As Harvard public-policy professor Daniel Shoag documents in a working paper, land restrictions became common in high-income enclaves during the 1970s—coinciding with the burgeoning of California's real-estate bubble—and have increased income-based segregation and inequality.
Housing in California is on average 2.7 times more expensive than in Texas. The median house costs $459 per square foot in San Francisco and $323 in San Jose, but just $84 in Houston, according to chief economist Jed Kolko of the San-Francisco based real-estate firm Trulia TRLA +14.01% . Housing in California is cheaper inland than on the coast, but good luck finding a job. The median home in Fresno costs $95 per square foot, but the unemployment rate is nearly 15%, compared with 6% in Houston.
California's staggering labor and energy costs—it has the nation's most stringent fuel and renewable standards—have helped kill hundreds of thousands of manufacturing jobs in California's interior. Note: Those are jobs that traditionally served as entry points to the middle class. The Golden State has shed a third of its manufacturing base over the past decade. And while the U.S. has added nearly 500,000 manufacturing jobs over the past two years, California's heavy industry continues to erode.
Meanwhile, small businesses that can't leave California so easily have been slow to invest because they are financially squeezed. Rents are prohibitive, and Sacramento takes 9.3% of every dollar over $49,000—and 13.3% over $1 million—that an individual or small business owner earns.
By contrast, small businesses in Texas have been sprouting like bluebonnets in the spring to meet the demands of an expanding population. More people mean more mouths to feed, bodies to clothe and homes to build. All told, Texas has added twice as many jobs as California has since 1990. California's rate of job growth since the recession ended in June 2009 has trailed Texas's by two-thirds.