Once upon a time, way back in the spring of 2009, there was a lot of talk of “green shoots” and the promise of economic recovery. Well, that theory seems pretty much shot to hell now, as there is growing recognition that, in Nouriel Roubini’s words, “the green shoots are mostly yellow weeds.” Unemployment continues to rise, and the economic indicators that implied a possible turnaround seem to have been little more than side effects of another Goldman Sachs bubble.
And as a result there’s more and more talk of a “third stimulus” across the left blogs, including Paul Krugman, especially as people come to realize just how stupid it was to gut the February stimulus by taking out the all-important state stabilization funds. As realization dawns that 50 Herbert Hoovers are wiping out the effect of the stimulus by state budget cuts, the necessity of federal aid to the states is becoming obvious.
Unfortunately, some commentators are still stuck in “blame” mode, and haven’t yet grasped the need to move beyond blame and toward action that can prevent a full-blown Depression. Take Ryan Avent, for example, who opines today that California is the obstacle to a new stimulus aimed at rescuing the states:
The huge obstacle to getting this done, however, is California. California is the state in the worst shape, and it’s also the state no one wants to help, because its problems stem from terrible institutions and a horribly dysfunctional government. They’re not just cyclically screwed; they worked very hard to get themselves into this mess, and the rest of America, quite reasonably, doesn’t want to bail them out. But this is a problem for the rest of America, because rare is the state that couldn’t use some additional help right about now.
This sort of argument is becoming depressingly familiar. As we pointed out yesterday most Californians weren’t able to vote in the June 1978 election that approved Prop 13, and many who voted yes didn’t know what they were doing. More significantly, Californians have never been given the chance to vote again on Prop 13 as our political leadership convinced itself that it could cut a series of deals in the name of asset bubble centrism and avoid both financial collapse and being overrun by the Jarvisite hordes.
Californians routinely vote for tax increases, especially at the local level, and would do so much more often if the right-wing hadn’t blocked the majority from governing the state by the 2/3rds rule. Folks like Ryan Avent offer a superficial understanding of California’s problems, unfamiliar with the fact that we have a center-left electorate governed by a center-right system and a Democratic Party whose leadership has been frankly afraid to challenge that status quo.
But as wrong as Avent is about the details, his “blame all Californians and let them rot” attitude is quite familiar, even widespread, among national elites, including ostensible liberals. I say “ostensible” because a core tenet of liberalism is the notion that government should provide second chances.
Avent does offer a somewhat sensible basis for a solution:
This is the part where I’d recommend a negotiated, conditional aid package to California, combined with a broader state budget resolution authority designed to facilitate countercyclical aid in situations like these. But at this point, I kind of think that California is screwed, and that by extension America is screwed, and will suffer a longer and more painful recession than is necessary thanks to the intractable politics of the issue.
And such a package is precisely what many of us in California want. We recognize that we need the federal government to use its leverage to break the impasse in Sacramento. But we’re worried about the conditions. With Larry Summers in charge of economic policy, the conditions are likely to resemble a 1990s IMF bailout, demanding massive cuts to the public sector – cuts that will merely worsen the recession, as the Sacramento region is discovering.
The fact that many other states are facing budget meltdown may be enough to overcome the previous hesitance of the feds to offer California anything that smacks of a “bailout”. And if that assistance came with appropriate and progressive conditions – that California place a repeal of the 2/3rds rule on the ballot, that corporate tax loopholes be closed, that education and health care no longer face cuts – then it would be a significant step forward.
Unfortunately we may not be at the point yet where this is possible. Avent blames “intractable politics” but I would argue the problem is instead intractable assumptions. Too many people are still out to play the blame game, or like the Obama Administration, are more afraid of right-wing criticism than of the political repercussions of a slide into Depression.
It would help if national observers would look past the superficial assumption that all Californians were party to the reckless economic, fiscal and political choices of the last 30 years, and instead realize that avoiding a national Depression and fixing California’s problems are not mutually exclusive, but instead are mutually reinforcing.
But I can’t seem to get it up on the damn site for some reason. So for my thoughts, you’ll have to go to my site for this one.
It should be mentioned that it is only recently that California (and the nation) has come around to the idea that
taxes need to be raised. Even now, the claim is made
that the rich cannot provide the money (see the column
by Fred Hiatt in Washington Post of yesterday). Hiatt
claims:
Nor can you increase the tax take to 24.5 percent of GDP — which is what Obama proposes to be spending in 2019 — simply by making the rich pay more.
The obvious response is as follows:
Let’s see. In 1980 the top 1% top 8% of the nation’s income. In 2007 they took 22%. If we take 6% of that income, they would still be getting 15% of the nation’s income(or nearly double what they got in 1980). That 6% would cover the 18% of GNP we are now taxing at and boost it to 24%. Or, in other words, the rich could pay (and pay relatively easily).
The point it thus: those with resources are going to
hold onto resources even if it means death to those without.
In The Grapes of Wrath, Steinbeck describes farmers in California throwing produce that they couldn’t sell into rivers and posting guards to keep starving people from eating it. And on the Colbert report last week he ran a little piece on a Missouri state assemblywoman who voted against subsidized lunches for school children because “hunger was a motivating force.” Root, hog or die.
Strategy: Emphasize tradeoffs. Schools can be funded but that yacht might get taxed. Medical care for the elderly is available but that third home in the Pocanos
might have to be sold. In other words, don’t be afraid of
class warfare–if accused, merely reply “Patriotism is the last refuge of the scoundrel, and accusations of class warfare are the first refuge of the callous.”
Unlike most Californians today, I participated in that election. I voted against Prop 13. Among the reasons I voted against it (aside from the fact that Jarvis and Gann looked like sleazy snake-oil salesmen) was my support of public education, State Parks, basic public services and environmental protection. Most people today don’t realize how bitter the battle was. If you look at what the opponents were saying at the time you would be amazed at how right they were. The thing they missed was how long it would take to reach the point we are at today. Most thought that things would get worse more quickly.
Many Americans tend to forget that while California did adopt the more extreme versions of Ronald Reaganism of which Prop 13 was a central tenet, the entire country elected him President twice and still suffer the consequences of his fellow anti-tax fetishists. From that perspective California is not that unique.
I agree with Robert and D-Day that any help from Washington would probably be counter-productive. However, maybe direct payments like extended unemployment, or federally administered jobs program or maybe even certain projects. I know its a hard thing, but no money should be sent directly to the State. They are already mis-managing money for fully federally funded programs that they have been recieving and is currently the subject of a lawsuit.
I don’t think one needs to read his piece as saying that every single individual Californian bears responsibility for this crisis — I don’t think that’s even worth debating. His point is that people in the rest of the country see this as our problem, not their problem, and that they see it as intractable — which it pretty much is given our current rules and state personnel left to their own devices. I think that his assessment of political reality is dead on — and I also don’t see why he’d disagree with everything in your last sentence starting with the word “avoiding.”
Avent, given his intelligent proposal, is pretty clearly on our side on this. I flat-out do not see how you can use him as Exhibit A of commentators who are “still stuck in ‘blame’ mode, and haven’t yet grasped the need to move beyond blame and toward action that can prevent a full-blown Depression.” He’s proposing action — good action. He’s an ally here. Now we have to think through how we seriously go about convincing the rest of the country that a federally based bargain — loans in exchange for structural reforms and taxes to pay those loans back — is necessary.