Who Knew Newsom Was Such an Economic Maestro?

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1:20Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Governor Gavin Newsom runs a state that is not just one of the largest economies in the world, but also one that's grown faster than China or Germany since the pandemic. Bloomberg Businessweek spoke with California Governor Gavin Newsom back on January 29th in a Bloomberg Newsmakers event. We are the fourth largest economy in the world, not the sixth. We have more Fortune 500 companies than we did since 2019. By the way, Bloomberg data, 49, now it's 58.

1:57We dominate$405.6 billion output, 13.9 % of the nation's manufacturing. No one comes close,$62.1 billion, just as it relates to agriculture. We haven't been sitting back on some of these structural issues. I inherited the most blessed and cursed state in America. That was Governor Gavin Newsom at a Bloomberg Newsmakers event back in January. The governor was also the Businessweek cover story back in November. You can check out that story on the Bloomberg Terminal. Matt Winkler also spoke to the California governor for his most recent column. He joins us here in the Bloomberg Interactive Brokers Studio.

2:33Matt is Bloomberg News Editor and Chief Emeritus, and he joins us here in New York. Matt, I was telling you I'm a Californian, so I love talking about California. I drive Carol crazy talking about California. But I love that state too. I want to talk about the economic miracle that is California right now and what you found in the data. But I want to start going back 150 years plus to the point about education that you make in your column. Because I think that's a good place to start when it comes to how successful California has been. Right. So California became a state in 1850. and just 16 years later legislated that everyone aged 8 to 14 had to have an education.

3:13It was compulsory, and it was one of the first states to make it compulsory. Now, put it on fast forward. Today, California has something like 640 colleges and universities, includes community colleges, of course. That dwarfs anything else in the U.S. The next closest state is New York with 400-something, and then you've got Texas and then Florida. But California just dwarfs the landscape with higher education. And not just in the U.S. I mean, we're talking about much greater than the U.K., you could say, the seed of learning in some ways. And Germany, where, if you like, the Renaissance humanist tradition begins.

3:58and there is California by itself dominating, graduates more engineers than any other state in the country, and those engineers get higher paying wages in California than any other state in the country. So that's the education piece. All right, so that's over its history, and you think about the payoff of doing that and year after year after year. Let's talk about Gavin Newsom in terms of his tenure there because I think this is an individual, Matt, as you know, we've talked certainly around this table, other news organizations about, you know, what he does next and the impact he could have potentially if he runs, you know, for president of the United States.

4:33But talk about his impact specifically and kind of where California is today. You know, there's something called the hypocritic oath, which is do no harm. Yeah. And so he begins in 2019. It just so happens that if you go from 2019 to the present, California, by every measure we have on the Bloomberg terminal, outperforms every state in the country in terms of GDP growth. But it's even better than that, because if you look at the Philadelphia Coincident Indicators, which measures much more than just GDP, it measures employment, inflation, all these things that go into what is a well-performing economy.

5:12And California, again, outperforms the U.S. right at the time that Gavin Newsom becomes governor. Okay. It wasn't that way before. It happens coincident with his becoming governor. Now I say better lucky than smart, right? He would agree with me. But the fact of the matter is that by every measure you look at, the surge in equity performance by California companies, you know, 40 % appreciation. We're talking about an economy and a state that has less than 12 % of the U.S. population. It accounts for 40 % of the equity growth in the U.S., okay? So that's big and small companies alike. That's the Russell 3000.

5:58And if you look at things like health care, California's investment in health care and return on health care has surged to all-time highs during Gavin Newsom's tenure. So all of these good things happened. You know, you could say he is lucky, but the fact is they're all happening at the same time. And in a political context, he is literally the opposite of the Republican Party led by Donald Trump, literally the opposite. He was the biggest defender of Bidenomics, which now looks pretty good, doesn't it, everybody? And the whole time that Biden was being criticized, Gavin Newsom was there saying day after day, no, this is the economy that works.

6:43And he was referring to the U.S. economy, which California is a big part of. Well, can we just go like also on that? Because we're in this interesting time where it feels like there's a pushback on renewables and alternative energy, and California has always led the way. But they are still doing really well in that regard. Absolutely. Clean energy in particular, which is something that Gavin Newsom talks about a lot, as you would expect he would. Clean energy companies in California outperform the world. and there's nothing close in the U.S. that comes close to the performance of clean energy companies.

7:16And we're talking about companies that are 100 million or more publicly traded. You know, this is significant. And yet many companies in the last few years have moved out of California. You have Charles Schwab, you have Hewlett-Packard Enterprise, you have Chevron a couple years ago. You have corporate headquarters. Okay, Tesla's - Well, go there. Tesla's 23 ,000 people who work in Fremont, California. The most made in America car, okay, is a Tesla. And 23 ,000 people at least make that car in Fremont, California. So Elon Musk left. But you know what? He came back when he moved his corporate headquarters to Texas and R &D.

7:59And by the way, California is the leader in R &D headquarters worldwide. Okay, so it's not just U.S. companies that put their R &D in California. It's BMW. It's all the companies you've heard of. Okay, so a year later, Gavin Newsom gets a phone call, which he says you'll never forget. You'll never forget. It's Elon Musk. And he says, I'm surprised you're picking up the phone because he's been decrying California's taxes, regulation, prevailing media narrative over and over again that California doesn't work. And he says, I need your help. I can't find the talent that I need in Texas. I'm coming back to California.

8:37And you include that in the piece. And I love that that part of the piece, because it speaks to back to the education part of this, which is finding the right talent for these companies. But it does raise the question, Matt, I think about why California and why Gavin Newsom have become this sort of boogeyman. Is it because he's the polar opposite of President Trump? Is it because maybe he has ambitions for the White House later in his career? You know, the California story precedes President Trump. OK. You know, when Jerry Brown was governor, he was actually a champion and friend of Elon Musk and, you know, famously did everything he could to help Tesla become the vehicle that it is with subsidies and everything else.

9:21So California, by policy, has supported clean energy long before many states did, has done lots of things that are part of the innovation story that we're talking about. And it goes back a long way. You know, if you asked, by the way, who leads California companies, you could go, you know, to Bloomberg, ask B, artificial intelligence, and you'll find it's the immigrant to get the job done. And California is a destination for people around the world. Yeah, exactly. No, it's interesting. You know, we've done broadcasts at Stanford and so on and so forth. And you just think about, you know, that is an institution.

10:01And there's others that are so entrenched in the startup community. And their student base is so much part of it. And those entities often become significant companies. I think it's just such a core of who. So here's an example. We had this really awful catastrophe called the fire, wildfire in Los Angeles. which we all saw and which was in front of us for quite some time. Everybody's rebuilding. Nobody's leaving. All these people in L.A. who had homes there, they're rebuilding. And look at how much the lots are selling for if people are selling lots. Yeah, so what does that tell you? And the other thing is that the population of California, 39 million, has been constant now for a couple of years.

10:44It declined during the COVID, if you like, debacle. but it would be so much greater if we weren't restricting immigration because this is where everybody in the world wants to come. So what are the lessons that the rest of the country can learn from California? Well, one thing is that it's all about the diversity between your ears, not what's in the ground. You know, the diversity between citizens ears in California accounts for its GDP for the most part. You could say fossil fuel maybe is a little more than a third of Texas in every respect. That's the difference. So innovation comes from human endeavor.

11:34And that's what California has always been about. Of course, it's blessed by natural resources. Because, you know, 40 odd billion, I think it's 40 odd billion dollars comes from forestry, agriculture and so on. Right. And most of the almonds consumed in the world are grown in California. So there is that piece of California that doesn't go away. Is there a risk? And, you know, this is beyond the scope of our discussion, but just because you're so focused on the state, I'm curious if there's a risk of incredibly wealthy people leaving, in your view, California, because there's been a lot of hay made about a proposed billionaire's tax.

12:11If the state loses that tax base, does the state take a big hit? There's no evidence, by the way, to suggest that high taxes are the cause of economic decline. That's the best way to put it. And I come from a state called New Jersey. Okay. And we have the highest, I think we have the highest taxes. Certainly, we live in California. And people just can't wait to buy a house in New Jersey as it keeps going up in value. Yeah, it's really interesting. You know, we talk so much, you know, what goes on in California, you know, if it makes its way across the country. In doing this column, just 30 seconds left.

12:55What's the takeaway, you think, for everyone? Well, with California, the best is yet to come. Interesting. What about for Gavin Newsom? Did he tip his hat? Wouldn't surprise me, actually, given where he is and what he's done and where he's positioned and given what the opposition is. He looks pretty good for a Democratic candidate, which is why he's the betting favorite. Yeah, fascinating. Great read. Lots of stats like we love here at Bloomberg to really kind of put something in context. It's all about the data. Matt Winkler, thank you. Always appreciate it. He is, of course, Bloomberg News Editor-in-Chief Emeritus, joining us right here in our Bloomberg Interactive Broker Studio.

13:31His story, it is on the Bloomberg. You can find it also at Bloomberg.com.

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