Posted 1:39 PM by Robert

Davis Descending XXI: The Better Reason To Eject Gray Davis

The Los Angeles Times today reports:

California's labor market declined sharply in July as the state's employers axed another 21,800 jobs or nearly half the positions lost in the entire nation last month ... [T]here was little to cheer about in July's numbers as California struggles along with the rest of the nation amid a "jobless recovery." Nearly every sector of the California labor market posted losses, from retailing and transportation to manufacturing to business services, demonstrating a widespread reluctance among employers to hire. Worse yet, the losses are accelerating. July's cuts were the biggest so far this year, and California has shed jobs in five out of the last six months. More than 1.1 million Californians are unemployed, nearly a quarter of them have been out of work more that six months.

These figures emphasize that the widespread focus on the mere size of the unresolved $38 Billion California state deficit, and its emergence after a previous surplus, are distractions. As with most enterprises, the most important question is not often how something is funded (debt or taxes) but what is funded. California may be in the zone where solvency considerations are becoming real - but they are certainly not yet dominant. What is dominant is what dominates most corporate financial considerations: the choice of what California funds and how it operates those funded programs. In addition, there are newer, huge regulatory expenses imposed by the state (including the electricity and natural gas messes, which are not going to cease to be caused by the state no matter how often the politicians and media shout "Enron!"). For example: Next summer California will become the only state in the US where workers are entitled to pay while staying at home to care for newborn children or sick relatives. And, of course, there is the preposterous anti-business litigation climate. These burdens can be thought of as "hidden" taxes and expenditures.

It is in that area of choice of what to tax and fund (including "hidden" taxation and funding) that California is so much more off track than the federal government and almost every other state. To see that, suppose that $38 Billion had actually been well-spent, in the sense that the state would receive a meaningful positive return from it. Would California be so much in an uproar? No. California's spending used to be more productive: education, roads, health, water programs and much more, returned much more than the state spent - at least in the long run. Even if the state might not have made the best use of those funds, at least the return was positive and ample. Taxes were not as structured as attempts at wealth shifting.

That is no longer the case. The return to state-financed education is low, for example - simply because students are not educated. In short: The uproar is not fundamentally over how much California spends - although it spends much too much - the uproar is over the value obtained from those expenditures. But the issue is clouded because most people can't unpack the nature of their discontent - and the media has failed miserably in filling that gap.

The results include too much fussing over the size of that deficit. But the real problem is that California's recent economic numbers are worse than the country's as a whole largely as the results of factors which are well within the control of Californians in elected public office.

The recall critics are right in some things: Gray Davis didn't do it all himself. That doesn't mean he should be retained. He has not been much of a corrective influence. But the real problem is with the legislature - which means the real problem is with the voters' choice of legislators. As in any democracy, the fault lies not in our stars but in ourselves - and that will remain true if Gray Davis is replaced with a star of the Hollywood variety.

UPDATE: The Los Angeles Times reports:

[Peter] Ueberroth, a Republican who said he would position himself as an independent if he ran, had not made an announcement about his candidacy by mid-day [Friday].