California’s New Class Divide

N ear the end of the Second World War, economist Friedrich Hayek wrote the prophetic book The Road to Serfdom. It warned that postwar socialism, if it took hold and centralized economic planning and control, would inevitably lead to the erosion of individual freedom and opportunity. The result would be a form of servitude subject to the arbitrary will of the state. It took nearly 50 years for the people of Eastern Europe to successfully revolt against their masters.

Fans of Hayek’s work have included Winston Churchill, Margaret Thatcher, Ronald Reagan, and Elon Musk. Now, a new group of thinkers is applying some of Hayek’s lessons to progressive California. An elite of technology and real estate oligarchs, they argue, have combined with a powerful state bureaucracy to hold power over a hard-pressed and growing class of working- and middle-class residents. Many of these residents are fleeing to other states or even to the countries they originally came from.

In The Coming of Neo-Feudalism: A Warning to the Global Middle Class (2023), Joel Kotkin, a demographer who teaches at California’s Chapman University, minces few words:

This model could best be described as oligarchical socialism. The redistribution of resources would meet the material needs of the working class and the declining middle class, but it would not promote upward mobility or threaten the dominance of the oligarchs. This represents a sea change from the old industrial economy. Rather than acquiring property and gaining a modicum of self-sufficiency, workers can now expect a serflike future of rented apartments and frozen prospects. Unable to grow into property-owning adults, they depend on subsidies to meet their basic needs.

Of course, all of this is glossed over by the apologists for Californian progressivism, who insist that the state offers a model of a modern, technocratic future. During his perpetual tours in preparation for a likely presidential run, Governor Gavin Newsom touts his state’s technology industry and claims that California would be the fourth-largest economy in the world if ranked independently. But when and if he runs for president, he will have to explain how the Golden State has become a tale of two economies, where great wealth coexists with the highest unemployment rate in the nation, job growth is stagnant, and the cost of living has driven much of the middle class to seek less costly pastures.

Michael Bernick, a former director of California’s Employment Development Department, says the state now has a two-tier economy, which has magnified inequality:

The state legislature has imposed an empire of rules and costs that has undercut the ability of California employers to create stable, decently-paid jobs. In the place of a jobs strategy, an expansive benefits system has been assembled. . . . It is one thing to serve others and another to serve others in a position of low pay, status, and authority.

Bernick says it’s important that liberals ponder how their purported concern for “social justice” has created for many Californians a vicious cycle of growing equality, failing public schools, and low-wage jobs with little professional mobility.

California has the nation’s highest rate of poverty when you factor in the cost of living — 18.9 percent in 2023, or more than 7 million people. More than half of this group is Hispanic, and one-seventh is black. In some high-cost California counties, adults who make $100,000 a year are considered to be poor enough to qualify for government housing subsidies. Its dismal public schools put it in 37th place in educational attainment among all the states. Californians without high school diplomas are almost four times as likely as college-educated Californians to be poor.

Very few Californians in poverty will ever be able to buy a home, contribute to retirement accounts, or build any generational wealth they can pass on to their children. Bernick says the Golden State’s economy now resembles Upstairs, Downstairs, a 1970s British television series that contrasted the comforts of a wealthy family with the limited future of its “downstairs” servants. According to Bernick, California’s highly educated professional and tech-based “upstairs” workforce is increasingly distinct from its “army of Downstairs service economy workers who serve them.”

How can we prevent this dystopia from spreading to other places, such as Chicago, New York City, and Boston, where similar signs are already showing up?

Bernick says the local economy should be freed, more choice should be offered in public schools, and punitive taxes should be reassessed. But a necessary start would be a strong dose of honesty from progressives: “The equality politics and rhetoric of the state’s Upstairs workforce bear little relation to their high degree of entitlement today, and how the state’s economy actually is operating.”