Should California Be Broken Up?

By now, almost everyone agrees that California government is seriously dysfunctional. The state suffers from a grave fiscal crisis, extraordinarily high taxation (which, however, is still not enough to finance the state’s exorbitant spending), overregulation, and numerous other problems. “Governator” Arnold Schwarzenegger has been no more able to curb these tendencies than his much-reviled Democratic predecessor, Gray Davis.
Steven Greenhut suggests that California’s problems are structural, not merely the result of bad decisions by individual politicians. He argues that the Golden State’s people would be better off if it was broken up into three or four separate smaller states. The idea of partitioning California is not a new one; but it has never been more timely. While I don’t necessarily endorse Greenhut’s specific proposal, I do agree with the general argument that California’s problems stem partly from its excessive size. With some 38 million people, California has about one-eighth of the nation’s population.

Normally, the ability to “vote with your feet” is one of the strongest checks on dysfunctional state policies, a point John McGinnis and I discussed in this article. If a state government has poor economic policies, excessive taxes, or bad public services, taxpayers will tend to migrate elsewhere, putting pressure on the state to clean up its act. That, for example, is what happened with my own home state of Massachusetts when it lost population to southern and western states in the 1970s and early 80s. Even if the poorly performing state government doesn’t shape up, at least migration will reduce the number of people who have to put up with it.

California has been largely insulated from foot-voting pressure because of its huge size, and the way in which it monopolizes most of the desirable parts of the US West Coast. Because of these geographic advantages, the cost of leaving California is often much higher than that of leaving most other states. As a result, Californians have had to put up with more abuse than most other state governments could get away with.

If California were divided into three or four smaller states, the cost of exit would be lower, and the new states would have strong incentives to compete with each other for people and businesses. Foot-voting would be a far more viable option. Of course we wouldn’t want states that are too small to exploit economies of scale. However, each of the new states would probably have some 8 to 14 million people, more than such medium-size states as Virginia, Washington, Indiana, and Massachusetts, which few if any believe to be too small.

In recent years, the situation in California has gotten to be so bad that people really are starting to leave; the state has had more out-migration than in-migration for each of the last four years. But the numbers leaving are still small relative to the total population of the state.

Dividing California would accelerate this trend. Moreover, it is likely that at least one or two of the newly formed states would almost immediately have far better policies than today’s California. Thus, millions of people would get to live under better policies without having to move at all.

There are various practical obstacles to a successful partition plan. For example, the new states would need to find a way to divide up California’s enormous public debt. In addition, the Constitution forbids partitioning a state without its consent, which probably means that the current California legislature would have to agree to any partition. Despite these problems, the idea is at least worth considering.