Posted 6:23 PM by Robert

Davis Descending XXXVI: More California Dreaming

Members of the liberal media such as the Los Angeles Times and Paul Krugman have a bit of a problem with the economics of the California recall. Generally speaking, such media would prefer to trumpet problems with the economy, and lay those problems at Washington's door. But with the recall coming to a head, that is an awkward approach because incumbent Gray Davis gets caught in the cross fire. The recent response has been to deny that California is really doing worse than the country as a whole. For example, the Los Angeles Times today runs an article headlined Gloomy Portraits of State's Job Market Are Misleading that starts out in a rather sunny, "it's all a big mistake" mode:

To hear Arnold Schwarzenegger and other gubernatorial hopefuls tell it, the California job market is totally in the tank. Last week, Schwarzenegger advisor George P. Shultz branded jobs the campaign's "new four-letter word." Fellow Republicans Sen. Tom McClintock of Thousand Oaks and Bill Simon Jr., who dropped out of the race Saturday, have spotlighted California's recent steep employment losses as a reason to sack Gov. Gray Davis and bring in new leadership. .... Yet the picture being painted by those in the recall race — that California is suffering disproportionately on the employment front — is in many respects misleading. As a percentage of its job base, California's statewide employment losses aren't any more severe than those of the nation overall. Since employment peaked in March 2001 at the height of the technology boom, California has shed 293,600 jobs, or 2% of its nonfarm payroll positions — the same percentage loss as the United States as a whole.

In July, California's unemployment rate stood at 6.6%, up a hefty 1.9 percentage points from the state's pre-recession low of 4.7%. But the national increase in the jobless rate has been even greater — up 2.3 percentage points to 6.2% last month from its December 2000 trough.

Well now, that seems awfully rosy. Very much like Herr Doktorprofessor Krugman's picture. Who would want to kick out an incumbent who presided over all that. Of course, not many readers will know what the "job base" is - but the whole passage has an awfully reassuring sound.

Of course, that passage rather obscures that for more than a decade - even during the boom of the 1990's - the California unemployment rate has been consistently and substantially higher than that of the nation as a whole - and that remains the case. Moreover, it is only much later that the Times article mentions the deterioration of the type of job available in California - exactly the kind of deterioration one would expect to be exacerbated or even caused by over-taxation - has been dreadful:

Much of California's pain stems from the types of jobs that have disappeared — tens of thousands of lucrative high-tech positions. The San Jose area, in the heart of Silicon Valley, has lost more than 200,000 jobs, or a stunning 19%, of its nonfarm payroll positions since December 2000. The fat bonuses, stock options and capital gains from stock sales that went along with such slots also have evaporated. ....

"We lost proportionately more high-paying jobs" than other states, said Howard Roth, chief economist with the state Department of Finance. "That's why we're in the fix we're in." ....

Beyond that, job creation is suffering because of the state's badly broken workers' compensation system — a popular target for denunciation on the campaign trail. With medical costs spiraling, employers have seen their insurance premiums soar. And because prices for the mandatory coverage are based on the size of a company's payroll, many employers have frozen their hiring or cut their staffs to reduce costs.

In the face of this kind of economic picture Cruz Bustamante, Herr Doktorprofessor Krugman, the liberal media and others persist in thinking that the state government can fix its financial problems by just raising taxes. The Times refers to next year's deficit as "$8 Billion" - the lowest estimate and one that assumes that the odious car registration tax will remain in place (although all of the major candidates want to repeal it and it's poison with the voters), that all spending cuts made so far will stick (although they were violently opposed by the Democratic majority in the legislature), that no new unexpected spending "needs" will develop (despite the recent power crisis that triggered huge state spending, and despite possible governor Cruz Bustamante and the legislature having lots of things they would like to spend money on in an election year). In fact, the deficit over revenue from current sources could easily be way north of $20 Billion - as Wall Street keeps reminding Sacramento. And that ignores local government deficits - which are worsening in many cases.

But it gets worse for California relative to the rest of the country. The Times also reports: Adjusted for inflation, personal income in California plunged 3.4% from January 2001 through July 2003, compared with a decline of 0.1% nationwide, according to estimates from the state Department of Finance. By its count, no other state did worse.

So, tell me again: Exactly how is it that a picture of California suffering disproportionately on the employment front is in many respects misleading?

Where is the odd "what-me-worry" economic spinning originating? Well, the Times article goes back to the same source on which Herr Doktorprofessor Krugman relied: Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. "There is nothing fundamentally wrong with the California economy.... We have a good set of industries," said Levy, noting that other states would love to have California's technology, bioscience and entertainment clusters. "We wouldn't even be having this discussion if we had a healthy national economy."

What Mr. Levy misses is that judging from the spectacular loss of high-end jobs and income in California, not only would other states love to have California's technology, bioscience and entertainment clusters - but are well on their way to getting them.

MORE: Terrifc Don Luskin, with terrific links to Hogberg and Hinderaker and lots more. It seems to be at least as hard for Herr Doktorprofessor to get the California situation right than it was for him to get the Iraq situation right.