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.
Just as the country at large was being devastated by the actions of the worst president ever, California has likewise been brought to its knees by the worst governor ever.
Cut from the same cloth… would you have expected anything else?
Majority fee increase on wealthy. Recall on Scwhartz if he refuses to sign (he’ll cave–he hates dying at the box office, which is all California is to him).
In California, tax increases need 2/3, and spending cuts need 1/2, and there are more than 1/3 of legislators who’d rather die than vote for any tax increase ever ever ever.
So I’m afraid that even if we had a better governor we’d still be stuck.
So budget cuts would be absolutely devastating, but enormous tax increases would not? What effect do you think another $21 billion in tax increases would have on the economy? In addition to increases already enacted?
This is especially relevent because the legislature is apparently unwilling to pass a progressive tax. The tax increases that were part of the February budget deal affect everyone, and poor families most. Sales tax, gas tax, reduction in child tax credit. Any additional tax increases will be more of the same.
You can’t create something from nothing. We can’t spend our way out of this, and we can’t borrow our way out of this.
Although I’ve read a lot of California history, my memory of governors tends to be from the modern era.
But I can’t recall a Governor who has managed to do as much damage to California as our current movie star Republican.
Most of the state’s fiscal problem results from the decisions that Arnold made early in his administration. He created a gaping hole in our budget by reducing revenue from the car tax (which also is the biggest single source of spending increase because of our cockamamie accounting). He created another huge revenue loss by borrowing to cover operating costs, and pledging part of our revenue to cover repaying the bonds.
He launched a series of “reform” initiatives that failed badly.
He can’t get any support from members of his unpopular minority party in attempting to solve our massive budget problems that the Governator created by giving away over $7 billion a year in revenue.
His reckless actions when the economy was better have left the state damaged and staggering as we entered the Great Recession.
Worst Governor Ever!
is if the legislative democrats will help schwarzeneggar out, or actually force him to choose between a solvent california with tax/fee increases, or a bankrupt one that his GOP buddies have drowned in the bathtub.
the only way we get out of this alive is to call their bluff in a way that makes the GOP holdouts suffer, and blink. elected dems are the only ones who can make that stick, but they have to be willing to fight a bit instead of preemptively cave.
For destroying the Republican party in California almost as thoroughly as Bush destroyed it nationally.
Damn shame it took so long in both cases. But once we get rid of Arnie, hopefully California can once again become a truly progressive state.
It looks like all of the Props are going down except 1F. Schwarzenegger is now bullying us by threatening more draconian cuts to schools, social and health services because both the Right and the Left hate the Props and are not going to vote for them. However, I am hearing nothing about the Governor and Legislators revisiting the billions of dollars in permanent tax breaks given to the Corporations in this budget deal. They, along with CTA, are financing the multi-million dollar “Yes on the Props” campaign. I wonder if there is a connection?
We need to launch a vigorous “letters-to-the-editor” campaign state wide that counters the Right’s claim that “if the props go down, it’s because people didn’t want tax increases.” We must say why so many on the Left hated the Props – Spending Cap/Rainy Day fund/ giving the gov untoward power to slash the budget/ attacking early childhood and mental health programs, etc.