem. It's a huge problem. During the 60s. I think it was suppressed a bit because both you know Pat Brown as a Democrat and the Republicans he worked with, there was sort of a handshake deal about what we do and the integrity we bring to the job. And hey, we're, you know, we're going to be efficient and you know what we're not you know we're going to do this but this other stuff we're not going to do. So I think that discipline behavior. Um, so I wouldn't underestimate the importance of having really really focused strong leadership that was solidly behind these principles as possibly making a difference but but, but in but in theory is is a tough is I think we know what to do is a tough nut to crack politically. Well, thanks Lee. I think I just got the signal that we're over time. So, I just wanted to say thank you so much and pass it on to Christian Gordon who's going to close us out and the big round of applause. Thank you so much. I really appreciate it and really enjoyed it. Thank you. Thank you, Professor lens and thank you, Professor ohanian for joining us today in closing the program I wanted to add a few expressions of gratitude. First and foremost to Professor ohanian for giving of his time and his flexibility to reschedule this program and to Frank Baxter and give lens for all of their work to design and implement the program. Thanks to rocker ray for opening up and reaffirming the campus's commitment to providing diversity of thought on campus. Most importantly, I want to thank all of you for joining us today and powerfully signaling how valued and important this type of programming is. We look forward to sharing information on future events along these lines and exploring several different areas, some of which Professor ohanian touched on today. But you're showing up, you're giving up your time, and you're coming together around this topic is a powerful signal and thank you. I want to thank the honorable Frank Baxter, it's been my pleasure to work with him over these last six years that I've been at UC Berkeley, half of the 12 Baxter Liberty Initiative events that we've held. And I want to congratulate Frank on the amazing turnout today, and the affirmation of his partnership, which was launched 12 years ago, within Dean of Social Sciences Carla Hesse. And Frank Baxter and people express the importance of providing forums for diverse viewpoints on campus, and Frank Baxter did something about it. We should all take inspiration from that and share our gratitude that he has created through his generosity, his thoughtfulness over a decade of powerful programming that is open the door to several relationships for us, exploring and hosting the American Enterprise Institute's Western Regional Policy Summit, advancing relationships with speakers like Arthur Brooks height, Greg Lucianoff, and now Leone and a tremendous legacy of speakers and programming. So Frank, thank you for all you continue to do for your commitment and your effort in support of our students, our alumni, our faculty, and our community. Thank you again to all of you and best wishes for a restful and peaceful holiday and New Year. Thank you.