PHIL KLEIN/CORBIS

California’s multidimensional decline—fiscal, commercial, social, and political—sometimes seems endless. The state’s fiscal problems were especially evident this past May, when Governor Jerry Brown announced an “unexpected” $16 billion annual budget shortfall. Two months later, he signed a $92 billion budget that appears balanced only if voters approve an $8.5 billion tax increase in November. According to a study published by a public policy group at Stanford University, California’s various retirement systems have amassed $500 billion in unfunded liabilities. To honor the pension and benefit contracts of current and retired public employees, state and local governments have already started to lay off workers and slash services.

Not just in its finances but almost wherever you look, the state’s vital signs are dipping. The average unemployment rate hovers above 10 percent. In the reading and math tests administered by the National Assessment of Educational Progress, California students rank near the bottom of the country, though their teachers earn far more than the average American teacher does. California’s penal system is the largest in the United States, with more than 165,000 inmates. Some studies estimate that the state prisons and county jails house more than 30,000 illegal aliens at a cost of $1 billion or more each year. Speaking of which: California has the nation’s largest population of illegal aliens, on whom it spends an estimated $10 billion annually in entitlements. The illegals also deprive the Golden State’s economy of billions of dollars every year by sending remittances to Latin America.

Meanwhile, business surveys perennially rank California among the most hostile states to private enterprise, largely because of overregulation, stifling coastal zoning laws, inflated housing costs, and high tax rates. Environmental extremism has cost the state dearly: oil production has plunged 45 percent over the last 25 years, even though California’s Monterey Shale formation has an estimated 15.4 billion barrels of recoverable oil, according to the U.S. Energy Information Administration. Geologists estimate that 3 trillion cubic feet of natural gas sit untapped as well. Those numbers could soar with revolutionary new methods of exploration (see “California Needs a Crude Awakening,” Summer 2012).

Between the mid-1980s and 2005, the state’s aggregate population increased by 10 million Californians, including immigrants. But that isn’t the good economic news that you might think. For one thing, 7 million of the new Californians were low-income Medicaid recipients. Further, as economist Arthur Laffer recently noted in Investor’s Business Daily, between 1992 and 2008, the number of tax-paying Californians entering California was smaller than the number leaving—3.5 million versus 4.4 million, for a net loss of 869,000 tax filers. Those who left were wealthier than those who arrived, with average adjusted gross incomes of $44,700, versus $38,600. Losing those 869,000 filers cost California $44 billion in tax revenue over two decades, Laffer calculated.

Worst of all is that neither the legislature nor the governor has offered a serious plan to address any of these problems. Soaring public-employee costs, unfunded pensions, foundering schools, millions of illegal aliens, regulations that prevent wealth creation, an onerous tax code: the story of all the ways in which today’s Californians have squandered a rich natural and human inheritance is infuriating.

So why, you might ask, would anyone stay here?

For some of us, family heritage explains a lot. Sometime in the 1870s, my maternal great-great-grandmother homesteaded our farm and built the farmhouse in which I currently live, near what is now the town of Selma. I grew up working alongside her grandson—my grandfather, who was born in the same farmhouse in 1890 and died there in 1976. He worshiped California. Even in his eighties, he still marveled at the state’s unique combination of rich soil, lengthy growing season, huge aquifer, and water flowing down from the Sierra Nevada mountains. He planted most of the fruit and nut trees growing in my yard today. On my father’s side, my great-grandfather helped found the nearby Swedish colony of Kingsburg, where a plaque in a municipal park—thankfully not stolen during a recent wave of bronze thefts—marks Hanson Corner, the site of the ancestral family farmhouse.

My mother, a 1946 Stanford law graduate, was one of the state’s first female appellate court justices and would lecture me about the brilliance of California’s four-level court system. My father—a Pat Brown Democrat convinced that technical training was in short supply for the influx of Southeast Asian and Hispanic immigrants—helped found a vocational junior-college campus in the 1970s. Countless Californians are like me: determined to hold on to the heritage of our ancestors, as well as our memories of better times and the property on which we grew up. We feel that we played no part in our state’s current problems, and we’re reluctant to surrender to those who did.

Another draw to California is its culture. The California way, casual and even flaky, can sometimes become crass and self-indulgent; for evidence of that, just visit Venice Beach or Berkeley’s Telegraph Avenue. But at its best, California still creates a ’49er bustle of self-invention that makes little allowance for class, titles, or hierarchy. As someone who established a classics program with mostly minority students at California State University’s Fresno campus, I can attest that real talent is often found unfettered by hierarchy. In a state with no majority culture, where it is almost impossible to determine a person’s income by race, dress, accent, or bearing, performance tends to trump reputation or appearance. The proverbial “millionaires and billionaires” whom I see drinking coffee on University Avenue in Palo Alto on Monday are dressed no differently from the loggers I talk with in the Huntington Lake bar in the Sierra on Friday. Some of the wealthiest farmers in the world are indistinguishable from their tractor drivers. In California, one earns respect more from what one does than from what one has done.

Some of the reasons that people began migrating to California haven’t changed, even in the twenty-first century: dysfunctional politics cannot so easily mar what nature has so abundantly bestowed. California will always be warm, dry, and beautiful, and it boasts an unparalleled diversity of climate and terrain. This past winter, I could leave my Sierra cabin (altitude 7,200 feet, with 20 feet of snow piled nearly to the roof) in the morning, drive down to 70-degree afternoons on my farm in the Central Valley, and arrive in the evening at the Stanford University campus, with its cool bay breezes. What’s most striking about California isn’t its rugged mountains, gorgeous beaches, and vast plains, but their proximity to one another. That nearness is an obvious incentive for Californians to stay put. In the winter, when midwestern sunbirds fly to Arizona and New Yorkers go to Florida, Californians are never farther than a few hours’ drive from the coast.

This beauty is economically profitable as well. Thanks to its climate, California can grow three crops a year, while most states struggle with one or two. The long growing season—plus great soil, plenty of irrigation, vast agribusiness economies of scale, and technological support from nearby universities—means that California’s farms can produce almost twice the usual tonnage of fruits and vegetables per acre. Not only are California’s cotton, wine, fruit, and dairy industries more productive than any in the world; hundreds of millions of affluent Asian consumers translate into skyrocketing export-commodity prices for the state’s farmers. This year, beleaguered California farms—fighting water cutoffs, new regulations, and encroaching suburbanization—will nonetheless export over $17 billion worth of food overseas (see “California’s Water Wars,” Summer 2011). In so mild a climate, moreover, outdoor construction is an all-year enterprise. It’s hard to believe that the world’s most productive farmers and most innovative builders would pack up and leave without a fight.

California also possesses enormous natural wealth in oil, gas, minerals, and timber. With commodity prices high and new technologies for energy exploration emerging all the time, the dollar wealth below California’s surface is greater than ever. The existential stuff of any civilization remains food and fuel, and California has more of both than any other state. So we wait for sanity to return to our officials, as our natural untapped wealth grows ever more valuable.

And no explanation of California’s appeal would be complete without mentioning how many top universities it hosts. In most rankings of the world’s universities, Stanford, Caltech, UC Berkeley, and UCLA make the top 20. The industries that best explain why California is still the world’s eighth- or ninth-largest economy—Silicon Valley, the Los Angeles aerospace industry, Napa Valley wineries, and Central California agriculture—originated in the research and development programs of the state’s vast public university system.

True, that system faces considerable budget pressure and has increasingly adopted a highly politicized and therapeutic curriculum. California State University, in particular, has lowered its standards, admitting students who don’t meet traditional GPA and test-score thresholds, so that over half of entering freshmen must enroll in remediation courses. But the state’s 50-year-old master plan for higher education—which instituted a tripartite arrangement of junior colleges, the California State University system, and the elite ten-campus University of California—remains viable. The schools still draw top scholars from around the world. And students come as well, especially engineering and computer students from China, India, South Korea, and Japan. Many end up settling here. Even in these bad times, it’s difficult to destroy such an inspired system.

Another reason to feel hopeful about California is that it’s reaching the theoretical limits of statism. To pay for current pensioners, the state simply can’t continue to bestow comparable defined-benefit pension packages on new workers, no matter how stridently the public-sector unions claim otherwise. And as public insolvencies mount—with Stockton, Mammoth Lakes, and San Bernardino seeking bankruptcy protection a year after Vallejo emerged from it—public blame is finally shifting from supposedly heartless state taxpayers to the unions. The liberal unionism of an aging generation is proving untenable, as we saw in recent ballot referenda in which voters in San Diego and San Jose demanded that public-worker compensation plans be renegotiated.

Though the fiscal situation is dire, Californians can take comfort from the fact that their budget, unlike the federal government’s, is smaller than at any time since 2006. The state constitution currently requires two-thirds of the legislature to approve any tax hike (though Governor Brown’s ballot initiative in the November election would raise taxes without the legislature’s approval). Since Democrats lack the supermajority necessary to raise taxes, and since California cannot print its own money, the legislature has been forced to shrink budgets.

Californians are also fickle and can turn on a dime. For all its loud liberal credentials, the state is as likely to cut government as to raise taxes. Over the years, Golden State voters have passed ballot propositions limiting property taxes, outlawing free public services for illegal aliens, ending racial preferences, demanding “three-strikes” incarceration for repeat felons, and abolishing bilingual education programs in public schools. Two statewide propositions at the ballot box in November would limit public unions’ prerogatives and require balanced budgets. The state and federal courts and Sacramento bureaucracies overturn most resolutions of this kind or try to avoid enforcing them, but the referenda demonstrate how California can explode into conservative anger at any moment. No wonder the Democratic state legislature regularly tries to change the ballot process.

At some point, the state’s southern border will finally be closed, and with it the unchecked yearly flow of illegal immigrants. The economic downturn in the United States, globalized new industry in Mexico, and increased border enforcement have already resulted in lower numbers of illegals. No national support exists for wholesale amnesty or for open borders. And with an enforced border, California will see not only decreased remittances to Mexico and Latin America and a reduced draw on state services but also, perhaps, a change in attitude within the state’s largest ethnic group. After all, illegal immigration warps the politics of the Mexican-American community, which constitutes more than 40 percent of the state’s population. The unlawful entry of Mexican nationals into California not only ensures statistically that Mexican-Americans as a group suffer from disproportionate poverty rates; it also means that affluent third- and fourth-generation Mexican-Americans become part of a minority receiving disproportionate state help. As one of my middle-class, third-generation college students once put it: “Without the illegal aliens in this school, I wouldn’t get special treatment.”

Without influxes of massive numbers of illegal immigrants, California Latinos could soon resemble California Armenians, Japanese, and Portuguese—whose integrated, assimilated, and intermarried ethnics usually earn more than the state’s average per-capita income. With controlled borders, Chicano Studies departments should eventually go the way of Asian Studies and Armenian Studies—that is, they would become small, literary, and historical, rather than large, activist, and partisan. Indeed, the great fear of the liberal Hispanic hierarchy in government, media, and academia is that without illegal immigration, the conservative tendencies of the Hispanic middle class would cost the elites their positions as self-appointed spokespeople for the statistically underachieving.

To grasp a final reason for optimism about California’s future, you need to understand that many of the state’s political problems result from a bifurcation between the populous coastal strip from San Diego to San Francisco, where the affluent make state policy, and the vast, much poorer interior, from Sacramento to San Bernardino, where policy dreams about immigration, agriculture, public education, and resource use become nightmares in practice. But this weird juxtaposition of such different societies within one state is starting to change. Hispanic Redwood City, nestled next to tony Atherton and Palo Alto, now has as many illegal aliens per capita as do distant Madera and Tulare. Living in high-priced Bel Air, Brentwood, or old Pasadena no longer shields one from crime or from the decay of the California transportation system.

On the congested coastal strip, building regulations, zoning absurdities, and environmentalist prohibitions on new construction prohibit almost anyone under 40 from acquiring a house without a sizable inheritance or an income in the upper six figures. Elites in Santa Monica and Menlo Park are starting to notice that their once-premier public schools don’t perform at the level that one might expect from the astronomical sales, income, and gas taxes. Shutting down thousands of acres of irrigated farmland in the state’s interior, at a time when foreign buyers are lining up to buy California produce, translates into higher prices at the Santa Barbara food co-op. Soon, even the Stanford professor and the La Jolla administrator may learn that illegal immigration, cumbersome regulations, and terrible elementary schools affect them as well.

The four-part solution for California is clear: don’t raise the state’s crushing taxes any higher; reform public-employee compensation; make use of ample natural resources; and stop the flow of illegal aliens. Just focus on those four areas—as California did so well in the past—and in time, the state will return to its bounty of a few decades ago. Many of us intend to stay and see that it does.