Posted 12:25 AM by Robert

Krugman The Comedian ...

... or maybe he's only "The Ironist," because it surely takes a whopping sense of irony for today's column, Conan the Deceiver, to condemn Arnold Schwarzenegger for his comment that "The public doesn't care about figures," and then provide only inches later exactly the kind of manipulative figures that are the very reason why the public doesn't care about the figures politicians bandy about in campaigns:

One look at the numbers tells you that his story is fiction. Since the mid-1990's California has added jobs considerably faster than the nation as a whole. And while the state has been hit hard by the technology slump, it has done no worse than other parts of the country. A recent study found that California's tech sector had actually weathered the slump better than its counterpart in Texas. Meanwhile, California isn't a high-tax state: through the 1990's, state and local taxes as a share of personal income more or less matched the national average, and with the recent plunge in revenue they're now probably below average. What is true is that California's taxes are highly inequitable: thanks to Proposition 13, some people pay ridiculously low property taxes.

Herr Doktorprofessor gives "California dreaming" a whole new meaning! The fact is that California is in big trouble - and Herr Doktorprofessor is trying to obscure it with his figures. For example, in recent years California state spending has grown 50% faster than the California economy. Forbes magazine recently ranked the "Best Cities for Business" and California shows up in clear decline relative to the rest of the country. In 2002 the two best cities in the U.S. for business were both in California (San Diego and Santa Rosa) and six of the top ten cities were from this state. Now, just one year later, California's highest-ranking city, Santa Rosa, is 23rd. Los Angeles is not even in the top 125 - falling from number 100 in 2002 to 126 this year. Ventura sank from 4th to 67th. But it's amusing - even amazing - to take his sentences one at a time. [UPDATE: Alan Reynolds does a great job of unpacking the mess California has become. His figures are worth considering. Link via Don Luskin.]

Since the mid-1990's California has added jobs considerably faster than the nation as a whole. That's a nice, airy way of dismissing California's unemployment rate, which has recently been consistently higher than the nation's unemployment rate, and the state's recent possibly disastrous employment picture. A simple review of the California unemployment rate since, say, 1983, clearly indicates why Herr Doktorprofessor chose his faux-arbitrary "since the mid-1990's" base - it is exactly the base that obscures the problematic nature of California employment most, because unemployment had a peak around 1995 - and then declined until 2001. The overall number of non-farm jobs in the California economy reached a peak of 14,724,800 in early 2001 and has since declined by about 263,000 jobs (April 2003). Does Herr Doktorprofessor expect his readers to forget that the recession - and California's current fiscal crisis - started with the end of the problematic tech-boom in 2000? His formulation also obscures the shift in the type of jobs available. The Wall Street Journal, for example, notes: A new Census report says that were it not for Latino immigration, California's population would be falling. Between 1995 and 2000, more than 600,000 of its residents moved out of what was once America's promised land. Between late 2000 and April 2003, the number of manufacturing jobs in the state declined from 1,878,500 to 1,591,400; the number of jobs in professional and business services fell from 2,295,400 to 2,113,700; and the number of jobs in the information industries (publishing, motion pictures, television and radio, and a variety of telecommunications and internet industries) fell from 565,000 to 472,400. Even worse, there is strong evidence that lost high-paying California jobs are not being replaced by national corporations with new California hires once the company again needs to fill the position.

In fact, California's unemployment rate is substantially higher than the nation's - despite the loss of all those high-end job-seekers, and there are many indications that the employment situation in California is becoming worse relative to the nation as a whole: California's statewide unemployment rate was an estimated 6.6 percent in July, down from a revised 6.8 percent in June, the Employment Development Department reported. A year ago, in July 2002, California's unemployment rate was 6.7 percent. The rate for the United States was 6.2 percent in July. But the reduction in the state rate was attributable to more people abandoning their search for work. Payroll employment fell by 21,800 jobs during the month, leaving 14,431,700 statewide. That drop represents nearly half of all the jobs cut nationwide during the month, according to government reports.

This all seems rather fast and loose for someone who characterized making jobs "easier to find" as "what matters most" in an economy only a week ago. Are jobs "easier to find" in a state with an unemployment rate a full 40 to 50 basis points above the national average? Can President Bush tell everyone that they shouldn't worry about the unemployment rate because what really matters this week is how many jobs the US has created since the mid 1990's? If Mr. Bush did that, would his aides start brushing up on the 25th Amendment?

Keep in mind that all this discussion of California compared to other states ignores the generally believed consideration that California has many natural advantages over those other states - so these comparison-against-the-average games implicit in Herr Doktorprofessor's figures further obscure the degree to which California's advantages and resources are being mismanaged.

And while the state has been hit hard by the technology slump, it has done no worse than other parts of the country. A recent study found that California's tech sector had actually weathered the slump better than its counterpart in Texas. It really is risible to read Herr Doktorprofessor refer to an unidentified "recent study." Who can argue with a nameless study apparently produced without benefit of an author or identifiable institution or publication (A local Fed branch? Some other Princeton economist? A big consulting firm? A division of the Labor Department? A fancy journal?) Does he really think that with his record people won't find that study? And, when they do, is "weathered the slump" a technical term? Or is it just one of those condescending faux-casual formulations that allow Herr Doktorprofessor so much wiggle room in later denying that he misrepresented his source? In the mean time, one might keep in mind that California's state budget deficit is greater than the combined budget deficits of every other state. [UPDATE: And, with no offense intended to Austin (which is certainly a pleasant, cultured and energetic place with a fine university) isn't it more than passing strange that the economy of Northern California - with it's global business and financial ambitions (some would say pretensions), nearby mountains and oceans, gorgeous scenery, two top universities, storied fairy-tale city, massive technology infrastructure and networking culture - is now to count itself a relative success because it compares marginally well in limited respects to Austin, Texas? Could there be more striking evidence of big trouble for California tech than the fact that such arguments can and must now be made?]

[UPDATE: Tom Maguire e-mails a report on what is very likely that "recent study,"a summary of the study by the outfit that did it (the Center for Continuing Study of the California Economy (CCSCE), and the CCSCE home page. While I have not had time to review the CCSCE study in detail, it appears to focus exclusively on employment and job loss and creation. Those are important factors, but they are the same employment factors already discussed. Herr Doktorprofessor says his unidentified "recent study" found that California's tech sector had actually weathered the slump better, which that study does not appear to do at all. That the study focused on employment and not on the general condition of the tech sector is evident, for example, from Stephen Levy, director of the CCSCE, saying "The current downturn is primarily caused by three factors: a very weak national recovery, weakness in the economies of our export partners and very high productivity growth in high tech." Very high productivity growth in high tech can have bad effects on high tech employment in the short run, but very high productivity growth in high tech is not bad for the tech sector in general. For example, to the extent there have been fewer job losses in California because firms here are not making productivity-enhancing investments - as a result of a bad business climate or whatever - the relatively "good" California employment picture suggests that the California tech sector has not weathered the slump better than Texas. In any event, it's unclear why Herr Doktorprofessor even makes this reference, since Texas has avoided imposing a tax burden nearly as high as California's even though Herr Doktorprofessor says the California tech sector has weathered the slump better than that of Texas. ]

California isn't a high-tax state: through the 1990's, state and local taxes as a share of personal income more or less matched the national average, and with the recent plunge in revenue they're now probably below average. This is a real howler when you remember than California has a revenue shortfall of $38 Billion dollars out of about $213 Billion in total state spending - but the states Herr Doktorprofessor compares it to are for the most part balancing their budgets. He isn't in favor of spending cuts, so that means he wants essentially the entire deficit financed by tax increases - where even the California Budget Project beloved by Herr Doktorprofessor concedes that California ranked 11th in the nation with state and local taxes for 1999-00 as a percentage of personal income total (actually, California's tax revenue per capita ranks as "only" the sixth-highest in the nation). Is that "average" - as he claims? What would happen to that already non-average ranking if taxes were raised by an additional $38 Billion, or anything like that number? He writes, Although news reports continue, inexplicably, to talk about a $38 billion deficit, the projected gap for next year is only $8 billion. In fact, next year's deficit could easily top $20 Billion even with the existing cuts, which were, of course, opposed by Herr Doktorprofessor. Matters get much worse if the recently raised and odious car registration tax is reduced as Governor Davis, Cruz Bustamante and many others now say they desire. And that doesn't even take into account proposed local tax increases. Does it even occur to Herr Doktorprofessor that California's corporate tax is above 8.8 percent but the corporate tax in Washington State and Nevada is zero?

Herr Doktorprofessor is also being cute by focusing on state and local taxes as a share of personal income, instead of gross per capita taxation. The cost of living in California is high compared to national averages. A taxpayer has to meet that cost of living after state and local taxes have been stripped from personal income. Remember Warren Buffett's $4 Million house in California and his $500,000 house in Nebraska? That's a factor of eight - and principal payments on a home mortgage aren't deductible. But when it suits his purposes, Herr Doktorprofessor is perfectly happy to stick to per capita numbers - as with his (in)famous: As analysts at the nonpartisan California Budget Project point out, real state spending per capita was only 10 percent higher in 2002-03 than it was in 1989-90 — that is, most of the spending growth was simply a matter of keeping up with the population and inflation. Ooops! Make that 13%, not 10%.

What is true is that California's taxes are highly inequitable: thanks to Proposition 13, some people pay ridiculously low property taxes. So Herr Doktorprofessor, who has railed against the very existence of a public discussion of the effects of a federal income tax reduction on payers of income taxes (why, he says it's just a "lie" if one doesn't talk about all federal taxes and all federal taxpayers every time) thinks nothing of "proving" that California's taxes are highly inequitable by reference to a single tax whose very existence is highly problematic, since it is assessed where there is no cash-flow to be taxed in the first place and (absent Prop 13) on the basis of property values determined by developments completely unrelated to any action of the property owner. Why is it "more equitable" to tax real property annually on the basis of appraised valuation and not original purchase price - especially where the owner may not have money to pay the tax? Why should real property be taxed at all except when it is sold? Stocks and other valuable assets aren't taxed that way, and nobody argues they should be. And didn't Herr Doktorprofessor himself just get done focusing on the importance of considering state and local taxes as a share of personal income - where real property taxes are assessed regardless of personal income? And, as Alan Reynolds points out: The assessed value of California property rose 4.8 percent a year from 1990 to 2002, virtually identical to the 4.9 percent annual growth of personal income.

Having in this way demonstrated conclusively that the public should not pay attention to figures, Herr Doktorprofessor then assails Mr. Schwarzenegger for being no more obscure on the details of his fiscal plan than politicians usually are. Indeed, one reason Gray Davis is facing recall is that he is widely believed to have misrepresented the state's fiscal condition during the past election. But what really disturbs Herr Doktorprofessor is not that Mr. Schwarzenegger hasn't provided details, it's that Mr. Schwarzenegger's promises mean that he must come up with large spending cuts, [but] he refuses to say what he will cut. Herr Doktorprofessor doesn't think anything should be substantially cut - but Mr. Schwarzenegger doesn't agree. The column is mostly just another example of the increasingly common tendency of some on the left to characterize as "lies" what are really policy differences.

Of course, there is still the lingering issue of Mr. Schwarzenegger and possible new taxes. Some conservatives are highly miffed that the tax door remains somewhat ajar. But Herr Doktorprofessor doesn't get into that - although raising taxes is what a scientist would call the "trivial" solution to Herr Doktorprofessor's conundrums and the alleged inconsistencies he sees with Mr. Schwarzenegger's proposals. And, curiously, that's clearly the solution Herr Doktorprofessor wants.

STILL MORE: And check out this terrifc Don Luskin, with terrific links to Hogberg and Hinderaker and lots more.