A wrong assumption reaps a false conclusion. Consider Greg Lucas’ February 6 column (“Budget boomer,” SN&R Capitol Lowdown), which looked at Gov. Jerry Brown’s proposed general fund budget for 2014–2015.
Lucas agrees with Brown that reducing state spending is a prudent path forward. The governor’s plan “demonstrates he’s trying to avoid mistakes by previous corner-office occupants,” Lucas writes. “His spending plan is short on spending and big on saving.”
But is it really the best time for frugality in California? Bear with me.
Jobs data shows the state’s unemployment rate was 8.9 percent last year, still higher than it was at any time during the Great Recession, from December 2007 to June 2009. Consequently, the unemployed lack purchasing power to support the supply of goods and services.
Economists have a technical term for this problem: weak demand. Lucas’ concurring with the governor’s assumption to save rather than spend sidesteps the issue of a demand-and-supply imbalance.
In California and across the United States, weak demand from un- and underemployment grinds on after the bursting of an $8 trillion housing bubble. That mad, mad price spike propped up buyer demand until popping, and tore a hole in the economy.
State government spending can shrink that hole. Yet the governor’s budget and Lucas’ column assume away weak demand as an economic problem and wrongly conclude that decreased government spending is a policy solution for prosperity.
The name for this budgetary approach is austerity. Austerity weakens growth by reducing the amount of dollars circulating in the economy. Just ask Europe.
This is basic math, folks. Saving instead of spending state tax revenue means slow growth of the economy and tepid job creation.
Lucas further confuses things by arguing that praise from debt-rating agencies, such as Moody’s Investors Service, in turn “boosts investment” and makes Brown’s budget plan “even more solvent.” If the past is prologue to the future, we should be skeptical.
Here’s why: To earn money from their clients, these same ratings agencies gifted AAA designations to financial institutions specializing in subprime-mortgage-based bonds that ultimately burst the real-estate bubble here and abroad.
Oh, Moody’s still advises California on its finances. We’re one of its best clients.
Seth Sandronsky is a Sacramento journalist and member of the freelancers unit of the Pacific Media Workers Guild. Email him at email@example.com.