California Gov. Gavin Newsom often points to the state’s economy as a source of pride, but critics argue the figures mask the everyday hardships residents face and fail to capture the state’s broader challenges.

California eclipsed Japan this year to become the fourth-largest economy in the world, behind only the United States, China, and Germany. With a whopping $4.1 trillion in economic output, the state would be among the biggest if it were a nation.

Recommended Stories

• Liberal media has debased themselves in their anti-Israel coverage
• Trump's collecting record-high tariffs. Who's paying them?
• Jim Acosta’s 'interview' with murdered teen shows rock bottom has a basement

“California isn’t just keeping pace with the world, we’re setting the pace,” Newsom said. “Our economy is thriving because we invest in people, prioritize sustainability, and believe in the power of innovation.”

California’s climb to the No. 4 spot “marks a milestone and illustrates a paradox,” said Aref Aziz, a California-based policy consultant and expert.

Tarnished trophy

“The trophy we’re hoisting, surpassing Japan in gross domestic product, is tarnished by a jaded reception from the average Californian facing rising housing, healthcare, and food costs,” Aziz added. “This paradox calls into question whether GDP is the best measure of financial success for state policymakers. If we’re first in homelessness and first in the cost of everyday goods, does being fourth in GDP matter?”

For Newsom, it does.

California’s status on the world stage allows the governor, who is considered an early 2028 Democratic presidential contender, to take a jab at President Donald Trump, claiming that the state’s good fortunes are happening in spite of him. It also allows him to blame Trump if things go sideways.

“While we celebrate this success, we recognize that our progress is threatened by the reckless tariff policies of the current federal administration,” Newsom said. “California’s economy powers the nation, and it must be protected.”

Bragging rights

To be sure, there are things to brag about.

California’s economy is growing at a faster rate than the world’s top three economies. In 2024, the state’s 6% growth rate outpaced the top three economies: the U.S. (5.3%), China (2.6%), and Germany (2.9%). The state’s economy had an average nominal GDP growth of 7.5% from 2021 to 2024. Its population increased for the second year in a row. And tourism, for the most part, is back, as Los Angeles prepares to step onto the world stage to host the 2026 FIFA World Cup and the Olympics two years later.

“We have been doing many things right here,” California State Treasurer Fiona Ma told “California Insider Opinion” in June, crediting technology for propelling the state. “We have Silicon Valley. We have Silicon Beach. We have a lot of clusters here. And the technology field is always issuing stock options, bonuses, mergers, capital gains. The state is highly dependent on personal income tax, corporate taxes, and sales taxes. So we need to keep those types of industries here that are offering high-quality jobs, but also these extra incentives, bonuses, the stock options.”

California leads the country with three metro areas, San Francisco, San Jose, and Los Angeles, all consistently ranked among the top 10 places for artificial intelligence talent and readiness.

“No other state even comes close to matching this,” Steve Morris, CEO and founder of Newmedia.com, a digital marketing agency, told the Washington Examiner. “This goes far beyond Silicon Valley and the Bay Area. At our agency, we regularly work with brands growing in LA or San Diego and see them drawing on top-tier AI and data talent. It’s not just about the major tech firms either. Even startups in what people call ‘secondary markets,’ like Bakersfield, are gaining momentum because both venture capital and expert talent now reach well beyond Silicon Valley.”

Ma also praised the state’s efforts to be a leader in climate change and green energy initiatives.

She also pointed to two voter-approved stem cell initiatives that drew top scientists, doctors, and researchers to the state. Additionally, Ma cited the gaming industry, music production, and life sciences as key sources of jobs and innovation that keep California attractive.

‘A tale of two states’

However, despite the economic success to date, there are troubling signs that California is entering a period of uncertainty that could test its record of resilience.

Economic, political, social, and environmental uncertainty is on the horizon. The state also has the unfortunate distinction of having the third-highest unemployment rate in the nation, the country’s highest poverty rate, a homeless situation that has been spiraling out of control, drug problems, income inequality, water supply reliability issues, and catastrophic wildfires that create billions of dollars worth of damage.

When it comes down to it, California’s economic story is “a tale of two states,” Jeff Le, managing principal at 100 Mile Strategies LLC, said.

“On the one hand, California surpassed four trillion dollars in economic output, passing Japan as the fourth largest economy in the world,” Le, former deputy Cabinet secretary to former Gov. Jerry Brown (D), told the Washington Examiner. “The state is home to 32 of the 50 largest AI companies on earth and continues to lead the nation’s farm production with over 400 commodities.

“However, Hollywood and the film industry has seen a slump with production continuing to move overseas. A major film tax credit probably does not stop this trend. And the state continues to struggle with homelessness, with more than 187,000 reported and likely higher.”

Le said that Newsom has tried to court tech, a problem apparent during this year’s revised budget rollout, but the governor does not oversee federal immigration policy and trade.

‘Treading water’

Newsom announced in May that California faced a $12 billion deficit, and he wanted to help close it by scaling back on several progressive priorities, including a landmark healthcare expansion for undocumented immigrants. Newsom had promised to deliver “universal healthcare for all,” regardless of immigration status. He had to backtrack even as he condemned the Trump administration for going after immigrants’ rights.

CalMatters’ Dan Waters, a frequent critic of Newsom’s accounting practices, sought problems with the governor boasting about the state’s edge over Japan, calling it the result of “currency exchange calculations rather than productivity.”

He warned that California’s $4.1 trillion economic output “masks the darker reality that, by many measures, California is doing no better than treading water.”

Chuck DeVore, a former Republican California state assemblyman, agrees.

“Newsom’s greatest myth is that of a thriving California,” he told the Washington Examiner, adding that the state’s economy isn’t all it’s cracked up to be.

“Gov. Newsom sits atop a state that taxes too much, spends too much, and regulates too much,” said DeVore, the chief national initiatives officer at Texas Public Policy Foundation. “California’s structural deficit is about $20 billion—some 10% of its budget. That means that, barring major turnaround—ironically possible because of President Trump’s ‘Golden Age’ — Newsom will likely be faced with a big deficit next year. With the budget tricks used up this year, Newsom has no margin for maneuver next year. This means that California’s budget headaches will likely plague Newsom as he heads out the door and onto the Democratic presidential primary campaign trail in 2027.”

Jobs

DeVore also pointed to the lack of job growth.

“According to the U.S. Bureau of Labor Statistics, since January 2024 through June 2025, California has added a paltry 1,100 nonfarm jobs,” he said. “Over the same 18-month period, Texas has added 280,500 jobs, and California’s population is 26% larger. But diving into the numbers, it gets worse. Over the last 18 months, California grew government jobs by 74,700, meaning that private sector jobs dropped by an unsustainable 73,600. By comparison, Texas added 220,800 private sector jobs.”

The Public Policy Institute of California was slightly more optimistic.

“California’s labor market is, at best, in a hold-steady pattern this year,” Sarah Bohn, vice president of the PPIC Economic Policy Center, wrote. “After shedding jobs early in the year, employers added jobs this spring, and now, at the year’s midpoint, California has about as many jobs as it did in January. Similarly, the unemployment rate today is identical to what it was in January: 5.4%.”

Bohn and research associate Sean Cremin stressed that a “hold-steady pattern” is a “welcome change” from a year ago, when unemployment increased steadily and employers dropped 100,000 jobs. Sectors driving job losses include manufacturing, food service, and professional and technical services.

However, healthcare, social assistance, and government jobs have continued to grow.

California may not be in crisis mode yet, but the pressure is rising.

“California emerged from the Great Recession, when it was declared a dysfunctional, ungovernable state, as the world’s fifth-largest economy,” Miriam Pawel, an author who has written extensively about California history and politics, told the New York Times. “That said, California has never encountered this kind of adversarial, hostile relationship from the federal government, which creates a tremendous degree of uncertainty.”

Betting on California

Still, some see brighter days ahead for the state.

“California thrives because the market here is conditioned to absorb setbacks without flinching,” Johana Williams, regional manager with Utopia Management, one of California’s largest real estate management companies, told the Washington Examiner. “When you have 39 million people wedged into a high-demand coastline, problems become pipelines.”

She added that most investors do not leave because volatility is predictable in the state.

“Property taxes go up, insurance hikes kick in, regulations pile on, yet transactions continue. Developers still build. Renters still rent. Owners still hold. The sheer scale of economic activity here is a cushion,” Williams said. “The state might see 10,000 business closures, but in the same quarter, 12,000 new licenses will be filed. The engine keeps churning because there’s no pause button when demand never fully fades.”

CALIFORNIA REPUBLICAN CHALLENGES MIKE JOHNSON OVER REDISTRICTING: ‘SHOW SOME LEADERSHIP’

Gray Davis, a Democrat who served as California’s governor from 1999 to 2003, said he believes the state can overcome its challenges.

“We’ll see the evidence of that over the next few years,” he said. “I wouldn’t bet against California.”