California has often been at the economic forefront of the country. Now, as fears of a national recession linger, the state is hoping not to lead the way.
While California’s economy maintains its powerhouse status, surpassing even that of most countries, the state’s most powerful sectors, including tech companies and supply chain logistics, have struggled to hold their ground, battered by high interest rates, investor jitters, labor struggle and other tumult.
Even the weather hasn’t cooperated. Severe flooding for much of the winter, caused by atmospheric rivers, has devastated farming communities in the Central Valley, causing hundreds of millions of dollars in crop losses.
Thousands of Californians have been laid off in recent months, the cost of living is increasingly astronomical, and Governor Gavin Newsom revealed in January that the state faced a $22.5 billion deficit in fiscal year 2023-2024, a drop nosedive from the $100 billion surplus a year ago.
“It’s an EKG,” Newsom said at the time, comparing a graph of the state’s income to the sharp spikes and dips in the heart’s electrical activity. “That pretty much sums up California’s tax structure. It sums up the rise and fall.”
The structure, which is based in large part on taxing the incomes of the richest Californians, often translates to busts when Silicon Valley and Wall Street are jittery, as they are now. Alphabet, the parent company of Google, one of the state’s most prominent corporations, said in January it was laying off 12,000 workers worldwide, and Silicon Valley Bank, a key lender to tech startups, collapsed last month. past, prompting the federal government to work to limit the consequences.
This has coincided with a drop in venture capital funding, as rising interest rates and recession fears have led investors to become more risk-averse. That money, which fell 36 percent globally between 2021 and 2022, according to management consulting firm Bain & Company, is critical to Silicon Valley’s ability to create jobs.
“The technology sector is the workhorse of the state’s economy, it’s the backbone,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University. “These are high-income people who may not be able to carry the state on their shoulders as much as they have in the past.”
