Channeling the late economist Milton Friedman, our governor continues his quest to “shock doctrine” California. As I pointed out a year ago, in my remarks opening the 2009 conference committee, the governor’s plan to shut down services, close parks, and starve California is classic doctrine politics. And like classic shock doctrine, it is being imposed immediately after a severe economic shock when people are worried and disoriented and unsure where to go next.
In his latest weekly radio address, the governor laid out his “philosophy” about how to get California’s economy back on track. He believes in lowering taxes and reducing government as a means to create jobs and grow revenue. In his words “the other side” (presumably the majority Democrats of the State Legislature) believes in “higher taxes, in bigger government, and in protecting public sector employees at the expense of the private sector.” Relating folksy conversations with then-Israeli Finance Minister Netanyahu and with Willie Brown, the governor claims he must shrink state government to get the state’s economy moving again. Using the alchemy of his own imagination, the governor plans to remove massive amounts of money from our local and state economies and lay off state workers to somehow grow our economy.
In sum, Schwarzenegger applies the discredited “trickle down” economic theories that have proven so disastrous for our nation’s economic health. See the impacts of the last 30 years’ worth of these economic policies on the United States.
Schwarzenegger claims that “higher taxes mean fewer jobs.” If that were true, then the huge tax cuts brought to us by the Bush Administration would have resulted in record high rates of employment. Instead, we are experiencing record high rates of unemployment. But let’s not let a few inconvenient facts get in the way of good ideology.
Schwarzenegger boasts that changes to California’s tax structure over the past 10 years have led to an increase in corporate revenues of $9 billion. It’s not clear whether this is a Freudian slip and the governor meant corporate tax revenues have increased or that corporate income has increased. Nevertheless, the facts show that corporate tax receipts paid to the State of California have proportionately decreased over time. According to the California Budget Project, corporate tax receipts are expected to provide 10.7 % of California’s General Fund revenues in FY 2009-10, down from 14.6 % in 1980-81 as a result of new corporate tax breaks and the 1996 corporate tax rate reduction.
Schwarzenegger asks whether it is “tax incentives that are strangling Greece, France, Spain, England and those countries” or “is it unsustainable costs and entitlements of growing governments?” No reputable economist would offer such a simplistic analysis of the world-wide economic collapse that overlooks the role of the financial markets and the bursting of the housing bubble. Furthermore, high unemployment rates are as a result of lack of demand for goods and services, not for lack of tax breaks.
Austerity budgets, such as that being proposed by Schwarzenegger both last year and this year, shrink the economy, not expand it, as a prominent Nobel-prize winning economist has pointed out repeatedly on his blog. See
Fifty-One Herbert Hoovers, Does Fiscal Austerity Assure Markets, and The Bad Logic of Fiscal Austerity.
Government needs to prime the pump and get businesses to invest and hire again.
California is not England, a sovereign country that can set its own fiscal policy. California is not even comparable to countries within the Euro-zone, such as Portugal, Ireland, Greece, and Spain (commonly referred to as the PIGS). Nevertheless, the basic principles of Keynesian economics still apply to states like California. Money is money and whether it is money spent by the state or the federal government or by the private sector, when we put it in average people’s pockets, they spend it, and it circulates through our local and state economies. A job is a job; if you retain a state employee, that is one less unemployed person who needs unemployment insurance and social safety net programs. Cutting state services means removing both state and federal dollars from local economies; it means laying people off, contributing to our unemployment rate. It will harm our local economies and our state economy and lead to higher unemployment and reduced state revenues.
Schwarzenegger wraps up his weekly address by pledging “to fight with all my power to make sure government in California lives within its means.”
Yet, as I have pointed out before, Schwarzenegger and his Republican friends in the Legislature continue to insist upon giving away California’s “means.” Schwarzenegger’s first act as governor was to unilaterally reduce the car tax—his second act was to promise local governments that the state would “backfill” the loss of local revenues resulting from his first act. The cost of the governor’s actions have grown to around $6 billion a year, exacerbating the hole in our annual state budget and creating a structural deficit with which the state will struggle for years to come.
And “living within our means” has selective application. It applies only to services used by every day, average, hard-working, tax-paying Californians, like public schools, parks, transportation, IHSS, CalWORKS, Healthy Families, and Every Woman Counts. It doesn’t apply to billions worth of corporate tax loopholes or even corporate tax cuts adopted last year and poised to take effect in the budget year. And, it doesn’t apply to pork-laden bonds.
If “living within our means” is Schwarzenegger’s promise to Californians, then he’s already broken it—just like he intends to break our state. It’s that simple.