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Gov. Brown, Meet Mr. Keynes

California’s Democratic Gov. Jerry Brown, with credibility as a climate-change reformer who travels the world speaking up the state’s carbon-trading policy as a victory for the ecology and humanity, also backs a 2018-19 budget of so-called prudence, or spending austerity. Why? The California economy, the sixth biggest on the planet, will enter a recession in the future, according to him. There is no argument there.

Thus, he seeks to withhold state tax revenue and place it in a “rainy day fund.” Here are the numbers, a proposed withdrawal of $3.5 billion in 2018-19, $2 billion over the rainy day fund’s mandatory $1.5 billion. That adds up to a rainy day fund of $13.5 billion, or 10-percent of the state’s general fund in a state with a $2 trillion economy. So what is not to like?

Given the current boom in the real estate and stock markets, and the GOP tax law shifting capital from the bottom and middle to the top, Brown’s logic is in part spot-on. An economic downturn is ahead. All bubbles burst, an iron “law” of the capitalist economy. All economic expansions become recessions. Regularly, investors fail to predict future demand. Small and mid-size enterprises open. Then they fail. Meanwhile, big banks nosedive. Then they get taxpayer bailouts.

Regularly, supply outstrips demand as night follows day. Expansions and recessions are central to capitalism, how it grows. In other words, California might not have long to wait, as Gov. Brown warns without explaining what drives economic downturns, the system’s heartbeat of capital investment that claims the consumer is queen/king of the marketplace, ignoring the practical and theoretical shortcomings of such a paradigm.

A more clear-eyed view is that of John Maynard Keynes, a top British economist. He proposed government spending to prop up weak consumer demand in the depression decade of the 1930s. That policy saved capitalism then, with federal government spending (especially on armaments to prepare and undertake the Second World War) under FDR a case in point.

Last decade, after the housing boom and bust, government demand-policy strengthened a faltering economy. President Barack Obama’s American Recovery and Reinvestment Act of 2009, cut the monthly six-figure job layoffs of the Great Recession under President George W. Bush in part by helping states fund increased claims for jobless benefits.

Why then does Gov. Brown ignore Keynes’ insights on government or state spending to spur the economy? One reason is that state governments are unable to run deficits in the way that Uncle Sam can. Another is that Gov. Brown is reserving state revenue to repay Wall St. creditors in a downturn. The state issues bonds that these elites hold and push policies that favor their class interests. This is no conspiracy theory, just the everyday workings of public policy in a capitalist society.

Keynes’ views on weak consumption acting as a drag on growth and jobs remains relevant now. In California and across the U.S., pulling in the reins on state spending removes money from the economy. That weakens demand for goods and services and the labor force that delivers them. Reducing the spending that aids enterprises is Gov. Brown’s anti-Keynes, pro-austerity policy for the future, a drag for Main Street but better news for Wall Street. On that note, his 2018-19 budget proposal is contractionary rather than expansionary. Let us be clear about that.

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Seth Sandronsky is a Sacramento journalist and member of the freelancers unit of the Pacific Media Workers Guild. Email sethsandronsky@gmail.com

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