Once Again, We Don’t Have a Spending Problem

And we never did.  A story by Bloomberg today complains about the long term spending increase that would be expected under Brown’s budget:

Governor Jerry Brown’s proposed $12.5 billion in budget cuts won’t prevent California’s spending from increasing 31 percent during the next five years, according to figures from his budget office.

Expenditures would rise to $111 billion by 2015 from $84.6 billion in the fiscal year that begins July 1, under Brown’s plan. A third of the increase is required by the constitution to bolster education. Much of the rest is for projected growth in health care and welfare, and to make up for lost stimulus funds, Brown’s office said.

Republican opposition threatens to derail Brown’s plan to repair the financial strains that have left California with the biggest deficit among the U.S. states and the lowest credit rating. He wants to offset even deeper cuts to schools and the poor by retaining $9.3 billion a year in higher taxes and fees that are otherwise due to expire.(Bloomberg)

First, apparently we have to take care of the credit rating ridiculousness yet again.  Put it this way, anybody laying any seeds of doubt as to whether we will pay our debt should go to Treasurer Lockyer or the Oracle of Cruickshank.  Our constitution does not allow for a default.  For better or worse, even if we have to cut back spending to only K-12 and debt, we would pay it.  We have to.

Yet, that doesn’t stop the rating agencies from spewing their nonsense.  What exactly were they doing in 2005 when their cronies were paying them for those AAA ratings on mortgage-backed securities? And yet, despite the tails of gloom, we haven’t yet defaulted, and we will not default.

The other side of this is spending, as if we should be shocked by a $111 billion budget.  Let’s put it this way, we have had budgets in that range in the past.  And we will have them in the future. Given our state’s size and growth, these are hardly shocking numbers.  These numbers would still put us solidly in the middle of state spending per capita.

It is only this rampant Austerity Fever that has taken over this nation.  Where once California and the nation grew through a philosophy of a rising tide lifts all boats, instead we have become a nation that focuses on personal wealth accumulation.  We now apparently find it so repugnant to have the government band together resources to support our fellow Americans that we freak out about a really pretty reasonable level of spending.

Perhaps those days are gone by, Reaganism and its aftereffects might just have gone ahead and done in the shared vision of prosperity that we once overwhelmingly shared.  It was the vision of Camelot and the Great Society.  So much for that.

33 thoughts on “Once Again, We Don’t Have a Spending Problem”

  1. Last year, Republicans kept whining that Obama was trying to reallocate wealth–calling him a socialist.

    Now that they’re in power in parts of the country and part of Congress, it’s quite clear that their main goal is to reallocate wealth too. The only difference is that they want to move it up. They want to concentrate it at the top with the already obscenely wealthy part of the populace, and the already outrageously profitable biggest corporations in the world.

    So our choice is clear: Do we want the wealthy to keep gobbling up more? Or do we want everybody to have an equal chance at a decent life? It really is just that simple.

    But you’ll never hear that from the mainstream media because they’re owned by the same corporations.

  2. Great Post, Brian.  I too am suspicious of the rating agencies. I believe California’s debt is only 6% of GSP so I’d be curious as to what formula they are using. ON TOP OF THAT the CAL-VET loans are bonds back and paid by the bond holders that has never defaulted but right now have far higher yields because it has the name California attached to it. Ridiculous.

    The ONLY way I can see California’s bond rating remotely accurate is if California is on the hook for bailing out cities and the pension fund.  For cities, they just go bankrupt so I don’t buy that justification. And for the pension fund – almost a whole different topic – I wonder how California’s budget is on the hook for that in the first place, its a separate fund (I’m curious about discussing with someone in the know later on). Not sure why that should impact bond ratings.

    As for a spending problem, I really hate projected spending figures. Have they ever been accurate? Have they ever been used for any other reason besides pushing a program, a policy, or a tax cut/increase? I’m not sure.

    I do think some of the spending planning where California anticipated 8% growth in government every year was excessive especially since our population and economic growth rate hasn’t been that in years.  It seems some interest groups were trying to push bigger spending for their pet projects.  As a result of that (among other things) budgeting and spending, necessary govt functions, have been discredited. Almost similar to how the huge surpluses by JB’s first austerity plan 30+ years ago opened up the tax revolt.  

    I would like to rail against Washington. In what I would only call colonialism they still take a huge amount of cash from California even though California is in dire straits.  Texas and California both have $20B+ shortfalls but Texas get 98% of its federal dollars back where California gets only $80.  Could you imagine if we got 98% back?  We’d probably not have no budget shortfall but a surplus to fund things (assuming the state spending covers what the feds take, no strings attached, etc).  Of the many things I dislike about Boxer her disingenious response on this issue that California pays more in booms but gets back more in busts was blatantly false even by the data she cited. Only the Fiorina distraction kept us from holding her (and it applies to our other represenatives) accountable. Really I feel our DC senators and reps from both parties represent their parties more than their constituents or state. But I’m getting off topic.

    As for the comment on Austerity Fever and individualism over coming California’s lifting boats thinking.  I don’t think its accurate.  California was founded by individuals seeking the gold rush, individuals pioneering technology, someone coming off the bus trying to be a rock star or movie star. California is individualism and its why we are more tolerant of different people (races, beliefs, etc) we don’t have a tribal sense of community like the Southern US or East Coast.  The downside is that during busts, as its beein since 1849 some people really lose out. We don’t have that community sense to pull together because thats not what made us rich, then why do think it will save us from being poor? Right or wrong I think that’s how the mindset is.

    I think the problem is when we try to ape the community view point found in Europe or the state/labor systems of the east coast (for dems) or the family/church/corporation plantation mindset systems of the south (for the gop) it doesn’t work here. We’re not them and most of us left those areas for a reason. California is different, our situation is way different, and what we value is different. We have failed to develop a California System that addreses the fanatastic boom and bust nature of our state. Unfortunately, we can’t even get the dialog going to address it. But that may be because we are individuals first. 🙂

    Ok, enough rambling. Have a good weekend.  

  3. An all cuts budget would be painful. I am low income and I am likely going to put my overpayment as “use tax” payment instead.

    Get signatures from people and get it on the ballot that way. Republicans don’t want to be bruised up black and blue like Maldonado and Villines and that is why they are not going to capitulate.

    An all cuts budget would suck, but taxing people to oblivion would not work either.

    I will vote for the tax extension this time.  

  4. Can we add some new taxes to the vote in June like oil depletion?  Reassessing commercial property or at least creating two tax roles?  Raising some corporate taxes?  

    I guess I have to get up and protest at all these sites.

  5. Too much money on programs that Republicans in power just don’t like, Here are some Examples: HSR, SSI(Supplemental Security Income), SSR(Social Security Retirement), SSDI(Social Security Disability Insurance), Medicaid(Medi-Cal in Calif), Medicare, EPA, FDA, FTC, FCC, DOT, DOE, FBI, HUD, USAID, etc, etc.

    Of course they like Freeways(which are rooted in the Autobahns of Germany which were created by the 3rd Reich of NAZI Germany back in the 1930’s), But they won’t fund anything properly…

  6. Our country is going into debt at a rate of 1.5 Trillion per year.  Our economy produces around $13 Trillion in value per year.  So 11.5% of all the value we create is being paid for through DEBT.

    DEBT is okay IF the economy is growing faster than the DEBT is accumulating.  Our Q4’2010 GDP was ONLY 2.8%.  All and more of the economic growth is purely government spending which creates zero lasting value.

    2.8% < 11.5% is NOT SUSTAINABLE — and not just a little not sustainable, a lot NOT sustainable.

    There are 2 triggers for economic collapse (only one needs to happen).  

    One is total debt, when our DEBT reaches around 2.5x our annual output economies collapse — Ironically, that’s the limit most financial advisers recommend as your own personal debt limit 2.5 to 3x your annual salary when you are young and healthy.  So we, the USA, has a long ways to go in that respect at the current rate of increasing debt.  We have ~$13T in debt now –> we can probably go to $32T in this measure.  We promised more than $60T in spending over the next decades — but this is not an immediate concern.

    Two is the rate of debt increase, when DEBT increases at around 15% per year faster than GDP growth.  In other words, all things being equal Obama could raise government spending by another $500B per year before triggering an economic collapse.

    Social Security and Medicare are rapidly going to cause an excess of $500B/year if nothing changes.  It will change.  Social Security and Medicare seem impossible to change now, soon cutting their will seem like the easy choice.

    HOWEVER, there is a random card in all of this and that is: You never know what is going to happen (natural disasters, oil embargo, foreign countries moving away the dollar, etc.)  In other words, we have very little margin for error right now and the continuing deficit gives us less and less margin.

    We would need our economy to grow around 10%!  That has not happened for a very long time.  Thus the only option is severe cutting and the only thing to cut is the public sector.  Why?  Not because I want to be mean to the public sector — but because the private sector without public sector spending is shrinking.  Pulling more money from the private sector will only collapse the Public sector faster.

  7. real misconceptions at the heart of this discussion is the notion that the public sector doesn’t create wealth and only the private sector does.  If the public sector builds a highway then that is real wealth just as if the public sector provides new hospitals that is real wealth.  It may be that the public sector doesn’t produce capital (although as several have pointed out public sector contracts can enable others to produce capital).  If we start focusing on wealth and not on capital, and start asking what capital is for then the whole discussion changes.

    Part of the problem with the debt issue is that because of the increasing inequality that has occurred over the last several decades more and more people have gone into debt because their salaries have been cut and they have been forced to purchase from the private sector things (like education) that used to be funded by the commonwealth.  The notion that all of that financial capital is somehow more productive or important than government spending is a simply an act of faith (and not in the religious sense).  The bubbles of the past decade (which is why we now have such public debt) was the result of excess non-productive capital looking for new places to make a quick buck–not producing realwealth.

    The problem with the cuts first approach is that it will only deepen the spiral and is also asking people on the bottom (and in california at least working class people pay a larger percentage of their income in state and local taxes than do wealthier people http://www.cbp.org/pdfs/2011/1… pg.33) but it is also asking the people who have received the least gain (n some cases losses) to pay for the bailouts of the financial institutions that have caused the huge spike in public debt in the first place.

    That says nothing of course of the human costs here.

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