Politics & Policy

California’s Bleeding . . .

. . . and Krugman comes up lame.

California’s recall election puts Paul Krugman in a tough position. In his New York Times column just three weeks ago, he wrote that “the Golden State is degenerating into a banana republic.” He said it was in “a severe fiscal crisis” and undergoing a “slide into irresponsibility.” But now that Republican front-runner Arnold Schwarzenegger has expressed his own version of some of the same concerns, Krugman has had to change his mind. In his Friday column for the Times, he argued — just three weeks later! — that things in California really aren’t so bad after all.

But first, America’s most dangerous liberal pundit indulged in his usual tactic of argumentation by condescension. Krugman began his column by dismissing Schwarzenegger as “the bodybuilder who would be governor.” Why not the multi-millionaire entrepreneur/investor who would be governor, or even the world-famous actor who would be governor? Or perhaps the holder of a degree in economics who would be governor? The subtext is loud and clear to my ear: Maybe the Princeton Brahmin meant to say “the stupid immigrant who would be governor.”

The condescension continued when Krugman accused Schwarzenegger of lying about the California economy (by being as negative about it as Krugman was three weeks ago). Krugman said Schwarzenegger has “already managed to say a number of things that his advisers must know are true lies.” You see, “his advisers” know — the stupid immigrant doesn’t.

Krugman said it is “pure fantasy” for Schwarzenegger to say “that the state is bleeding jobs because of its ‘hostile environment’ toward business, and that California residents groan under an oppressive tax burden.”

What, then, is Krugman’s vision of the truth about the Golden State?

Krugman claimed, “One look at the numbers tells you that his story is fiction. Since the mid-1990′s California has added jobs considerably faster than the nation as a whole.” So Krugman Truth Squad member Robert Musil took “one look at the numbers” on his Man Without Qualities blog. He wrote,

A simple review of the California unemployment rate since, say, 1983, clearly indicates why Herr Doktorprofessor chose his faux-arbitrary “since the mid-1990′s” base — it is exactly the base that obscures the problematic nature of California employment most, because unemployment had a peak around 1995, and then declined until 2001.

When he wants to make declining unemployment look good, Krugman starts in “the mid-1990′s” at its peak. But in his column three weeks ago, when he wanted to minimize the role of California’s state spending in its “severe fiscal crisis,” he used 1989-1990 as his base — the last spending peak. Even then he couldn’t get the math right — he claimed that the 13.4 percent growth in real per capita spending was only 10 percent. I’m still waiting for a correction on that one. But if he’d measured it from “the mid-1990′s” it would have been several multiples of either 13.4 percent or 10 percent.

Whatever head-games Krugman wishes to play by carefully selecting his base period, there’s nothing he can do but deliberately ignore the recent data that proves that California is, indeed, “bleeding jobs.” The Los Angeles Times reported on August 8 that

the state’s employers axed another 21,800 jobs or nearly half the positions lost in the entire nation last month, according to government data released today … The state’s unemployment rate dropped two-tenths of a percentage point to 6.6% in July, but only because more people quit looking for work and dropped out of the labor force … The U.S. unemployment rate was 6.2% in July.

Musil went further when he pointed out that “even during the boom of the 1990′s, the California unemployment rate has been consistently and substantially higher than that of the nation as a whole.” He observed that to ignore these facts, and rely instead on citing only employment growth since “the mid-1990s,” seems “rather fast and loose for someone who characterized making jobs ‘easier to find’ as ‘what matters most’ in the economy” in his Times column just last Tuesday. Musil asked:

Can President Bush tell everyone that they shouldn’t worry about the US unemployment rate because what really matters this week is how many jobs the US has created since the mid 1990′s? If Mr. Bush did that, would his aides start brushing up on the 25th Amendment?

Krugman went on to claim that “while the state has been hit hard by the technology slump, it has done no worse than other parts of the country. A recent study found that California’s tech sector had actually weathered the slump better than its counterpart in Texas.” Krugman didn’t choose to cite the source of the “recent study,” but it was easy to figure out that this it was in fact a press release put out last month by the Center for Continuing Study of the California Economy. Odd he didn’t cite the source; per his standard operating procedure, he could have called it “the highly respected non-partisan Center for Continuing Study of the California Economy.”

It turns out that “weathering the slump” means “California has lost 20.7% of computer and electronic product manufacturing jobs — slightly less than the nationwide 21.8% decline and below the 25.4% drop in Texas.” I asked CCSCE Director Stephen Levy why he’d limited his “study” only to jobs (as opposed to, say, business starts or gross billings), and only to jobs in computer and electronic product manufacturing (as opposed to, say, software or services). The answer: Jobs in that narrow sector were the only thing he could get data on.

That said, Levy told me he doesn’t believe that there is any evidence for thinking that California has been, in the past at least, a “hostile environment” for business. But he is worried that it is now becoming one. He cited a concern expressed by Schwarzenegger that the explosively escalating expense of California’s mandatory worker’s compensation program “could be a very serious disadvantage going forward.” Indeed, the California Chamber of Commerce cites worker’s comp reform as the number one business issue in the state. Predictably, Krugman didn’t even mention it.

Krugman’s most outrageous claim was that “California isn’t a high-tax state: through the 1990′s, state and local taxes as a share of personal income more or less matched the national average, and with the recent plunge in revenue they’re now probably below average.” More of this “the mid-1990′s” stuff. Yes, yes … in 1995 California indeed ranked 24th in tax burden among all the states — right in the middle. But Krugman Truth Squad member John Hinderaker asked on the Powerline blog,

What, exactly, is Krugman suggesting? That data on state and local tax burdens hasn’t become available since the mid-1990′s? Or is he telling us that … it’s just too much trouble for him to look up the current data, and he prefers to speculate that California taxes are ‘probably below average’? Krugman is revealing something, I guess, about his own indolence, since it takes less than one minute to locate 2003 data on tax burden by state. And it turns out — surprise, surprise — that California, far from being ‘probably below average,’ actually has the 8th highest tax burden of the 50 states …

No, it’s not indolence — it’s what Krugman himself would call “denial and deception.” Musil noted that “the non-partisan California Budget Project” cited as an authoritative source in Krugman’s California column three weeks ago “concedes that California ranked 11th in the nation with state and local taxes for 1999-00.” And Musil noted that it would rank even higher if Krugman has his tax-hiking way.

Krugman Truth Squad member David Hogberg made a penetrating observation about this on his Cornfield Commentary blog. Say California taxes are “now probably below average” because of the state’s “recent plunge in revenue.” Hogberg noted that would only “be true if California was the only state or one of only a few states to see a drop in revenue.” And that makes me wonder: Isn’t California supposed to be “weathering the slump”?

Krugman chided Schwarzenegger for saying “his advisers couldn’t make ‘heads or tails’ of the California budget.” Then more condescension toward the stupid immigrant: “Please. The details are complicated, but the broad picture isn’t. Education dominates the budget, accounting for more than half of general fund spending.” Yet just three weeks ago Krugman himself said that “much of the recent growth of education spending was mandated by a rather complex measure called Proposition 98,” and wrote about a budget held together by “elaborate fiscal footwork.” But infinitely more credible on the complexity and craziness of the California budget are comments by Dan Weintraub, the Sacramento Bee’s veteran political columnist, on his California Insider blog. Weintraub said,

as someone who has spent the last 15 years studying the budget every year from cover to cover, I think Arnold is more right than wrong. I don’t think the craziness absolves him of the obligation to spell out his plans in more detail. But the thing is seriously screwy. And some of the recent bookkeeping moves would shame Enron.

As but one of several astonishing examples, Weintraub wrote,

The state will sell a $10.7 billion bond measure to finance the deficit that was accumulated by the end of the last fiscal year. This bond will be repaid by a portion of the sales tax. But to get around a constitutional prohibition on such borrowing, the Legislature and Gov. Davis have created a special fund into which money from a portion of the sales tax will flow until the bonds are repaid. This is not considered a debt because each year the Legislature will vote anew to use the money in the new fund to repay the bonds. The flow of money into the fund was created by increasing the state sales tax a half-cent, reducing the local sales tax by a half-cent, shifting property tax money from the schools to city and county governments to make up for the half-cent reduction in the sales tax, and then shifting tax money from the state to the schools to make up for their loss of property tax. If that’s not crazy, I don’t know what is.

Sheer partisanship — and sheer pique that Republicans have managed to launch a credible assault on the Democrats’ California fortress — no doubt drove Krugman to tell lies about the California economy and indulge in such offensive condescension against an honorable candidate. But if you look beyond the condescension in the following paragraph, you’ll see the heart of the actual philosophical difference that separates Krugman and Schwarzenegger:

When Mr. Schwarzenegger threw his biceps into the ring, he seemed to think that, like George W. Bush, he could adopt a what-me-worry approach to budget deficits. “The first thing that you have to do is not worry about should we cut the programs or raise the taxes and all those things,” he told Fox News.

Krugman — the sophisticated economist who is said to be in line for a Nobel Prize — thinks of a state budget as a simple zero-sum game. When you start with a deficit, the only moves you can make in the game are to cut spending and/or raise taxes. But Schwarzenegger — the stupid immigrant whose degree in economics came largely as the result of correspondence study at a second-rate midwestern university — sees a state budget as a richly detailed positive-sum game in which many different kinds of moves are possible. When you start with a deficit, Schwarzenegger knows that the best moves in the game are to adjust spending, taxing, and regulation so as to accelerate economic growth.

Schwarzenegger knows that if growth can be rekindled in California, tax revenues will swell without an increase in tax rates. There will be plenty of money to spend on education and everything else. But Krugman’s too smart for that, I guess. He’s so smart he’s arguing that more growth is impossible in California because everything’s wonderful already. And he’s so smart that, at the same time, on the national level, he persists in saying that everything’s horrible so that he won’t have to credit President Bush’s pro-growth tax cuts for stimulating economic recovery. Thank the Lord that Krugman’s the only guy who’s not on the ballot in California’s recall election. And that the not-so-stupid immigrant is on it.

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