A couple of recent articles got me to thinking about what we as a state need to be doing to emerge from this economic crisis – and about the perils of merely assuming we can return to prosperity by repeating the solutions of the past.

Despite all the talk of “green shoots” the situation here in California remains dire. Unemployment is above 10% – well above it in many places. Government is unable to meet the needs of those who are suffering. And the housing crisis is worsening, not improving.

Too many folks seem to believe that if we could just get people to spend again – buying houses, cars, and crap for their homes – all would be good. That was the solution tried after 2001, and we are dealing with the effects of its failure. And for the reasons described below, it’s not possible to try it even if we wanted to.

A recent New York Times article on the “shift from spending to saving” used several Californians to illustrate its points:

Last year, Aryn Kennedy and her husband, Brian Ewing, who live in Los Angeles, spent “every dollar” they earned on debt repayment and living expenses. When local housing prices began to fall, Mr. Ewing toyed with the idea of a low-down-payment mortgage.

Since then, through “windfalls” like a salary increase for Mr. Ewing, and by cutting expenses for clothing, entertainment and other items, Ms. Kennedy says the couple has begun saving about 25 percent of their take-home pay in anticipation of making a traditional down payment of 20 percent on a house.

Even after they buy, Ms. Kennedy said, the couple plans to keep saving 25 percent of their pay. A recent Gallup poll found that most Americans who have recently increased their savings believe their budget adjustments represent a “new, normal pattern for years ahead.”

One might argue that this isn’t some “new normal” but the temporary effect of a severe recession that will someday end. And that might be plausible were it not for the implications of another recent NYT article about the fraying safety net:

As millions of people seek government aid, many for the first time, they are finding it dispensed American style: through a jumble of disconnected programs that reach some and reject others, often for reasons of geography or chance rather than differences in need….

The result is a hit-or-miss system of relief, never designed to grapple with the pain of a recession so sudden and deep. Aid seekers often find the rules opaque and arbitrary. And officials often struggle to make policy through a system so complex and Balkanized.

The article could do more to emphasize the effect of government cuts on this patchwork – something Steven Greenhouse did back in November – but the issue it raises can help us understand the shift toward saving and why it is likely to be lasting.

The shift is happening because people know that in a crisis – particularly if they lose their job – there is no assurance that they can meet their ongoing needs. Unemployment insurance is incomplete both in who it covers, how long it lasts, and how much it pays. Privatized pensions have become risky. There is little housing assistance available to many laid-off workers. And then there’s the biggest worry of all – health care.

Most economists argue that a high savings rate will merely prolong a severe recession. That’s not to say we should encourage mindless shopping as Bush did in 2001. But we should encourage people to spend money wisely – at local businesses, for sustainable products. Even that isn’t happening because of the aversion to spending borne of a fear of risk – and the impact on the state’s tax revenues is obvious and catastrophic.

The only way to fix that problem and spur folks to spend wisely is to reduce or eliminate their fears and risks. I’ve been saving significant amounts of money and curtailing my own spending as soon as I became convinced of looming economic disaster in late 2006. And that was because I knew that if my wife and I ever lost our jobs, we’d be totally fucked. No health care, no savings, barely any assets.

However, I know I’d be less inclined to hoard and save if there was a reasonable expectation of a safety net. If unemployment paid a more reasonable amount, if there was guaranteed universal health care, if there was some form of far more widely available public housing or housing assistance – well, then I would be much more willing to give some of my money to a local merchant, and therefore to the state of California as well.

The consequences of the shift to savings are enormous for California public policy. It suggests that efforts to revive the elements of the 20th century economy – particularly spending on housing and cars, using debt to finance a consumer lifestyle, endless sprawl – are no longer viable. Folks aren’t going to spend money on those things if there’s fear that the home could be lost, if gas price hikes could cause the car or commute costs to be unaffordable, which then fuel the other fears I described above.

Too many of those people currently shaping the policy debate here in California – in the media and in the Capitol – believe we can solve the problem with late 20th century style solutions. Fire workers and cut services. Reduce spending anywhere possible, even when it costs more when we do so (looking at you here, Arnold).

That is precisely the wrong move. Those methods will merely reinforce the “save at any cost” mentality. And don’t get me wrong, saving is good and desirable, but if we’re to also have sensible spending, we need to not pursue policies that will further rend the safety net.

Instead, universal health care, renters’ aid, beefed up unemployment insurance, and spending on public transportation, solar and wind power, and on reducing our water and carbon footprints are the solutions to adopt. They will reduce risk and provide economic security. And that in turn will help provide sustainable and sensible economic growth for California.