Any economist worth their salt knows that in tough economic times, public spending needs to increase. This is a standard principle that everybody agrees on.
It is also the logic behind the Obama administration’s stimulus package.
Unfortunately, in California the exact opposite has been happening.
The state’s latest budget plan preserves $3 billion worth of tax breaks for multinational corporations and $35 billion of wasteful private contracting costs while cutting $15 billion out of education, health care, and other public service programs supported by a majority of California voters.
The plan also includes an additional $656 million worth of social spending cuts that Schwarzenegger imposed through line-item vetoes when he signed the budget revision, and it foregoes hundreds of millions of dollars in new revenues by furloughing Franchise Tax Board employees along with other civil servants.
Despite the fact that the economic crisis we are experiencing was caused by the free market running roughshod over the economy, the very same policies designed to prevent government intervention in the market economy (i.e., privatization of public resources and institutions, deregulation, and public spending cuts) have been repeatedly prescribed to address California’s budget problems and those of other states.
The ineffectiveness of these policies in reviving the economy obvious to anybody paying attention.
For instance, Schwarzenegger’s Finance Director Mike Genest has warned that despite the adoption of the latest budget revision, California will still need to borrow more than $8 billion to pay its bills this year.
While Democratic leaders are now raising questions about the legality of Schwarzenegger’s line-item vetoes and are vowing to restore the new spending cuts, their indignation at Schwarzenegger’s actions demonstrates the folly of agreeing to a cuts-only budget in the first place.
What this perverse situation illustrates is that Republicans have become adept at using the state’s budget crises to extract concessions from the Democratic majority that would be unthinkable under normal circumstances. These include the erosion of the state’s social safety net as well as other items that appear unrelated to the budget such as Schwarzenegger’s insistence on conducting background checks on In-Home Supportive Service (IHSS) providers, selling off state-owned properties, and privatizing and outsourcing the state’s health and human service functions.
The general thrust of these maneuvers is to transform California into a corporatist society where the apparatus and priorities of the state are reoriented away from securing the life and liberty of the general populace and toward serving the narrow interests of the rich and politically connected.
Journalist Naomi Klein has analyzed how political elites in the thrall of the financial and corporate sect routinely exploit economic and political crises and even natural disasters to quickly impose a fundamentalist, pro-corporate economic program on countries around the world. She has labeled this undemocratic practice the shock doctrine and the corresponding policies economic shock therapy.
According to Klein, economic shock therapy is based on the theories of University of Chicago economist Milton Friedman, who strongly believed that governments should play no role in the economic sphere other than to protect the rights of property owners. In order to reduce government’s capacity to intervene in and regulate the economy, Friedman recommended: (1) privatizing all public resources and institutions, (2) eliminating any and all regulations and protections governing the activities of the financial and corporate sector, (3) doing away with social spending programs such as education, health care, and other public services meant to promote the general welfare, and (4) dismantling tariffs and other trade barriers that protect local businesses from the excesses of global free trade.
Klein has shown that societies in which these policies have been enacted are generally characterized by increased poverty, a ever widening gap between rich and poor, and a widespread host of social and economic problems most commonly associated with Third World countries, but which have now emerged in developed nations, as governments here have adopted these fundamentalist, free market policies.
In California, Schwarzenegger, who is an avowed follower of Milton Friedman, has advanced numerous budget proposals that very closely follow the outlines of Friedman’s recommendations. In May, Schwarzenegger recommended the virtual elimination of the state’s social safety net through far ranging cuts to education, health care, and social services. Although Democratic leaders managed to preserve some of the programs targeted for elimination by agreeing to smaller cuts, it is widely acknowledged that this latest budget revision will reshape the Golden State for many years to come, and that students and the poor, elderly, and disabled will suffer the most.
Schwarzenegger has also consistently pushed to privatize and outsource various state functions throughout his term. In addition to privatizing health and human service functions, he has suggested allowing private firms to fund state infrastructure projects, after which taxpayers would have to repay the investment firms at higher interest rates than those traditionally charged when the state issues municipal bonds.
Finally, Schwarzenegger’s recent proposal to reverse a 40-year ban on oil drilling off the California coast, which got killed in the latest budget revision, mirrors his support for the kind of energy deregulation that caused California’s 2001 energy crisis. Interestingly, Schwarzenegger is reported to have met with infamous Enron CEO Ken Lay in 2001 shortly before the 2003 recall election in order to plot a strategy to stymie former Governor Gray Davis’s attempt to reregulate California’s energy market.
As Klein points out, perhaps one of the most disturbing aspects of the fundamentalist economic policies discussed above is the recognition that “only a crisis actual or perceived” produces the opportunity to enact the economic shock therapy program favored by Schwarzenegger and espoused by Friedman.
Thus far, the various state budget crises that California has suffered through appear to have provided laissez faire ideologues with numerous opportunities over the years to push through economic policies that a majority of voters do not support, and which would have been difficult to do under the normal political process.
One way to combat this use of crisis politics to advance a morally reprehensible and economically regressive agenda is to inject more democratic elements into the process such as holding budget hearings on a county by county basis.
The other way is for the Democratic majority to actually stand up for democratic ideals.
Remember that polling by David Binder Research in the aftermath of the May 19 special election indicated that a majority of California voters:
(1) support increasing taxes on oil companies and alcohol and tobacco producers,
(2) support closing tax loopholes that allow corporations to avoid reassessment of newly purchased property,
(3) support restoring upper income tax brackets to levels under Ronald Reagan and Pete Wilson,
(4) support prohibiting corporations from offsetting more than 50% of their taxes through tax credits,
(5) oppose cuts to public services, and
(6) support specific tax increases and cuts to prison spending to balance the budget.
Since most observers predict that California will be facing another budget crisis in the near future due to the faltering economy, assumptions made in the recent budget revision, and the structural nature of California’s budget problem, this latest episode in the state’s budget saga should serve as an object lesson for Democrats concerning the consequences of abandoning progressive ideals and the courage of one’s convictions.
WILLIE L. PELOTE, Sr. is an Assistant Director of the American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO. He can be reached at: wpelote@afscme.org
