Note: this is a cross-post from The Realignment Project.

Introduction:

In part 1 of a New Deal for California, I discussed why any effort to rebuild the state must begin with a frontal assault on high unemployment as the only reliable means of achieving budget stability – as opposed to self-defeating quests for balance via austerity. In part 2, I studied how the quest for a more perfect democracy is inextricably linked to a renewal of democratic control over the state's own revenues.

Today, I want to discuss two areas of policy that are among the largest spending categories in the California state budget, but which also represent two faces of the state, and two approaches to developing its youth, and two sets of values – namely, education and prisons.

Arnold's recent proposal to put a floor under higher education at 10% of the state budget and a ceiling over prisons at 7% of the state budget is only the most recent example of a long trend of discussing the two in the same breath. As I discussed in the linked article, Schwarzenegger's approach is fundamentally flawed, a mirage of egalitarianism masking a reality of utter callousness. A moral society cannot pay for the future of its most talented youth through the deliberate immiseration of its least advantaged.

However, a New Deal for California will have to grapple with the reality that California will either educate or incarcerate its young, and that the power to choose lies with us.

Higher Education:

In my previous posts on higher education, I've tried to get across the idea that the purpose of public higher education is to expand and improve the functioning of democracy, that higher education is a social and public good, not a private commodity, and that the way a public university is run speaks volumes about the values of the society. If there is an overarching theme here, it's that the choices a state makes on higher education both reflect and shape the nature of its society. A state where the children of the poor and the children of the rich are equally limited only by the boundaries of ambition and ability will be a society is genuinely one of equal opportunity and healthy, meritocratic competition. At the same time, states should also think of higher education as a social investment in a high-road economy, distinguished by high levels of skill and education, high wages, and high living standards.

A New Deal for California is absolutely about making that investment and choosing that high-road, but one of the things you see in public discourse about higher education in California in progressive circles is a certain fuzziness – when it's razor-sharp conviction that wins the day in politics. There's the required genuflections in the direction of the 1960 Master Plan, and perhaps even a statement about how “college should be free!” or how cheap it was to attend the U.C when they were young, but nothing about how we proceed from where we are to were we want to go.

By contrast, I think a New Deal for California had to start with a genuine commitment to a new Master Plan for California that charts a path for gradually reducing tuition to $0 for the U.Cs, CSUs, and Community Colleges over the next 20 years. We should be clear about how much this will cost: it will take about $1.7 billion a year to make the U.C tuition-free, about $2 billion a year to make the CSUs tuition-free (about $5,000 a year in tuition times 417,000 students), and about $1.78 billion a year ($614 a year times 2.9 million students) to make the Community Colleges tuition. Altogether, we're talking about $5.8 billion per year, or an extra $290 million per year.

Assemblyman Torrico's AB 656, which would establish a 10% excise tax on oil extraction to provide about $2 billion a year to higher education (a system already in place in Texas, which funds the University of Texas through an oil excise tax). That gets us about a third of the way to our goal. The rest could be assembled from a variety of revenue sources – this is not beyond the means of one of the richest states in the Union,  and one of the richest economies in the world.

One idea that has been suggested in the United Kingdom by Ed Milliband (Labour M.P, Shadow Energy and Climate Change Secretary) is to replace tuition costs with a “grad tax.” The idea would be that, instead of requiring students to pay tuition and go into debt up-front, which acts as a prohibitive burden for many working-class students and constraints the future career choices of graduates, that we instead ask graduates to pay a progressive surcharge of between “0.25% and 2% of their income over a 20-year period,” enabling graduates to contribute, according to their ability to pay, to higher education whether they work for a non-profit or a Fortune 500 company.

As I have said before, the ultimate goal that we should be thinking about is not 100% of the youth population attending university, but rather that 100% of the youth population being able to achieve whatever level of skill or training that their ability and ambition provides for. This means treating skills training- whether it comes in the form of a union apprenticeship, vocational or technical college, or a professional course in a community college – as just as important as any other form of education. It means paying more attention to helping students get employed as well as enrolled (such as is the case in the German and Japanese education systems). And it means making sure that students graduate high school able to take advantage of higher education/training.

A Word About K-12:

I'll only say a few words onK-12 education, since it's not an area of public policy that I've actually done much work on. As someone who's been a TA at the U.C for four years, I can certainly attest to the fact that California needs to do a better job at preparing students, both for college and employment, because it's quite surprising how many of the top 12.5% of high schoolers in California have real problems with constructing essays or interpreting reading.

Here's what I'll say – I believe that the “Educational Equality Project” reform community has over-emphasized college preparation, has tended to over-emphasize incentives over resources, and relies too much on an economistic model of corporate efficiency. I think primary and secondary schools should emphasize employment as well as college, and experiment with the German and Japanese model of partnering with employers to offer students additional paths for career development; in part, I think this comes from an approach to manifest class and racial inequalities that opts for individual, behavioral intervention (assuming that schools can “solve for” poverty without outside interventions on social conditions, and emphasizing college attendance without consideration for labor market conditions).

Moreover, I think reformers have under-sold the degree of resources that will be needed to correct inequalities in resources (which is why California needs to move to equalization of funding across school districts) as well as social and cultural capital. Things like increasing instruction time, providing tutoring to struggling students, and lowering class sizes are all well and good – I'd even add commitments to expand Head Start to 100% of those within 150% of poverty, and extend it, “Follow Through” style, to prevent “Head Start fade” in primary school –  but they will require a significant commitment of funds to work.

I think the rhetorical emphasis on incentives over resources comes from two sources: first, it comes from the unspoken recognition that a lot of the key policies adopted in heavily-promoted charter schools aren't costless, which raises questions about scaling. KIPP is lauded among EEP-style reformers, but a 60% longer school day/year, 24/7 teacher availability, and weekend work costs, and not just in dollar terms – 50%-plus turnover rates are common in KIPP schools. Second, it comes from what Matt Yglesias refers to as a “Green Lantern” theory about education – if teacher productivity and efficiency are what matters, then you don't have to deal with the fact that California schools are 43rd in the nation in per-pupil spending, because all you have to do is push teachers hard enough. At the end of the day though, resources are real and it is not impossible for California to commit to raising its commitment to the top 10 in the nation over a period of 10-20 years, similar to the commitment to tuition-free higher education as well.

Finally, as I've said before, I think the debate over accountability and results has become poisoned by the link between the models of accountability used by reformers and ideas about corporate efficiency, leading to a massive level of distrust among teachers and their unions. I've said it before, but it bears repeating – I'd be very interested to see how EEP reformers would react to an offer to have accountability and performance targets negotiated right into collective bargaining contracts, and put the unions in charge of and responsible for teacher quality.

Prisons:

All of this discussion of resources brings us to the piggy bank that both Schwarzenegger and I are hoping to use to improve the quality of education – California's overstuffed prison population, the second-largest in the nation. Right now, California imprisons 616/100,000 persons, and its prison population has been growing 500% over the last twenty years. This expansion has led to a growing budgetary burden, overcrowding, and a series of lawsuits over health and safety standards. No one particularly disputes that something needs to be done, but there are different ways to go about it.

Schwarzenegger's vision is to combine privatizationand outsourcing – essentially to shove our prisons off our books and avoid changing the way we deal with our offenders. This is morally unacceptable for any sane society. Private prisons are rightly notorious for corruption, abuse, and the further cutting of corners on medical care, living conditions, and safety standards. Shifting our prisons to Mexico is simply an attempt to do privatization without getting tripped up by lawsuits filed in American courts when the inevitable lawsuits alleging subhuman standards emerge. California should certainly commit to keeping prison spending below 7% of the state budget, but this is not a just way to do it.

However, there are ways to solve our prison problems. California's shift to drug courts and rehabilitation has paid dividends in the form of 10,000 fewer prisoners on drugs charges than in the 1990s, but there are still 30,000 prisoners on non-violent drugs charges who could be better dealt with outside the prison system. The bigger target is California's broken parole system – about 70% of parolees are re-incarcerated (the vast majority of cases being not new criminal violations but rather some technical violation of the terms of parole), at a rate that has increased six-fold in the last 20 years. As a result, about two-thirds of prison admissions are parolees rather than new offenders. There are better ways to handle our parolee problem than the current system of catch and release, and solving our parole problem would largely solve our overcrowding problem.

Dealing with these two factors would allow California's criminal justice system, including the police, courts, prisons, and parole systems, to focus on doing a better job with the prisoners we've got. This means more, not less, effort directed at deterring violent crime and higher rates of arrest; this means freeing up resources to separate out first-time and non-violent offenders from hard-core criminals and violent offenders, with an eye towards reducing our state's abysmally high recidivism rate. In the end, being smart about crime works better than toughness for toughness' sake.

On an ironic note, one of the few truly successful anti-recidivism strategies in the U.S has been the oft-targeted, poorly-funded college education programs. Expanding the commitment of college for all to the prisons might itself help to solve our prison problem.

Side-note – on Interdependent Parts:

In earlier segments of this series, I talked about the need for an overarching vision for California, beyond just the policy-specific pieces. To that end, it's important to see how education and prison policy fit as parts of a larger whole. For example, let's examine the impact of full employment policy and changes to democratic governance and revenue on these two areas of public policy.

To begin with, full employment would greatly increase the public revenues available for K-12 and higher education. It would also add on a crucial back-stop to our system of educational development, ensuring that U.C and CSU and CCC graduates who've received incredibly expensive training don't get thrown on to an overcrowded labor market (as is happening now) where they can't find work, leaving their training to go to waste. It also means that rather than focusing solely on college attendance as our only strategy for getting kids out of poverty that we can offer them a chance at high-wage full time employment. Prior to the unraveling of high-wage labor in the 1980s, a high school graduate who had neither interest nor aptitude for an academic career could get a job for life as a skilled, semi-skilled, or even unskilled worker and be assured of economic security and a middle-class standard of living. With full employment, there's no reason that we can't build our way to an economy that provides opportunity to those kids as well as the college-bound.

Full employment would also greatly reduce our prison burden. We know that anywhere from one-third to two-thirds of prison admissions are unemployed at the time of incarceration, that many property crimes are associated with unemployment, and that the increased difficulty of finding employment as an ex-offender is a major cause of recidivism. While certainly not a silver bullet (violent crime is not particularly correlated with employment rates), full employment can only help. (On a slightly more cynical note, one of the reasons why prison guard unions have resisted parole reform, decriminalization, and other efforts that might reduce the prison population is out of a desire to protect the jobs of their members. In a full employment economy, where workers could be assured of having a job, this political inertia could be more easily overcome).

A similar case is true for democracy and revenues. A more functional democracy, where legislators could more easily match our revenues to the level and kind of goods and services demanded by the people, is one where the kinds of commitments we want to make to both higher and primary education can be made, and where reforms to our prisons systems can be more transparently and directly debated and carried out.

Conclusion:

There are 159,000 students at the University of California. They are among the top 12.5% of our youth, the most talented, the best educated, with the greatest likelihood to succeed. There are 170,000 prisoners in the California prison system – they are disproportionately young, non-white, and less-educated. Even when they are released, they will find it more difficult to find employment, housing, and credit. To place the burden of the best prepared on the least prepared is to compound injustice with unfairness.

Introduction:

In part 1 of “A New Deal for California,” I argued that Democrats needed to put forward a stronger message about what we wanted to do, a larger vision of what Democratic government would mean for the state, beyond the immediate issue of dealing with our structural inability to pass a budget. Both for practical and political reasons, that vision should include the aggressive pursuit of full employment for all Californians.

That’s a good start, but I don’t think a New Deal can stop there, or rest on a fragmented policy-by-policy case for Democratic rule. Rather, I agree with George Lakoff that we should frame our message around the idea that California is experiencing a crisis of democracy. However, I would push further than Lakoff to argue that democracy isn’t just about majority rule – democracy means both a government that does what the people want, and a government that has the ability to do what the people want. California’s problem right now is that we don’t have either.

What Democracy Looks Like:

Democracy begins with majority rule – which is why we will need to pass the California Democracy Act, either now or later, in whole or by parts, by any means necessary. Without this, democratic government is essentially hamstrung – the people can pass regulations, but can’t pass the revenue needed to enforce them; we can declare our priorities for spending, but lack the ability to turn our preferences into policy. However, it’s worth asking, would California’s government be truly democratic if majority passed but nothing else changed?

I would argue not – our democracy is in need of structural reforms beyond majority rule, both within and without the legislature.

Inside the legislature, a number of structural faults hamper the smooth exercise of democratic government – the establishment of term limits by Proposition 140 has decimated the capacity of legislators to develop expertise and competence in particular policy areas, allowing lobbyists to “wait out” challenges to their interests by legislators who must rely on other lobbyists for expert advice; and the current practice of budget negotiations undertaken in secret by the Big Five (the governor and the majority and majority leaders from the Assembly and Senate) has led to an undemocratic and unstable process in which negotiations can be reneged on at will and in which leaders can quickly lose the support of their members. At some point, we are going to have to establish at least a partial repeal of term limits if we want a state legislature that has the competence to rule. At the same time, the budget negotiation process should be expanded to include the chairs of the Budget and Appropriations Committees from both the Assembly and the Senate as liaisons to the majority caucus to ensure that the committee process matters and that there is more buy-in from the caucuses as a whole.

At least in part, this will have to involve the establishment of a clean elections system, along the lines of Prop 15. Ultimately, I think that a straight ban on outside donations is not going to work, especially in the wake of Citizens United. What does sound more workable is a system along the lines of the Voting With Dollars proposal: small donations should be progressively matched with public funds, private donations should be done anonymously, and large donations, independent expenditures, and corporate lobbyists should be taxed to fund the public funding mechanism. While Citizens United has certainly impaired the potential for campaign finance to restrict corporate campaign spending, the possibility of using the power to tax to “even up the sides” remains an unexplored option.

Outside the legislature, our system of elections is incredibly dysfunctional. The initiative and referendum process is wide open to capture by wealthy interests and presents the public with such an array of misleading and confusion proposals that it increases voter apathy and actually reduces democratic sovereignty. To begin with, initiatives must be vetted by the state’s legislative counsel (to prevent poor drafting and other errors) and identify the source of any revenues required to be spent; and the legislature should have a chance to amend initiatives (subject to a later referendum). Next, constitutional amendments should require a 2/3rds vote to pass, as should any initiative that would establish new super-majority requirements, but all regular “legislation initiatives” should require a simple majority. To prevent voter fatigue, initiatives should be limited to the general election, proponents should be required four years to resubmit an initiative that is rejected by the electorate, and no more than ten initiatives should be on the ballot each year (the top ten qualifiers would appear on the ballot, whereas any surplus initiatives would go to the front of the queue for the following general election). Finally, to reduce the ability of wealth and power to dominate the initiative process, signature requirements should be raised, the period of signature gathering should be extended to a full year (allowing volunteer-driven efforts a level playing field), and campaign finance should be extended to initiative sponsors and opponents (with mandated disclosure of sponsorships in ads and on the ballot itself).

Finally, California’s elections system should be reformed to not merely allow, but encourage, and ensure a more fully participatory democracy. California elections law should be reformed to automatically register every resident, and to allow for same-day registration – to ensure that everyone who should be able to vote will be allowed to. The flip side of this is that, if we go to such efforts to ensure that everyone can vote, we also have to ensure that everyone will vote by establishing a holiday for both primary and general elections, and if necessary, establishing mandatory voting.

Paying for Democracy:

While we’re sizing up institutions for failure, we shouldn’t leave out one of the major problems – the California electorate itself.* California’s electorate suffers from two major problems of thinking – the so-called “Two Santas” belief that we can have high levels of government services and low taxes at the same time (while at the same time being opposed to deficits and debt), and what I call a “Government/Program Blind-spot.” This last concept  attempts to explain why voters simultaneously express a lack of trust in government and opposition to higher government spending, while at the same time showing a deep level of support for many if not most government programs and a desire for increased funding for those programs. What I believe is the case is that voters have a conceptual block that separates the abstract entity of government (where popular prejudices about waste, fraud, and abuse, overpaid bureaucrats, and the superior efficiency of corporations hold), and the specific programs that make up the government (where people really like programs that help them and that fulfill their values of a good society). In this sense, it’s not actually contradictory for teabaggers to scream “get government out of my Medicare!” – because to them, those are two separate entities.

* to be fair, California’s voters are not unique in these problems, but super-majority requirements exacerbate these tendencies. It’s also the case that California voters are at least on some level willing to pay higher taxes (or at least for the rich to pay higher taxes) for better services – it’s just that this willingness is highly fragile and depends enormously on the political context and narrative that voters faced.

What this means is that progressive Democrats in California have to redirect our rhetoric over the budget from an abstract case for balanced budgets and good government (which people support, but in the rather hazy apathetic way that people support anti-littering campaigns) to a concrete case for progressive taxation and progressive programs.  Obviously the major barrier to this is Prop 13 and the power of anti-tax and anti-statist thinking in the electorate, which is why (assuming for the moment that 2/3rds is not dealt with) we need to build up to a direct challenge to Prop 13 orthodoxy.

The first tactical step, meanwhile, is to raise revenues while acting to restore economic growth. Reversing corporate tax cuts ($2.5 billion a year) and raising excise taxes (on alcohol ($.5 billion), cigarettes ($1.2 billion a year), oil extraction ($2 billion a year), and should the legalization initiative pass, marijuana sales ($1.3 billion a year)) make for as good politics on tax increases as you are likely to get – the electorate is in a very anti-corporate mood, not very happy about drilling, and tends to prefer “sin taxes” to other forms of taxes. These changes would raise around $7.5 billion a year, or about 40% of the budget deficit.

The next, more difficult step is to retain the 1.15% Vehicle License Fee, and eventually restore it to the 2% as it was before Schwarzenegger blew a hole in the state budget, and bring that approximately $3 billion a year back into the Fund. As can be seen in the 2003 recall, the VLF is tricky politics and will not be easy to finesse. However, one giant step that could be taken to change this tax politics is to to progressivize the Vehicle License Fee. Not only would this make it a lot easier to raise future revenues, but it would also set an important precedent for future actions on property taxes.

Together, these steps would help to meet the immediate crisis, but also begin to change the larger politics of taxation. However, to move beyond the immediate defensive to the longer-term push for progressive government, we’re going to have to think strategically.

The first strategic step is to link taxation and spending – because anti-tax rhetoric only works as long as it can exploit the Government/Program Blindspot to sidestep the fact that people like government programs and tap into the latent anti-statism that gets non-rich people to vote against taxing the rich. What I advocate is that we – purely as an accounting measure – subdivide our taxes (property, income, corporate income, capital gains, sales, etc.) into specific policy taxes, and the general fund into separate policy funds. In other words, you would have a separate Health Care Tax, Education Tax, Transit Tax, Environment Tax, and so on, which feed into a Health Care Fund, Education Fund, Transit Fund, Environment Fund, etc. This change could be packaged in with a progressivization of property tax rates, sales taxes, and other flat-rate revenue sources, which further shifts the politics of taxation.

The advantage to this system is that it completely short-circuits the Government/Program Blind-spot and reorients taxation and budget politics around specifics. People might not like paying taxes, but they really like health care and education and transit, and so on, and therefore would evaluate political debates about “should we raise the Health Care tax to fund more research hospitals for children’s cancer research” or “should we raise the Education Tax to reduce class sizes” differently from “should we raise TAXES to pay for BIGGER GOVERNMENT.” It has the same effect on budget debates – cutting the General Fund budget by 10% allows people to imagine cuts falling on imaginary waste, fraud, and abuse; cutting Children and Seniors Assistance by 10% makes the human consequences of budget cuts real and immediate.

The second strategic step, as I have discussed before, is the establishment of a State Reserve Bank. A State Reserve Bank, for those unfamiliar with the concept, is the result of the state chartering a public bank, and instead of placing its reserves, tax revenues, deeds for public lands, and so forth in a variety of state banks (as most states do), it puts all of them in the public bank to act as the bank’s capital base.  The bank then acts like a reserve bank, using the power of “fractional reserve lending” (i.e, that a bank can generate much more money in loans than it keeps in its vaults, thus multiplying many times over its actual reserves, as long as it keeps back a portion to redeem deposits) to generate loans, act as a local “lender of last resort” (thus buttressing the work of the Federal Reserve and FDIC during credit crises), and (this is the key bit) allowing the State to borrow money in order to deficit spend in a recession.

Not only would the state reserve bank be important for boosting employment levels and spurring on the recovery, but it would also help with the state’s budget position. California spends about $5 billion a year in interest on its debt, in no small part because of Schwarzenegger’s use of bonds as an alternative to raising taxes in the pre-recession period, but also because California’s bond rating has been hammered by corrupt and ideologically-biased ratings agencies that have different standards for states that are effectively immortal (who have been repeatedly downgraded), than for corporations like Lehman Brothers and AIG who kept high-grade ratings even as their liabilities-to-assets ratio fell into the Marianas Trench.

The third strategic step would be to set up social welfare policy as social insurance as much as is possible. I’ve already discussed how California can set up a mass-scale jobs program as a Jobs Insurance system, both for practical reasons (social insurance creates an independent fund that would rescue programs from the 2/3rds trap) and for political reasons (social insurance creates a public acceptance of “earned rights” that makes anti-welfare politics almost impossible, and engenders broad support for universal benefits). There is no reason why California’s social welfare network could not be so reconstituted (as long as we are careful to make social insurance premiums progressive in nature): Cal-Works could be easily folded into Jobs Insurance, IHSS (in-home supportive services) and SSI/SSP (Supplemental Security Income, State Supplementary Payment) could be re-organized into a state-level Social Security analogue (again, shifting from contingent benefits to benefits secured by right); a state-level child care insurance program could similarly subsume existing child assistance programs; and so on.

When these strategic steps have been taken, then progressives can move directly on overall tax levels and Prop 13 directly, because they would have already shifted the terrain of debate so dramatically that the old politics of taxation and spending would no longer function.

Conclusion:

In the end, as Clifford Geertz suggested, politics is about telling stories. Because as progressives we tend to share a common belief in the overall goals and purposes of dynamic government, we have a tendency to speak in wonkish terms about the empiric merits of the things we care about. However important these things are in government, in elections, we have to learn to talk about a larger vision for what we want for this state.

Talking about taxes as a measure of the fairness of our society, and the budget as an expression of California’s values would be greatly aided by the policy changes suggested above. But we have to make the case publicly, and it’s not something we do often enough or well enough – one of the exceptions to this was a speech I heard a week ago when Das Williams spoke at a Jerry Brown campaign event at UCSB.

Williams talked about many of the same policies as Brown did – higher education, the environment, investments in working families – but he was able to bring them together with a call for higher revenue by talking about them as elements of a California Dream of universal opportunity, and redirecting the debate over revenue into being about paying for opportunity for all instead of for the few.

That’s the kind of politics we need.

Introduction:

The current state of California politics can be summed up in a simple comparison: in the Republican gubernatorial primaries, we see one candidate promising that their first action upon becoming governor is to put 40,000 people out of work and the other complaining that this isn’t enough; in the Democratic convention, we see a party divided over whether to fight for majority rule for budgets or for budgets and taxes.

As a state, California seems caught between the scissors of an increasing need for public services to provide a basic level of social protection for the sick, the elderly and the poor and to restore our high-road, high-wage economy based on superior public education and green technology, and a paralyzed, undemocratic, and irrational political structure that is unwilling and unable to take the necessary actions to meet those needs.

We know that the strategies proposed by the GOP’s gubernatorial candidates won’t work because they are essentially a retreat of the last seven years of failed policies – Schwarzeneggerism without a human face.

Yet Democrats lack a forceful message about what we want to do beyond the immediate issue of the budget.

What Won’t Work:

Contrary to conservative spin, government spending is not out of control in California. Especially when you take into account the fact that the California Price Index (i.e, the rate of inflation) has gone up 72% in the last 20 years, and that the population has increased 28% in that time, government spending is flat or declining. As the California Budget Project notes, thanks to rounds of drastic budget cuts, current spending is $16.9 billion below the previous year, and next year’s budget is projected to $20 billion below 2007-8 levels. As a share of the economy, California state government is down to levels we haven’t seen since the 1970s.

In this situation, regressive tax cuts to wealthy corporations is only going to make things worse. Meg Whitman’s proposed $10 billion dollar capital gains tax cut would increase our current deficit by 53%, and the savings that she proposes to make from unspecified but supposedly gargantuan amounts of “waste, fraud and abuse” wouldn’t come close to filling in this hole. Poizner’s proposals are equally ludicrous.

Moreover, the proposals by either candidates to eliminate tens of thousands of workers make the same elementary mistake that all anti-government activists make: public sector workers are real workers. 40,000 workers laid off means that California’s unemployment rate will rise from 12.6% to 12.84% at the very least, because it will also mean the loss of $1.59 billion in consumer spending, mortgage payments, and local tax base.

Simply put, the theoretical basis behind right-wing economic policy only makes sense in rare occasions in which government taxation is so soaringly high that businesses can’t make a profit, government borrowing is “crowding out” demand for credit in the private sector, and we’re in full employment so that a higher public sector workforce is causing a “substitution effect” which lures people away from the private sector. Now, even in those rare occasions, it’s not a slam dunk case (you have to take into consideration the increased provision of public goods and services, how much of private sector demand is for useful investment as opposed to speculation, and whether employers compete by offering higher wages) – but that’s not what the situation is right now.

Taxation in California is relatively modest (19th out of 50 states), and isn’t that progressive (the poorest fifth of Californians pay 11.1% of their income in taxes, the richest 1% pay 7.8% and 2,000 people who made more than $200k a year paid no taxes). Far from crowding out private investment, interest rates are basically at zero percent thanks to the Federal Reserve, and the private sector isn’t lending out of fear of losses. As far as unemployment goes, California’s 12.6% unemployment rate is one of the highest in the country, and our underemployment rate (including discouraged workers, part-time workers who want to be full-time, and so on) is even worse at 24%.

Where We Need to Go:

The Democratic Party is clearly correct in beginning with majority rule, because it will be impossible for California to do anything about our current fiscal or economic situation without the ability to pass budgets and raise revenues on a democratic basis. To that end, I heartily support the California Democracy Act (majority rule ballot initiative) being sponsored by George Lakoff and the progressive movement – and so should you.

However, I do want to make the point that Democrats need to look beyond the 2/3rds issue, no matter how hard this might be – because we cannot address the budget crisis (or any other of California’s pressing needs) without addressing unemployment. Even if we had majority rule, if we don’t act to bring down the unemployment rate, trying to balance the budget in our current economic climate is chasing a moving target over a cliff. Only when we get more people employed, so that they have paychecks to spend (which brings in sales, income, and payroll taxes), so that they can pay their mortgages (which will at least staunch the bleeding from declining property values and assessed taxes), and so that employers respond to increased consumer spending by expanding their inventories and expanding their payrolls (which in turn brings in more sales taxes, corporate income, property, payroll, and capital gains taxes), will we be able to solve our budget crisis once and for all.

Hence, job creation needs to be made a central part of the Democratic Party message, in the same way that single-payer health care for California (AB810) or historic climate change legislation (AB32) should be the core of the Democratic Party message about what we want to do to fix California.

Step 1 – A Jobs Program as a Tourniquet:

As I’ve discussed in previous posts, it is well within the fiscal capacity of California (or indeed, of most states) to create a jobs program on its own. In order to bring California’s economy and job market into normality, we need to create about 1 million jobs – which would bring our unemployment rate down to 6% (that’s not full employment, but it’s a start). It costs approximately $35 billion to put 1 million people to work for a year.

By structuring our jobs program as a form of social insurance – funding it by the equivalent of a 1% payroll tax, which would raise about $5.7 billion a year, and then using that as collateral for either a Federal or state reserve bank loan – a jobs program could be passed on a majority vote basis. Social insurance premiums are fees by any rational definition of fees, and therefore aren’t subject to the 2/3rds rule.

The reason why we need to pass an immediate jobs program is that it acts like a defibrillator applied to someone in cardiac arrest – especially if we target the jobs to areas where unemployment is concentrated (due to the downturns in the construction and agricultural industries, areas of the Inland Empire have underemployment rates of 40% or more), a jobs program that suddenly cuts unemployment in half not only has a direct impact in terms of fewer people unemployed, more paychecks flooding into depressed local and regional economies, fewer foreclosures and improved property values, but it also has a powerful effect on the “animal spirits” of employers and investors. No matter how low the taxes, employers and investors are not going to increase their payrolls or their inventories if they lack confidence that there’s going to be enough consumer demand to support expansion – by making a sudden and dramatic shift in employment levels, the public sector can radically reboot the expectations of private sector employers and investors. Then and only then will we see private sector employment recover – and with it, California’s tax base and budget.

Long Term Thinking – Full Employment for CA:

Getting back to 6% unemployment isn’t full employment, although it really helps. With a normal unemployment rate and sustained recovery in consumer spending, private-sector employment, and so forth, we can get the fundamentals of California in order. With a stable economic outlook, we can make budgetary decisions that will have a long-term impact – instead of cobbling together fixes that become undone a few months later as revenues continue to fall. With more resources flowing into state coffers, we can begin again to make the investments in public education, mass transit, and alternative energy.

However, there is a big difference between a California that averages 5-6% unemployment and a California which guarantees full employment (i.e, unemployment is kept below a “frictional” level of 3%). For one thing, that 2-3% of the workforce means $43.2 billion a year in production of goods and services that never happen, as well as about $13 billion in wages that won’t be earned, spent, and taxed, and it means increased costs for Unemployment Insurance, CalWorks, Medical, and other social services for the unemployed. In the same way that a single-payer health care system will make California a better place, both by ensuring that everyone has access to health care, but also that employers, start-ups, and other ventures won’t be burdened by heavy health care costs, full employment will mean that California will be a state where no one goes without work (frictional unemployment refers to the temporary periods of unemployment caused by people moving between jobs), with much lower poverty, and many more resources to make the kinds of investments we make.

In its own right, full employment is an investment in a better California. Like any blue-chip investment, it’s not free. In addition to using labor market policies to create incentives for employers to keep their workers on the job instead of laying them off, we’d also need a reserve of about 330,000-500,000 jobs in order to keep unemployment below 3% if the private sector falls down on the job. That costs about $11.7 to $17 billion a year, which the equivalent of a 2-3% payroll tax would cover without the need for regular loans from the Fed or a state reserve bank – which would be reserved for emergency situations in which a sudden recession causes a sharp spike in unemployment.

Conclusion:

A state jobs program isn’t sufficient by itself to create a “New Deal for California” – but it is a necessary prerequisite for the rest of the progressive agenda. Full employment will put us on the path to a high-road, high-wage economy, and from there, it will be much easier to get to single-payer or a green economy than it would be with a 12% unemployment rate.