By many measures California’s economy is an enormous success. If it were an independent country, the state’s GDP would make it the world’s fourth-largest economy. Widely recognized as the world’s technological leader, it is home to a remarkable concentration of powerhouse companies, including Nvidia, Alphabet, Meta, and Apple. California has long been at the cutting edge of the nation’s efforts to defend consumers, confront environmental problems, foster innovation, and speed the transition to a decarbonized economy.
Yet these successes sit alongside alarming and growing weaknesses. The gains from the state’s most dynamic companies have been highly concentrated. They have generated spectacular wealth for a few, but far fewer jobs in the state than great companies did a generation ago. Measured by one common standard, California has the country’s third-highest level of inequality. The state has also found it increasingly difficult to build and sustain the infrastructure needed to ensure a high quality of life for Californians. Its mass transit systems are in crisis; the costly effort to build high speed rail has been a debacle.
Most catastrophically, California has failed to build the new housing it needs. This has sharply raised costs for Californians. For far too many, it has simply made housing unaffordable, leading some to seek opportunity elsewhere while staggering numbers fall into homelessness. Energy prices in the state have also soared, and their impact falls hardest on the bottom half of the income distribution. The combined impact of growing inequality and rising costs has meant an affordability crisis. Indeed, once the cost of living is taken into account, prosperous, innovative California now has the highest poverty rate in the nation.
BESI’s Political Economy of California program was introduced to investigate this state of affairs and point towards responses that would generate more durable and broad-based prosperity. We focus on what we see as the most significant challenges, especially for the state’s most vulnerable populations. There are many negative caricatures of California’s economy and its governance. Our purpose is different: while recognizing the state’s achievements, we offer a clear-eyed examination of shortcomings, along with guidance on how these problems might best be addressed.
At the heart of our investigations is the recognition that these poor outcomes typically result from failed governance. All too often the state’s policies (or the uncoordinated accretion of actions and inactions that substitute for clear policy) are ineffective or counter-productive. Policy failures are typically products of political failures. By grounding our investigations in political economy, we highlight the truth that politics profoundly shapes California’s economy. Politics often yields outcomes quite divergent from the ones that policy analysis suggests would foster genuine, broad-based prosperity for Californians. Indeed, our investigations point to a recurrent pattern: California policymaking too often favors “incumbents.” Individuals and organizations who already occupy advantaged positions have the upper hand. Even when their advantages have brought unfortunate consequences, they are too hard to challenge, standing in the way of those simply seeking the chance to share in the opportunities the state has traditionally offered. California policymaking has too often become the politics of “no,” the defense of those who got here first, or the doubling-down on approaches that have failed.
The Political Economy of California project is undertaking multiple initiatives to address these vital issues. In this white paper series, we begin with the scale of the affordability crisis in the state, followed by detailed analyses of the core policy failures and an assessment of how the political obstacles to reform can be overcome. We hope these investigations prove useful for those seeking to secure a better quality of life for all Californians.
March 12, 2026
California is less affordable and poorer than it should be given the strength of our economy. In Part 1 of our white paper series on making California more affordable, BESI researcher Sam Trachtman lays out the basics facts, including that California has the nation's highest poverty rate when accounting for cost of living.
April 24, 2025
BESI Political Economy of California senior researcher Samuel Trachtman explains the red-blue state cost-of-living divide.