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The Terminator’s Budget May 27, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
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Arnold Schwartzenegger has long argued that California’s budget deficit requires that we decimate public education and immiserate the millions of people who depend on government services. Making up the revenue shortfall by modestly increasing taxes has always been off the table because higher taxes would make it difficult for businesses to hire more workers, thus prolonging our historically high unemployment rate.

This argument never made much sense. How does laying off thousands of teachers and state employees improve our unemployment rate? We now have some empirical evidence that the argument is nonsense.

This study by the UC Berkeley Labor Center shows what is wrong with the argument:

We estimate that the Governor’s proposed budget would result in a loss of 331,000 full-time equivalent jobs, increasing the unemployment rate by 1.8 percentage points. More than half of the jobs lost would be in the private sector. Because many of the jobs lost are part time, the actual number of Californians affected would be much greater. The number of jobs estimated to be lost is much greater than the entire employment growth for the state projected by the Legislative Analyst’s Office for 2011.

An alternative approach that mixed spending cuts with $5.4 billion in targeted revenue increases would save an estimated 244,000 jobs compared with the Governor’s proposal.

The greatest part of the job loss due to the Governor’s budget would result from cuts to major health and human service programs that bring in significant federal matching funds.

The argument that budget cuts and the lowest tax rates possible are the only way out of a recession has a degree of apriori plausibility.

But when the budget cuts entail significant job loss and restrain economic growth, the argument collapses. The proposed budget solutions from Democrats in the Assembly and Senate, including an end to corporate tax breaks, are a much better solution.

As Robert Cruickshank at Calitics argues:

The governor’s budget may have been designed to wedge the middle-class and the poor, but as this study indicates, the middle-class has every incentive to oppose these cuts as well. Any increase in unemployment will reverberate around the rest of the economy, leading to middle-class job losses and further cuts to schools and other things the middle class cares about.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com



1. VTR1000 Lady - May 29, 2010

Nice blog. I just bookmarked you on my bloglines.

Sent from my Android phone

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