Slow Recovery Projected for 2011 – Will It Reduce Inequality?

After three years of recession – it’s safe to call it a Depression now, don’t you think? – forecasters are beginning to project a slow recovery in 2011:

The state is still stuck with a stubbornly high unemployment rate and few job openings, but things may be looking up for California in the year ahead.

That’s the conclusion of two forecasts released this week by UCLA and Chapman University in Orange. Both predict that California’s economy will expand at a faster pace than the nation’s, thanks in part to improvement in global trade and the technology sector.

“The growth sectors in manufacturing are computers and electronics, medical devices and aerospace components,” said Jerry Nickelsburg, senior economist of the UCLA Anderson Forecast. “Those are proportionally California export items.”

In other words, these forecasters expect California’s recovery to be driven by exports. By making things people want to buy, we can recreate jobs and prosperity. Shocking, I know! It’s what progressives have been saying for years now, that a financialized economy based on people extracting wealth instead of creating value is no way to produce prosperity.

However, there’s still a very long way to go. California needs a recovery built on broadly-shared prosperity, not on a few high-end jobs. The UCLA Anderson forecast cited in the LA Times article above doesn’t project unemployment in CA to fall below 10% until mid-2012 at best.

While we might see some export-led job growth, there remain very serious threats to our overall prosperity. Three years of austerity have made California’s crisis worse, increasing unemployment, taking more money out of the pockets of families, and reducing the services that people need to use as a basis for recovery.

2011 may see this get worse, not better. Democrats can now pass a budget on their own and get a Democratic governor to sign it. But a 2/3rds vote is still required to raise taxes or fees, and with the expiration next year of the temporary 2009 taxes, the already-large budget deficit facing Sacramento will simply grow worse, creating more pressure for greater austerity that would further weaken the state’s economy.

Those three years of austerity, coming on top of 30 years of increasing inequality, have produced soaring poverty in California:

n September the state of California hit a new high in food stamp benefits, crossing the 6 billion dollar mark on an annualized basis. Over the past year in California alone the total number recipients of the federal SNAP program (supplemental nutritional assistance program) rose by 16.3%. In many of the big counties of California however, food stamp usage rose even faster.

That analysis comes from Gregor Macdonald, whose focus is on the economic dislocations caused by dependence on a peaking oil supply. It’s a view I’ve often articulated here, and his assessment of what oil-fueled inflation means for the most car-dependent areas of the state, such as the Inland Empire, is dire:

Also, while US exports are recovering very strongly and California is a powerful exporter, this will not be enough to rescue California’s economy which is still largely pegged to previous credit-bubble price levels. High priced homes, vast automobile and highway architecture, sunk-cost decision making in government and services-all these artifacts of the excess capital economy are now burdens in the shrinking economy….

At best, unfolding now in the US economy is a recovery largely tied to exports that’s creating some moderate new job growth, but at much lower wage levels. The United States, like the rest of the OECD, is now succumbing to the global wage deflation that was masked by last decade’s credit bubble. As a result, and on many measures, poverty is soaring in America and in California especially as increased food and energy costs collide with new, lower payscales. Worst of all however is that the meager public assistance that millions of Americans now collect-the billions in food stamps and unemployment checks-are no match for rising prices of gasoline, bread, milk, coffee, sugar, and meat.

These underlying problems facing the state of California are extremely serious, and so far no real proposals have been offered by our once and future governor to solve them. Jerry Brown does understand the need for green jobs and a more sustainable energy system, but California requires something much greater.

What we need is a comprehensive system to provide new public benefits to California’s workers, to help them innovate our way out of the 20th century sprawl and oil-dependent trap. This ranges from single-payer health care, freeing small businesses and entrepreneurs from ever having to worry about paying for health care again, to an California version of the German mittelstand, particularly the Gründungszuschuss, a fund that helps unemployed people start new businesses.

There’s a lot more to it than just that, but the core point is that California has a long way to go in rebuilding our economy along sustainable, democratic lines so that we can have broadly shared 21st century prosperity. That needs to be the top priority of California progressives.

4 thoughts on “Slow Recovery Projected for 2011 – Will It Reduce Inequality?”

  1. california is also well placed to get a double benefit in agriculture, both from more competitive food exports – from fruits and vegetables to wine to olive oil and dairy – as well as playing the role of import substitution when all those euro-import foods get more expensive domestically.  

  2. “A financialized economy based on people extracting wealth instead of creating value is no way to produce prosperity.”

    I’m secretly hoping that return to majority rule on the budget will enable the Dems in the Legislature to apply a little pressure on their colleagues from the rural-red counties. You know, the ones who hate “big government” and yet depend on subsidies from urban taxpayers via Sacramento to keep their districts afloat.

    We many not be able to raise taxes, but we can now allocate the revenues we have for political effect. Of course, the political media – which remains silent when the Pubs play hardball – will scream bloody murder if the Dems try it.

    Our new Governor is pretty savvy. I pray that he can persuade our Reps to man up and take the heat.

  3. As Gregor Macdonald points out, wages have been depressed by the long recession and by multinational corporations chasing the lowest possible job costs. With continuing high unemployment, that’s likely to continue too. And, according to Jason Linkus in the Huffington Post today, low-wage earners will actually see their taxes rise as a result of the newly announced tax “deal.”

    Combined, these hardly hold out much hope for reducing inequality.

Comments are closed.