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Krugman: California represents the worst of current U.S. economic crisis

SF Public Press
 — Jul 13 2012 - 12:37pm

The budget pain facing California this year is not California’s fault, said Paul Krugman, the Nobel Prize-winning economist who has been among the most outspoken writers critiquing the government’s response to what he calls an economic “depression.”

The state budget Gov. Jerry Brown signed Wednesday at least on the surface bridges a $15.7 billion potential deficit — by far the highest shortfall faced by any state this year. As tax revenues continued to fall below expectations in a suffering economy, California state and municipal governments continue to slash spending. The state's $91.3 billion budget represents the lowest state spending level since 1999.

“Gov. Brown faces political constraints that, if anything, are even worse than those faced by President Obama, because of the craziness of California’s constitutional setup,” Krugman said at a recent appearance at the Commonwealth Club of California. He said Proposition 13, the state’s requirement of a legislative supermajority to pass tax increases, was the main culprit.

More than tax hikes are needed to help ailing states, he said. Federal aid to state and municipal governments to rehire workers is paramount to ending the crisis.

Across California, 44,300 government positions have been lost in the past year, and since the May 2008 peak in government employment the state has lost 155,000 public-sector employees. The new budget largely preserves public employees’ jobs but relies on more than $9 billion in increased tax revenue will be before the voters in the fall.

Even in San Francisco, which has recently seen a large rebound in private-sector hiring, a loss of 2,000 government positions in the past year has created a drag on the local economy and taken away stable middle-class jobs.

Krugman’s solution is Keynesian, relying on massive public investment to pull state and local governments out of their fiscal holes. “I would put the number at 300 billion dollars a year of aid,” said Krugman, who is an economic professor at Princeton and a New York Times columnist, who is on a national tour to hawk his book, “End This Depression Now.”

“It should be open-ended,” he said. “It shouldn’t have a definite expiration date, because the right time to end it is when the economy is recovered and does not need it anymore.”

Nationally the shortfall in state budgets since the beginning of the economic crisis has been more than half a billion dollars, largely due to municipal shortfalls. Continuing cuts in state and local budgets across the country continue to be a drag on the economy, and even reduce private-sector job creation that otherwise would be expected.

According to the Center on Budget and Policy Priorities, revenue growth probably won’t come close to what states need to restore the programs that they cut during the recession — until 2019. Unless states raise taxes, at least temporarily, or receive additional federal aid while the economy slowly recovers, states will continue to face steep shortfalls and hard choices.

Krugman said these trends argue in favor of a policy reversal: “What we have actual been doing is the reverse of stimulus. What we actual have been doing is cutting back. Normally state and local government work grows roughly with population. We should have added 700,000 jobs in state and local government just keeping up. In fact, we laid off 600,000, so right there we are 1.3 million jobs down from where we should have been in the public sector.”

Earlier this month, the Obama administration began to press for additional federal money to help the most numerous of all government workers — public school teachers. Obama used his June 9 weekly address to push for federal action to start rehiring the 250,000 public school teachers lost during the crisis.

More than 40,000 educators have been laid off in California since 2008 and teacher layoffs are expected to continue in the coming year.

“It should concern everyone that right now — all across America — tens of thousands of teachers are getting laid off,” Obama said. “I realize that every governor is dealing with limited resources and many face stark choices when it comes to their budgets. But that doesn’t mean we should just stand by and do nothing. When states struggle, it’s up to Congress to step in and help out.”

But with a recalcitrant Congress, and a looming presidential election, it is unclear if new federal relief for states can be addressed this year.

“It sounds wise and sophisticated and serious to stroke your chin and say there are no quick fixes,” Krugman said at his mid-June San Francisco appearance. “But that’s all wrong. There are quick fixes. This is a moral issue. What’s happening now is not just bad management, not just something we should be doing better. What’s happening is terrible.”


"...He said Proposition 13, the state’s requirement of a legislative supermajority to pass tax increases, was the main culprit...."

As a former Californian, I've been saying that for years. Why don't the voters recognize Prop. 13 for the train wreck that it is and repeal it already?

Definition of madness:
Continuing to vote out of fear every two years for the lesser of two evil fascist political parties, while expecting different results.

Many must die so that the Bilderberg few can live in luxury.

These pontifications are amusing, considering the source. Follow the money, fools, and where is it? In corporate coffers, over two trillion of it. We're left fighting over scraps in the street, while the elite live like kings on what used to be our wealth. The most ironic, idiotic notion of all? Give the rich more money and they'll give us our jobs back.

All governments, whether American, Chinese, or European, are "tigers." They devour people. And they are self-perpetuating, self-aggrandizing, and self-preserving. Given the global climate of looting, fleecing, plundering.... I don't see much hope. Simply hunkering down, reining in the family bandwagon, and avoid any entanglement(s) with the devouring tiger of government is the only way. California is gonzo. The looting is beyond help. This state is run by kleptocrats, for thieves, and by thieves. No ifs or buts about it. The few pockets of boomlets, in the tech sector, with the Facebookers, Applelites, Googlers won't save California. The state is blighted, going down the hill, without brakes. Just look at your rotten roads, broken transit system, gridlocked airports, and the physical crumbling of your state, and worse, the growing corrosion of basic fundamental civility. It is hopeless. Just rein in that family bandwagon. You are on your own. Government, all governments, are devouring tigers. He or she who rides it ends up being devoured by the tiger.
That's what we Taoists, followers of Chinese philosopher Lao Tzu, believe, and accepts. Human society, as we know it, is banal, vulgar, and morally bankrupt.

Very well said. Ther ARE Americans out there who know what is going on! I was beginning to wonder.

Mr. Krugman has a lot of columns to write, so he probably didn't notice that over 10 years from 1997 the California state budget rose at twice the combined rate of inflation and population growth.

And the unfunded pension obligations and deferred maintenance on infrastructure throughout the state mean that what we call a budget doesn't come close to naming all the money being committed each year by our government.

No, our government is responsible for California's budget mess. And they've been screwing it up for long enough that we as voters are really the problem.

Hmm, I wonder how the LIBOR has effected the monies of cities, the state (CA) and municipalities on bond measures passed?
How many millions and billions were stolen from us?
Yes, I do agree that the voters of this state frequently get it wrong; they/we want the goodies but won't pay for them.

Krugman is right! We need major stimulus to prime the pump in order to grow our way out of this Depression. Austerity is a failure both in Europe and the USA; and only serves to further the agenda of the 1% and the Banksters that are the root of the problem. Ever since Raygun, the Republicans in Congress have only represented the ultra rich and they continue to successfully dupe people into voting against their own best interest. Sheesh, taxes are the lowest they been since 1958 and the biggest corporations don't pay any (e.g. General Electric). Eliminate the Corporate Welfare queens and stop blaming the poor and the public employees for the mess we’re in.

Why are we not doing exactly as Krugman says? I really am not sure why everyone is worried about debt. In the 1950's the Congress was lamenting about a 100 million dollar federal budget. Today, we are talking about trillions of dollars and 100 million means nothing. The point being that if we truly spend our money in government wisely (i.e. education, green energy, infrastructure, a much healthier farm/food policy) we can make our debt right now a joke by our children's generation. If we continue to go into debt for pointless wars and to give tax breaks to people that ship our jobs overseas then we have a problem.

Krugman is correct regarding California's self-bondage due to Prop 13. I support the concept in so far as a primary residence, but the over expansive applications to so many other properties has hobbled the state's/ counties ability to collect legitimate property tax. That's just plain nuts. I voted against Prop 13 back in the 70s for this main reason and I stand by it today. At the time, my rationale was why jeopardize the best school/ infrastructure system in the nation for the price of a cheap stereo each year ? Not to claim prophesy, but what we have now bears me out.

This is insane. Krugman should know, although fibs, that government stimulus funding (aka Keynesian) is the EXACT opposite of what's needed. California spends WAY plenty too much, yet we're way worse off than rest of nation. Greece had a VERY high government spending level and see where that got them?

There is a difference between spending money on the fascists and spending money on the people.

Typical drivel from this statist, debt-doesn't-matter, let's give money to the unions idiot.

You must be one of those fascist, give our money to the Bilderberg elite idiots.