Gavin Newsom Thinks America Has a Trust Problem

One word answer, housing. It's the original sin in California. We're as dumb as we want to be for decades and decades. Simply, we're not creating enough supply and demand grew. NIMBYism reigns supreme. And so, it is the issue that defines people's anger. It's the issue that defines my anger.

I am at Ronald Reagan's old abode, the old governor's mansion, which rarely am I able to do a podcast out of here. So, I'm looking forward.

Seven. It's been a little over seven and a half now. Yeah.

We've — or we — I'm a native of California. We've gone from fifth to the fourth largest economy in the world. A lot to brag about. Also a lot of residents, you know, the state like anything else is a product and you have to offer a great service at a reasonable price.

One word answer, housing. It's the original sin in California. We're as dumb as we want to be for decades and decades. We, you know, forgot about our seventh grade econ class. It's supply and demand. And we simply were not creating enough supply and demand grew. NIMBYism reigned supreme. I've got mine. And people fought hard against new construction, about around investment, and that created so many of the problems. In more ways and more days, so many of the issues of the state of California can be defined by that. The issues of homelessness, perfect example, a byproduct of the failure to build enough housing and address that issue. And so, you know, when it goes to your question, what do we do about it, it's one thing to complain about it and talk about it. We've done a lot in the last few years. The challenge is we've done it in an environment where interest rates are high and we've got stubborn macroeconomic headwinds. And so to test the theory, we have been pushing boundaries on land use, pushing boundaries on permitting reforms, to a degree that few or no other states in the country have. Last year, in fact, I put my entire reputation by putting a housing package in the budget and threatened to actually veto the budget of the state unless we were able to move forward with some very aggressive land use reforms. And that was the only way we were able to push through the NIMBYism and all the usual opposition that we tend to find here in the state. And so that's the issue to me that solves more things but is also omnipresent in terms of the challenges the state faces.

We've done massive amounts of subsidies and affordable housing tax credits. We've done massive amounts of investment across a spectrum of supports to aid and advance the housing industry and construction industry. I'll go back to the beginning, six and a half, seven years ago. One of the first actions I took, I created a housing accountability unit in the state to actually require real oversight and enforce the law as it relates to our arena goals, which are regional goals, our housing element goals. In the past, the state was not enforcing the law as it relates to housing construction. One of the first acts I took as governor was suing — not a popular thing to do — but suing one of my cities, Huntington Beach. I put 46 other cities on notice. We were able to negotiate with most of those cities strategies to improve density and bonuses to address their concerns and advance policy as it relates to those concerns that we were able to move through with the legislature. We provided billions of dollars of tax credits that in the past were not afforded developers across the state for housing at all income levels. We reformed our ADU laws. We reformed our single-family home laws. We did 42 CEQA reforms. Those are environmental reforms. But we were nibbling around the edges until again last year. Sort of an abundance mindset — forgive the laziness of that. Everything that Ezra Klein and others were advocating for. And we said we got to go for the holy grail. And that's what we did last year. Stubborn fits and starts. But we were able to power through. And here's the good news. 59% increase in the total number of housing construction since I started. 56% reduction in the time for permitting, and that's very significant. We're putting more and more cities on notice. Huntington Beach, by the way, has lost their lawsuit. They're being fined because of their obstinence. We've moved from a NIMBY mindset to a YIMBY mindset. And we have focused on an issue that candidly — and it's not an indictment of the previous governors — that wasn't a focus in the past. Homelessness and housing were not a focus of the state of California over the last few decades. It was outsourced to cities and counties. As a former city and county mayor, I can attest to that. I never thought about Arnold Schwarzenegger in relationship to housing policy or even homeless policy. That was the requirement and responsibility of local planning commissions, boards of supervisors, city councils. That mindset has shifted and now we are much more aggressive and proactive in terms of enforcement and support — carrots and sticks.

No, I mean, you saw this play out in many ways similar contours and connecting a lot of the narrative that you just advanced in San Francisco as it relates to the last mayoral election, and change did take shape there. The incumbent loss, and there's a different set of spirit and pride right now. You're seeing real progress. You saw some of that progress candidly before the election, but it wasn't felt. People didn't see it so they didn't believe it. So it's a liberalism that builds, yes, but you also have to have a mindset around visible results. And the ultimate manifestation of that failure, the byproduct of the affordability crisis, what's happening as it relates to street homelessness, unsheltered homelessness, encampments in particular, the permissiveness particularly that came at peak during and after COVID as it relates to tents out on the streets and sidewalks, the quality of life, the diminution of quality of life, and this notion that we couldn't do anything about it. This sort of victim mindset that frankly was almost universal with many of the leaders in local government. And somehow we were applying the standard that it was compassionate to step over people in the streets and the sidewalks in the name of their personal liberty, when in fact the degradation of the communities, the businesses that were impacted by that, the family structure — you know, mom that just wants to walk his or her kid down to the playground or in the stroller — was outraged and furious and didn't trust government. And so it is the issue that defines people's anger. It's an issue that defines my anger as governor. Here's the good news. For the first time in close to two decades, Scott — no other governor has been able to say this in decades — we've seen almost a double-digit decrease in unsheltered homeless in the state of California. We've not seen that. We've actually begun to stabilize the overall numbers. We're starting to see real progress as it relates to encampments. Even in LA, by the way, Mayor Bass is making that case for her reelection. But again, it's hard because people have sort of attached so much of their discontent to the incumbent. San Francisco, we've seen that, and across the state again — rural areas, not just urban areas — some real progress supported by policies in the state that didn't exist six or seven years ago. Again, the state had no homeless strategy, no homeless plan. It was not there for the cities and counties, and it was obvious the cities and counties were overwhelmed and couldn't move forward without the support. Unprecedented mental health support, $6.38 billion. We reformed our conservatorship reforms to allow a little bit more leverage and a little bit more coercion as it relates to getting people off the streets and sidewalks that are a little bit reticent. We created a third strategy called Care Court, which is about supportive care, not substituted care, and it's producing some real results. And then we flooded the zone in terms of supports for the cities and counties to give them the flexibility and resources they need. And again, it's a flywheel. Progress has finally been made, but it does mark — you're right — so much the anger and frustration, particularly in the country's second largest city, LA.

Yeah, for decades we frankly stopped investing in our lead, particularly as it relates to production, and we watched other countries, particularly near the border, notably Canada, one of the first to be aggressive on their tax structure. We saw some of those southern states, particularly Georgia and New Mexico, New York really stepped and asserted themselves, and then we started to see the global competition from New Zealand, the UK, and elsewhere. And frankly, California was not proactive in terms of supporting the industry, particularly with its tax credit program. You're right, I more than doubled it to the second highest level in the United States, right below Georgia. But New Jersey, to your specific point, went even further in terms of how they structure their tax credits — above the line, not just quote-unquote below the line. But we're seeing the fruits of that over the course of the last year, where we've seen so many productions now look anew at California. Is it good enough? No, no one's denying that. And localism, again like homelessness and housing, is determinative. It's local government on permitting, making it easier overtime for police, making sure these production shoots are made with a concierge mindset or red carpet mindset. That's also really important. But at least California is now back in the game in a much more significant way. And we're seeing the benefit, including by the way just bringing Baywatch back to California, bringing Baywatch down to Southern California, and that was literally because of the doubling of the tax credit just a few months back.

Yeah. State-driven wealth tax. You know, capital moves, and we've seen that. It's not anecdotal. There's been a lot of headlines of folks that have moved outside of the state of California that are no longer taxpayers, investing in this state, generating hundreds of millions of dollars a year — quite literally in the case of the three or four major figures that we know have left the state. I'm intimately aware of at least a dozen others that haven't, that don't want to talk about it, and don't want folks to know they've moved out of the state, that are interested in coming back if we don't move forward with this wealth tax. That said, I absolutely believe nationally we need to tax billionaires more. We need to change the stepped-up basis. We need to address the issue of capital gains. We need to address the issue of corporate taxes. We need to address — and you've talked a lot about this — the $84.4 trillion to, I've seen some estimates over $124 trillion of generational wealth over the next decade and a half, two decades, that will pass, and address the issue of inheritance dynasty trusts. And going back to some tax brackets that are more analogous to the guy who used to reside here at the governor's mansion back in the 80s, or at least in the 60s as governor and president in the 80s. And so we need to do all of those things at the same time. At the state level, I'm proud of this. I don't defend it from a defensive posture. I spent a good 15 minutes at my State of the State earlier this year making the case for California's progressive tax structure. We, yes, have the highest tax rate for the 1%. But by definition, 99% of people don't pay that rate. So people lazily refer to California as a high-tax state when in fact states like Texas and Florida tax their low-wage earners more than we tax our high-wage earners. Yet they're considered low-tax states, which is rather perverse, and I challenge people to consider that perversion. A middle-class family, for example, in the state of Texas pays more in taxes than the state of California. Look at the top 10 effective tax rates in America. A new study just came out. Now, California is not even in the top 10. That's not to suggest we're not a high-tax state, but not in comparison to the rhetoric that comes from the right that's painted this picture. And by the way, just if I may, Scott, we grew at 40% since I've been governor. There's no jurisdiction in the United States of America whose growth rate has been more significant than the state of California. A nation at 15.1% since 2019. California, 40%.

We have more Fortune 500 companies than we've had in close to two decades. We've created about 1.6 million new startups, but less than 600,000 during that time in Texas. You talk about the economy of the state in every category. Number one manufacturing state, number one state for farm. You talk about farmers, you talk about ranchers, you're talking about California. You talk about hunting jobs, you're talking about California. It's not just ag, it's not just Hollywood, it's fusion, it's quantum, yes, it's AI dominating in that space, but in every key category. And it's not by chance, it's by design. A formula for success you intimately understand that is about that conveyor belt for talent — the UCs and the CSUs, the community college. It's about research and development pushing out the boundaries of discovery and the National Institutes of Health and National Science Foundation. It's about best and the brightest first-round draft choices from around the rest of the country. Policies that have helped advance the economic architecture of this state and our nation as the temple of the US economy, California.

Well, the first time I really thought about that was when Elon Musk, to great fanfare, announced he's quote-unquote leaving the state of California and taking Tesla with him. Of course, he took a piece of paper with him, the corpus, and actually added 10,000 new jobs in California. Came back, Scott, and opened his world headquarters for R&D because we're 18% of the globe's R&D in California. Can't compete globally unless you're in the R&D space in California. It's another area of dominance for us. Came back, but he took his capital gains with him, to your point. And that's why he quote-unquote left to Texas, and many others are doing the same. And so I think it's absolutely — I've never considered that except the futility and frustration many of us have for these folks that have taken advantage of all of what you just described and what I was trying to describe earlier, is that formula. And then when they hit that peak and they were going to start to sell or borrow against their stock — something we have to also address in this country and avoid taxes completely — they left the state. So yeah, my state of mind would very much be on leveling that playing field. It would have a huge advantage for states like California. And this race to the bottom would be less pronounced. And by the way, that race for the bottom includes the tax credits as it relates to film. And that's why I also think the president of the United States has a role to play here, Trump, on looking at federal tax credits to keep American film production, which also would be significant and help level the playing field as it relates to those international tax credits that I think are the biggest driver of the exodus of the creative economy, even more so than what New Jersey or New York or even Georgia is doing.

No, I mean, I think it goes back to that formula. This is all by design. It's our values. Look, 27% of California — and you can extend this to the diversity in those northern states as well — but 27% of the state is foreign-born, or majority-minority state. You go to an Nvidia — I was just down at their conference. I mean, come on, you walk around — you know, thank you to the contributions not just from Taiwan but mainland China. Thank you for those that have come here for riches and new beginnings that felt included and seen. From India, the diversity on that floor, the entrepreneurial energy, the future — they all know it's happening here first, where America's and the globe's coming attraction. The entrepreneurial spirit, the innovative spirit, the energy and daring, the rules for risk-taking in California, but not recklessness. There is no Tesla without the regulations in California. You opened on clean energy — we dominate in that space. And we dominate in that space because we don't want to be dominated by China in that space. And we continue, by the way, to make the case anew for, you know, capturing the wind and the sun. With all due respect to Trump and his futility in Iran, the sun never goes down, and the opportunity to capture that as we capture market share and competitive strength moving forward. But I think this notion of immigration policy, legal immigration — again back to the framework of first-round draft choices — the commitment to R&D. I mentioned 18% of the world's R&D. Germany is about 20%, China about 21%, California 18% of that R&D. Sandia Labs, Lawrence Livermore Labs, the finest institutions of higher learning. You went to one, not just UCLA but the UC system broadly defined, Stanford, Caltech. And these ecosystems, venture capital — I didn't even get to that — $106 billion last year, of which 62% was reinvested in the state because we have a startup mindset and entrepreneurial mindset, back to again risk-taking. So all of these things are part of a formula that we've exported. It's the world we invented. It's competing against us. That's why we have to invest in our lead, and that's been the mistake of the past on a lot of the issues you've touched on. I can't make up for the last 30, 40 years. I am accountable for the last seven. But I think many of those things are truly American, and we've exported them, and I think they need to be scaled even more broadly and socialized more specifically in the consciousness of the American people that I don't think fully appreciate aspects of this state that certainly predate me, that are deeply present in the future that we're all creating together.

Well, it has. California is the only state — you're talking the only governor — and Hochul, to her credit, she backed in on some of the policies we advanced a few years ago, SB 53, to regulate large language models, to regulate frontier models. We did so as it relates to transparency and safety. And it was a multi-year process, very controversial, and we led as we lead on a lot of these child safety issues. And we have a lot more work to do, including a number of bills that I look forward to signing in the next few months, particularly as it relates to social media and our kids. But on AI, we're the only game in town. So I couldn't agree with you more, and nor could I disagree with you less on the fact that it's a huge part of the narrative that I just advanced for you as it relates to 40% GDP growth in this state. I'm not naive about that, and I love your frame around these thoroughbreds. And I just had my budget announcement. We're balancing not just for this year, but the year I'm gone, multi-year, because of the abundance and capital gains. Another $16.5 billion, by the way, just in corporate payroll — corporate — in personal income tax just the last three months. I can only imagine what takes place and shapes as we see what happens to SpaceX in the next few weeks and potentially Anthropic and OpenAI. So we're always trying to find that...

Balance around peril and promise, around truth and trust and transparency. But we have been muscular in leading. We've been very aggressive in condemning the Trump administration's let-it-rip policy. I think the Mythos example that was pulled back was an example of perhaps some short-sightedness in that space, that even within the Trump administration I think there was a pause, only to be relieved again when David Sacks picked up the phone and Elon Musk said, 'No, Mr. President, we want to continue to let it rip.' When you opened up and started to ask the question, you sounded a lot like the Pope, sounded a lot like Steve Bannon. There seems to be a growing consciousness around these concerns and how we can, regardless of politics, I think there's a bipartisan — I mean, it's almost a universal construct here that we should, you know, accelerate the technology, but we need to steer the technology and we need to address the downsides, particularly as it relates to cybersecurity and trust. And we can't have in the hands of five human beings the ability to decide our fate and future, what we read, what we see, and who we ultimately vote for — these algorithms that, you know, are redesigning us. And so we're leaning in on that nationally. Complete absence of any leadership or accountability. It's a corruption story. Trump's part of that corruption. His family is part of that corruption. I think that explains it as much more than anything else. And I think the Republican Party, Democratic Party will pay a big price unless we lean into this. Not from a jobs-apocalyptic perspective. I know you have, you know, you think that's more of a fundraising story, which I appreciate. I think there's zero evidence to suggest you're wrong, but there is some evidence to suggest you may not be right. And that's why I'm also leaning in to make sure we're prepared if this is, as Dario says, even if he's half right — 50% of those white-collar entry-level jobs will be gone in the next four and a half years — even if he's half wrong. I want to be on the right side of this and prepare for that. And we have five specific strategies that we've advanced that I'm not aware that any other state has advanced. So states have a responsibility and role to play here.

Well, if you, you know, I think one thing about generative AI is we've all learned — and my mom used to say this to me, I never understood it until now, it makes more sense in this construct — if you don't like the answer, ask a better question. And I think so much of AI is about what we prompt and the questions and the creativity that we bring and those human features. But for us, the questions now we're asking, to your question, to your specific question, is: all right, if we, you know, if clerical work is being impacted, there's no clerical capital, so it's hard to define it geographically. And if it's happening not on the factory floor, but, you know, quietly, and it's, you know, there's a little bit of noise, but not a lot of noise with the unemployment numbers. But if it does hit us and it hits us on the head, are we prepared with our unemployment insurance system? Is there a different and better approach? So we're piloting employment insurance. We're piloting strategies. By the way, the Danes do this, where we pay employers to keep you employed and pay a percentage of that salary over the course of a number of years and then provide that ramp to the alternative. Look at portable benefits radically differently. We have something called Secure California as it relates to retirement benefits. We're looking at other benefits that aren't attached, like healthcare, to your employer. Looking at the payroll tax system that perversely rewards the exact thing we want to avoid, which is we give tax credits for automation, but we penalize businesses for hiring. And looking at strategies to address that that don't impact Social Security and Medicare. We're looking more broadly at strategies that to me are particularly interesting around universal basic capital. Looking at sovereign wealth funds. I years ago talked about a data dividend and worked with the Berggruen Institute. We struggled with that, but we've created 5.5 million child savings accounts. We did the Trump accounts six years ago before Trump ever did. We have a mechanism now, baby bonds we have as well for years and years, how we can use those accounts to create an ownership construct, not charity UBI, universal basic income, but ownership equity. It's more difficult, one thing to talk about today, another to do, but we're having advanced conversations in that space. And so I put out a lot on this. We've done a number of executive orders, procurement, different strategies. And I think we need to be prepared. And I hope you're right. I hope, you know, Dario is wrong, but I don't think we're having the kind of debate we need to be having across the country on what could happen if this thing moves as quickly at AGI as people think it might.