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.

I work for the Courage Campaign

I had just started high school in Orange County in 1993 when President Bill Clinton backed off his pledge to allow LGBT Americans to openly serve in the military. Little did I know that decision would profoundly impact the life of one of my classmates.

Dan Choi graduated from Tustin High School shortly after I did. He got a prestigious appointment to the US Military Academy at West Point, while another of our classmates got an appointment to the US Naval Academy at Annapolis that same year.

Our mutual friend is still serving in the armed forces. Dan Choi, after a distinguished career in the Army that included a tour in Iraq, is not. The only difference between them is that our friend in the Navy is straight – and Dan is gay.

I hadn’t kept in touch with Dan after high school, until one evening in March when I was watching Rachel Maddow’s MSNBC show and saw him on the show speaking out against the “Don’t Ask, Don’t Tell” policy. Dan spoke three words that he knew violated Army policy – “I am gay.” Sure enough, as a result of that interview, Dan was served with a letter discharging him from the Army.

I stand with Dan Choi not just because we were classmates, but because we are both human beings who deserve fully equal rights. If I could serve in the military (if I chose to) as an openly straight man, Dan should be able to continue serving in the military as an openly gay man. There is no reason whatsoever to draw a distinction between the two – particularly at a time when the armed forces can use all the Arabic-trained, combat veterans who command the respect and loyalty of their fellow soldiers.

President Obama has promised to end the “Don’t Ask, Don’t Tell” policy, but appears to be waiting for the right political moment. The right political moment is NOW. Soldiers like Lt. Dan Choi, 2nd Lt. Sandy Tsao, and any other LGBT soldier cannot wait for the president to find the right moment. That’s why the Courage Campaign and CREDO Mobile have launched a petition to President Obama asking him to reinstate Lt. Dan Choi and repeal “Don’t Ask, Don’t Tell.”

President Obama should suspend all discharges under the DADT policy, and immediately ask Congress to send him a bill repealing the policy from our laws. Lt. Dan Choi, Lt. Tsao, the 11,000 soldiers who have been discharged under the policy, and the unknown, uncounted numbers of LGBT soldiers still in the military who still suffer from this policy. They know that the military demands honesty, yet they must lie to their fellow soldiers about who they are. They love their country and love their service, but are at constant risk of being kicked out merely for their sexual orientation.

Over the flip is the email Lt. Choi sent to Courage Campaign and CREDO Mobile members earlier today.

Dear Robert —

In March, I went on Rachel Maddow’s show and spoke three truthful words: “I am gay.”

As an infantry officer, an Iraq combat veteran and a West Point graduate with a degree in Arabic, I refuse to lie to my commanders. I refuse to lie to my peers. I refuse to lie to my subordinates.

As a result, the Army sent a letter discharging me on April 23. The letter is a slap in the face. It is a slap in the face to me and it is a slap in the face to the soldiers who I have commanded and served with over the last decade.

I have served for a decade under “Don’t Ask, Don’t Tell” — an immoral policy that forces American soldiers to lie about their sexual orientation. Worse, it forces others to tolerate deception. As I learned at West Point, deception and lies poison a unit and cripple a fighting force.

That’s why the Courage Campaign and CREDO Mobile are getting behind me today. And I’m getting behind them along with Knights Out — an organization I founded to bring attention to the ways “Don’t Ask, Don’t Tell” undermines our national security.

I need your support. Please ask President Obama not to fire me. Click here to watch my recent interview on Rachel Maddow’s show and sign the Courage Campaign’s petition asking the President to end the “Don’t Ask, Don’t Tell” policy:

http://www.couragecampaign.org/DontFireDan

In the ten years since I first raised my right hand at the United States Military Academy at West Point and committed to fighting for my country, I have learned many lessons. Courage, integrity, honesty and selfless service are some of the most important.

That’s why my discharge from the Army is so painful. I am not accustomed to begging, but I am begging President Obama today: Do not fire me.

My subordinates know I’m gay. They don’t care. They are professionals. My soldiers are more than a unit or a fighting force — we are a family and we support each other.

Will you support me as well? Please ask President Obama to keep his promise and tell Congress to repeal the “Don’t Ask, Don’t Tell” law and support equality in the military. Click here to watch the Rachel Maddow interview and sign this petition to the President ASAP:

http://www.couragecampaign.org/DontFireDan

Very Respectfully,

Daniel W. Choi

1LT, IN

New York Army National Guard

Over at the Sacramento Bee the Capitol Alert examines Arnold’s “doomsday” budget:

So what will be in Schwarzenegger’s doomsday budget? We laid out some scenarios on Sunday. The governor has already indicated some $6 billion in solutions:

— $2 billion in borrowing from cities and counties as allowed by a 2004 ballot measure

— $3.6 billion to $4 billion cut to schools

— $335 million gained through early release of prisoners and burdening county jails

— $80 million through a 10 percent cut in the Cal Fire budget

Schwarzenegger press secretary Aaron McLear said the governor is likely to pursue an extra fee tacked onto homeowner insurance policies to pay for emergency response, at a cost of about $11 annually per homeowner. When the governor proposed the plan last year, it would have raised an additional $105 million.

McLear said the governor is not planning to propose any other fee hikes or tax increases in his budget.

Besides that, the governor has said he will revisit state worker furloughs and layoffs.

Although the actual size of the deficit is unclear, one fact is emerging – there is less room than ever before to actually make cuts. The federal stimulus in particular has had the effect of protecting large swaths of the budget from further cuts – which is a very good thing since every budget cut made means further economic deterioration. From Capitol Alert again:

Chris Woods, budget aide for Assembly Speaker Karen Bass, D-Los Angeles, said Monday that due to various constitutional and federal protections, the state can only target about $38 billion in the budget — largely social services and corrections. K-14 education is protected by Proposition 98 and by a mandate in the federal stimulus package to maintain a certain level of funding. Higher education is also protected by federal stimulus rules, as are some social services….

That leaves vulnerable things like the “optional” benefits that the federal government does not mandate but have been a favorite target for Schwarzenegger and former Gov. Gray Davis. The state will eliminate $259 million of those in July, including Denti-Cal. The state could move to eliminate other benefits such as prosthetic limbs or hearing aids, as Davis proposed in 2003. But even those would only save a fraction of the deficit problem.

It’s becoming clear that a cuts-only solution is not a credible solution to the budget deficit. Arnold refuses to consider new revenues, such as taxing the wealthy and closing corporate loopholes, or finally implementing an oil severance tax, or raising the gas tax. Unless he plans to close all the prisons in the state there’s no way he’s going to be able to close the gap, even if he sends every city in the state into bankruptcy by raiding their funds.

It also raises the specter of default – which Tom McClintock thinks is possible (not that he cares, since he never voted for a state budget anyway). California’s Democratic Congressional delegation is working to provide federal guarantees to state bond buyers. It’s a necessary move to prevent fiscal collapse, but Republicans, so close to the destruction of government they can taste it, are crying foul:

Republican Rep. Tom McClintock of California’s 4th District said he is “adamantly opposed” to the idea and predicted the state would default on a bond for the first time in its history.

“The reason they can’t get a loan guarantee is because nobody in his right mind believes they’re going to repay the money, so why should the federal government do it?” he asked.

But McClintock said he wouldn’t be surprised if it passes the Democratic-led Congress: “I’ve noticed recently that the more fiscally irresponsible the proposal, the faster it seems to pass the Congress, so I would expect it’s got an excellent prospect.”

If the request is approved, Orange County Treasurer Chriss Street said, the federal government “will inevitably become the lender of last resort for all government entities in California and across the United States.”

Why yes, Chriss, that is exactly the plan. Given the severity of the economic crisis, it’s a necessary move for the feds. State defaults would wind up eviscerating what remains of the safety net. The recession would thereby worsen and it would become much more difficult for the nation to provide economic recovery if half the teachers have been fired, if there’s no health care, no buses, and if criminals are walking the streets.

The “Great Recession” is proving that the solutions of the last 30 years have no power or sense left to them. Democrats are slowly but inevitably embracing that reality. We know Republicans won’t, which is why their veto power, in Sacramento and in the US Senate, must be ended as soon as possible.

We’d need a whole pod of whales to illustrate the FAIL that is Governor Arnold Schwarzenegger:

The Republican governor’s Department of Finance has projected a budget gap of $15.4 billion if the May 19 special election ballot measures pass and $21.3 billion if they fail. The state would gain nearly $6 billion in solutions if Propositions 1C, 1D and 1E pass, including $5 billion in 1C’s borrowing against the California Lottery.

Arnold took office promising to succeed where Gray Davis supposedly failed. Now Arnold has produced deficits FAR worse than anything Davis faced. Arnold is plowing ahead with his apparently illegal “May Revise” to scare voters. But as the SacBee article notes, Arnold can’t actually propose that much in cuts without risking the stimulus:

The governor did not disclose his proposed solutions Monday. But he warned groups last week that he will consider borrowing $2 billion from cities and counties, releasing low-level offenders in state prisons and reducing school funding by $3.6 billion. The state also could eliminate its planned $2 billion reserve.

California faces limitations in how much it can cut without jeopardizing federal stimulus funding. For instance, the state cannot cut too much in higher education, K-14 schools or Medi-Cal eligibility without running afoul of federal stimulus guidelines.

Cities and counties will revolt before being pushed into bankruptcy by a raid on their already bare cupboards. Arnold is either going to have to declare default, or embrace some truly progressive solutions like majority vote budgets and taxes on the wealthy and corporations.

Instead of providing leadership, Arnold is merely trying to scare voters into giving him one last chance to ruin our state. Voters are rejecting his tactics, his propositions, and ultimately, Arnold himself.

Worst. Governor. Ever.

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.

Now this is a federal intervention I can believe in:

The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.

Schwarzenegger’s office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials….

The SEIU said in a statement that it had asked the Obama administration for the ruling.

Combined with the CFT lawsuit this action shows a new aggressiveness coming from progressive unions, and is precisely the right strategy to take against those who would demand or accede to the economically insane policy of wage cuts for these workers. The failure of the May 19 election proves the failure of an accommodationist strategy – Republican demands for government destruction can only be countered through strong pushback.

This is also a welcome step from the federal government, which did not have to make this ruling. It would be nice if DC would get even more aggressive about oversight of the stimulus money. The education stimulus, for example, ought to have been conditioned on states refusing to layoff teachers or cut education budgets.

By demanding this federal ruling, and by suing over the Prop 98 funds, SEIU and CFT have done far more to help prevent crippling budget cuts than the millions spent by CTA and other progressive organizations trying in vain to convince Californians to accept a bad deal that will make the budget situation worse, not better.