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California versus Texas – a tale best told through fishing parable

California represented everything that is good

Since I was old enough to understand the concept of what a state was, California has represented everything that is good, fresh, growing, and beautiful. Everyone wanted to live here. Commerce grew in leaps and bounds since my childhood. Name an industry, it thrived. Our real estate was some of the most valuable dirt in the world. Regardless of business cycles it thrived, climbing to new heights after every temporary downturn. Population never stopped increasing. I realize how this all sounds, like a fantasy, but I lived it in real time from the 1950’s to now.

How dynamic was the growth? I’ll use my adopted hometown of San Diego to illustrate. As a proud 10th grade graduate I moved to San Diego from up interstate 5 in Orange County. I was 15, it was the beginning of summer 1967. The county’s population was roughly a million people. By 2005 or thereabout, the city limits was that much, and the county sported 3 million people. We went from a highly populated Mayberry, to OMG! we’re becoming like Orange County and L.A. To be accurate, San Diego merely mirrored most of the rest of the state. Business was almost always good to great. Real estate always went up over time, sometimes way up.

Then things began to change. More on that later.

Texas ain’t the Texas we all came to know and love

Texas, as many have discovered, ain’t the Texas we all came to know and love. You know, the cliché Texas. It’s now in pretty much every way how California used to be. It’s open, and free, and overflowing with real, not faux opportunity. Its employment base is now as diversified as any in the nation. No longer a one trick pony, completely reliant on oil, it now thrives on the dynamics of an unfettered market place, which rewards value, efficiency, and hard work. In other words, they’re now almost maximally diversified when it comes to employers.

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Doing business there, I visit frequently. The atmosphere is one of ongoing, dynamic success. I say this several times weekly, but go to any Starbucks in a large Texas city. Swing a dead cat and you’ll hit a couple of venture capitalists. People, capital, and new or expanding businesses are no longer even news these days. The surprise is that the business, capital, and general investment isn’t just coming from other states, but from around the world.

My experience is a microcosm of this. A large minority of the competition for the product I covet comes from another continent. Everyone knows their capital and hard work are safe there. California? It’s been sad to watch.

What’s the core difference between the two states?

I think it can be illustrated by the classic tale of two fishing villages. Most of us have heard this story in one form or another. In a nutshell, one village believes those families with the poorest fishing skills are entitled to take fish from those who are relatively or highly successful. The other village believes it’s most skilled fishermen should take time to pass on their skills to those less talented — teach them to be self sufficient. Everyone keeps what they earn.

The former believes in equality of results. The latter prefers equality of opportunity.

Over time the most prosperous families in the first village end up leaving in order to live in the the second village. They grew tired of having the results of their hard work and honed skills, stolen from them. It troubled them further that the stolen fish went to families who fished little or not at all, knowing fish would be delivered to their doors anyway.

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Taker Village vs. Teaching Village

Before long, the “Taker Village” discovered most of their best fishing families had disappeared, having fled to the village promising that they wouldn’t steal their fish. They were more than happy to share what they knew with those less proficient.

Before long, the “Teaching Village” had nearly doubled in size.

The “Taker Village?” California is broke.

They’re losing population for the first time in generations. Lousy fishermen from all over the country are moving there for the free fish, and have been for a generation, maybe two. They’re so desperate now that they’re attempting to tax the sale of fish from other villages around the land. This hasn’t been, um, well received.

The lesson being taught

The lesson being taught by the stark differences between the Texas and California economies is crucial to the country’s very survival, in my opinion. Where California believes it can steal fish from the most successful fishermen in perpetuity, Texas realizes that’s been a failed strategy since man made the first trade with another man and called it commerce. Eventually the producers get tired of having their wealth stolen, and they do the only thing they can — they leave — and take their skills and wealth with them.

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Texas is showing the country how it’s done. Tell folks you won’t steal what they create through hard work, risk, and sacrifice, and it’s amazing how many people will run, not walk to your state, um, village.

Imagine that.

Written By

Jeff Brown specializes in real estate investment for retirement, has practiced real estate for over 40 years and is a veteran of over 200 tax deferred exchanges, many multi-state. Brown is a second generation broker and works daily with the third generation. With CCIM training and decades of hands on experience, Brown's expertise is highly sought after, some of which he shares on his real estate investing blog.

32 Comments

32 Comments

  1. Mark

    July 27, 2011 at 12:59 pm

    Well done. Truer words were never spoke!

  2. Charlie Elwis

    July 28, 2011 at 10:34 am

    I lived in California my first 54 years and have spent the last seven unhappy years in Texas. Since I have been a real estate broker since 1979, It became clear to me that California real estate would soon go from boom to bust. Memories are short and California tends to have ten-year cycles.
    I dispise Texas. The weather is horrible, the educational system is 47th in the nation, and it is "a right to work state." A Right to Work State in plain English means that you have the right to work for low wages without benefits. The median hourly income in Texas is the lowest in the nation. Texas also has the highest rate of people without health insurance (25%) If I were given an lare enough random sample of photos of the teeth of people throughout the nation, I would easily identify those most likely to live in a right to work state. Their teeth are more likely to be scrambled/missing.
    Futhermore, I expected for Texans to be unusually honest since they have a saying that a man is only as good as his word. To the contrary, I have been cheated more in the seven years I've lived in Texas than the entire time I lived in California.
    Employment in the Silicon Valley is now grawing at 15% per aannum. While California has debt problems, so does Texas. Texas currently as the third highest debt in the nation.
    If it weren't for the fire ants and miserable weather, I'd have nothing good to say about Texas.
    California, here I come.

  3. Manhattan Beach Agent

    July 30, 2011 at 4:25 pm

    You hit the nail on the head! Real estate demand always follows economic activity. Base industry, and a climate favorable to business provides the capital resources required to push housing demand. What we saw in the last housing boom in California wasn't in response to true economic growth; it merely obscured the real story that we're losing our businesses, and population must either follow, or acquiesce to lower standards of living relative to other parts of the country, and world, that attract business.

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