[guest post by JVW]
Sorry I have been quiet for the past weeks. Everything is fine, but as I explained to Dana I just haven’t been super motivated to post recently. In terms of the COVID-19 updates I think that our host and Dana are doing a bang-up job staying on top of the news and I don’t have much to add to the discussion.
But I do have an interest in what the economic fallout of the pandemic will be, especially how it impacts the fifty-seven states who don’t have the luxury of manipulating interest rates, printing currency, or running huge deficits. We here in California have been taking victory laps in the past few years of economic growth, convincing ourselves that our model of a massive regulation, high taxes, and a huge bureaucratic apparatus is scalable across the entire country, not just those states blessed with a giant coastline, rich agricultural land, fantastic weather, elite research universities, and a huge chunk of the entertainment industry. But as usual much of the expansion of government in the Golden State has been predicated upon the idea that economic good times would never end, which has allowed us to conveniently ignore our failures and assume that expansion would continue to march on.
Now, of course, we know better. The mixture of a massive market drop coupled with heavy job losses is going to force California to revisit some assumptions that the ruling party has made about the purpose of government in the modern economy. Here are a few things with which our elected leaders must contend:
The Budget
During the economic boom the California budget rose from $152 billion for the 2014-15 fiscal year to $209 billion in 2019-20, and this year. The trend started under Jerry Brown, who prioritized cementing a progressive legacy in his fourth and final term as governor rather than holding the line on fiscal discipline and building up a larger budget reserve for just this sort of crisis. As it stands, the state’s budget director is already warning state agencies that they “should have no expectation of full funding for either new or existing proposals” as tax revenue plummet. During the fat times the state built up a $20 billion reserve, but that sum is unlikely to plug the holes in this year’s budget, let alone help us through a potentially long-lasting economic slowdown.
AB 5 – The Gig Workers Act
We have touched upon the negative effects that this legislation has had on a variety of workers in the Golden State, not just the Uber and Lyft workers this bill targeted, but freelancers of all stripes. With unemployment claims lately reaching two million, legislative Democrats are going to be forced to determine if blind fealty to union interests is more important than allowing Californians the opportunity to pick up regular work without forcing a company to treat them as full-time employees. Now would be the ideal time to loosen regulations that stifle hiring, but it would appear that not only is the state legislature digging in, but Congressional Democrats are interested in taking this bad California law nationwide.
Health Care
Here’s another area where Governor Newsom and legislative Democrats had hoped to establish themselves as the progressive vanguard to differentiate themselves from the Trump Administration’s approach. The new governor who campaigned on the idea of making single-payer health care available statewide has since scaled back his plans somewhat, though the state has reinstated the financial penalty for residents who don’t have health insurance while at the same time expanding eligibility to immigrants living here illegally. Will the state actually fine residents who can’t afford to purchase health insurance in the economic downturn, or will the state strain the budget by subsidizing premiums for those residents who find themselves out of work? When government insists upon playing an outsized role in health care delivery it can find itself painted into a corner in times of crisis.
Taxes
The major initiative on the ballot this fall has long been assumed to be the split-roll property tax change which would require commercial and industrial properties to be reassessed at current values. Advocates tout an alleged $12 billion in new revenue which they naturally claim will go toward schools and the environment and whatever other causes set progressive hearts aflutter, though the reality is that all of that money — and then some — would ultimately be used to plug state pensions which are going to spiral further out of whack in a prolonged recession. Golden State voters have as of late shown an admirable skepticism regarding the state’s alleged lack of adequate revenue, but in times of economic hardship they might fall for the mindless rhetoric of forcing “greedy” businesses to pay more, not understanding that these increased taxes will ultimately be passed along to the consumer. Within the context of what promises to be a bitterly fought Presidential election, it will be interesting to see how this all shakes out.
Speaking of pensions, I’ll try to explore this issue further in a follow-up post, but as you can well imagine the day we have long expected would eventually come is now that much closer.
– JVW
