Tuesday, March 3, 2009

California's Budget Crisis and the Economic Stimulus

My father often tells me that he has only ever seen one graph in the San Jose Mercury News that concisely conveyed relevant information without distortion. The graph was in an article from the late '90s discussing California's budget deficit, and it graphed the California government's inflation-adjusted revenues and expenditures over time. The notable point to be recognized, my father would say, is that although both lines steadily increased as time passed, the line representing expenditures was consistently higher than the line representing tax revenues. California's tax revenues had increased at a rate significantly outstripping inflation, meaning that in any given year, Sacramento politicians had more real resources than the previous year--yet the government's response was simply to keep spending beyond its means. Worse, my father would tell me, California was making long-term spending commitments, out to a decade or more, based on the assumption that these trends would continue, that the tech boom was a permanent phenomenon. This article, said my father, plainly showed the seeds sown for a California crisis down the road.

Of course, I'm not saying my father was some kind of genius just because his prediction is coming true. Anyone with the same information and a basic capacity to reason could have done the same, and many probably did. Still, I have to say, this sounds a lot like what my father's been saying:
California spends far more than it takes in, despite having some of the highest taxes in the United States. It is hostile to business, and the middle class is fleeing in droves. It runs huge deficits every year, yet the Dem dominated legislature refuses to do anything effective to cut spending.

Now one in ten Californians is unemployed. Does any of this sound familiar? It should. It’s what Obama and the Democrats have in mind as a “solution” for the rest of the country.

I don't really agree with Bill Quick on that last point. The problem with California is that politicians based their spending commitments on the rose-colored glasses theory of economics. They planned based on an eternal boom, and it came back to bite them. Obama, on the other hand, knows the economy's tanking, and he's promoting spending in order to fix it. In other words, rather than being the fuel for spending (as in California), the economy is now the impetus for spending. As such, I don't think it's fair to say that Obama and the CA legislature are touting the same solution, because they've been working on different problems.

However, it is telling that when the economy was booming in California, the answer from the left was increases in social spending on education and healthcare, coupled with tightened environmental regulation under the recently established California EPA. And here is Obama's analysis of the economic crisis, taken from his recent not-State-of-the-Union speech to Congress:
The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank. We have known for decades that our survival depends on finding new sources of energy. Yet we import more oil today than ever before. The cost of health care eats up more and more of our savings each year, yet we keep delaying reform. Our children will compete for jobs in a global economy that too many of our schools do not prepare them for. And though all these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

(emphasis mine)
So Obama advocates increased spending on education, healthcare and the environment as partial solutions to the crisis (even accepting the nebulous connection between the former and the latter), while California Democrats advocate increased spending on education, healthcare and the environment as something to do with cash from boom times. It's almost as if their drive for this social spending is completely indifferent to economic concerns, and all the wailing and gnashing of teeth over the economic crisis is just a means to push through the left-wing political agenda. "Never let a good crisis go to waste" and all that.

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