| For our failed governor, a budget deficit always means one thing: cuts. A man cut from the Milton Friedman cloth, Arnold Schwarzenegger is determined to destroy the government he was elected in 2003 to save. He rarely ever appears to give thought to the economic consequences of the cuts, and insists on making cuts even when they cost the state more money than they would save, even when they jeopardize the federal stimulus money.
Budget cuts make no rational sense in a severe economic crisis such as this. When state budgets contracted between 1930 and 1932, it helped a recession become a Great Depression. When FDR scaled back the federal budget in 1937 it sent the economy back into recession after 4 years of growth.
As Joseph Stiglitz and Peter Orszag have pointed out - and these are two of the nation's leading economists - tax increases on the wealthy are preferable to budget cuts. They prove that states that increased taxes in the early 2000s did as well or better than states which didn't. And they point out that budget cuts will worsen an economic downturn:
Consumers buy less and businesses produce less when the economy is weak. Therefore,
the key to promoting the state's economic growth in the short run is to encourage spending on goods and services. Stiglitz writes: "In a recession, you want to raise (or not decrease) the level of total spending - by households, businesses and government - in the economy. That keeps people employed and buying things, and makes it more likely that businesses will want to invest to serve that consumer demand." However, state spending reductions have the opposite effect: Each dollar less that the state spends generally reduces consumption by the same amount. This dollar-for-dollar reduction in consumption tends to occur because state spending cuts disproportionately affect lower-income Californians, who typically spend all of their incomes. For example, every dollar of cash payments to low-income families that the state cuts would reduce the money that these families have to spend on rent, groceries, and other goods and services by an equal amount.
To drive the point home, Andrew Ross points out that the budget deficit is NOT a problem of "overspending" but of a revenue drop - the same issue Stiglitz and Orszag identified, the same phenomenon Arnold is going to exacerbate:
Given that the state is facing a $21.3 billion hole, does not a $11.7 billion revenue drop count as a problem?...
One wonders how throwing thousands more public employees out of work - as Schwarzenegger is threatening and some opponents of the propositions are gleefully cheering for - will further prove that "we don't have a revenue problem."
The mass layoffs will merely exacerbate the retail decline that is wilting the "green shoots", and worsen a second foreclosure wave already predicted to be severe. If someone can explain to me how laid off teachers and bureaucrats are going to pay mortgages and spend at local businesses, I'm all ears.
None of this registers with Arnold. At all. The governor offers no economic rationale for his cuts, and offers nothing at all in the way of a plan for state economic recovery. He'll cut public services to the bone, destroy mass transit, worsen the quality of education, and gut our health care services. How exactly is that going to produce economic growth?!
California under Arnold Schwarzenegger is a place where economic logic, basic math, and future planning go to die. Bent on cutting budgets, Arnold is determined to worsen the current economic crisis and strangle the few "green shoots" of early recovery, overstated as they are.
And he's going to ensure that the state has nothing to go on for recovery. With closed libraries, crappy schools, unaffordable college, and mass unemployment, few business in their right mind would want to relocate here. As other states plan for the 21st century by moving toward green transportation and new investments in education, California is locking itself into a late 20th century model that has already failed.
Arnold is not just presiding over, but actively mandating a downward spiral, a Detroitification of the once-Golden State. We like to joke here at Calitics that Arnold only plays a governor on TV, but in this case, we wish that were true. We could use a lot less of his governing right now, and a lot more budgeting that acknowledges the economic storm we face, instead of budgeting that is little more than pissing into the wind. |
