Meg Whitman's economic plan for California will dig our state into an an even deeper hole, not help us get out. It's long on political rhetoric, short on sound economics and today, August 10, the Center of American Progress will host a press call in which UC Berkeley Professors Michael Reich and Robert Reich along with USC Professor Manuel Pastor will tell you why. Michael Reich, economist at Berkeley, recently wrote an analysis of Whitman's economic blueprint entitled Can Californians Trust What Whitman is Selling? that was released today by the Center for American Progress Action Fund. In addition to Reich's report, a letter to California voters from over a dozen prominent economists from universities around the state was also released endorsing the analysis. The voters deserve the facts.
Professor Reich criticizes Whitman's economic plan for presenting an inaccurate diagnosis of California's economic difficulties and inappropriate policies to address them. Reich argues that Whitman's proposals could actually lead to further job losses, slow economic growth and worsen the budget crisis.
Whitman asserts that California no longer has a competitive economy because of a bloated public sector, too much spending, and excessive regulation. As a solution to these ills she promises to restore economic growth and create 2 million private sector jobs by cutting $15 billion in state spending, eliminating 40,000 state employees, revamping public pensions, cutting taxes for the rich, and reducing environmental and worker protections. Reich takes issue with these economic policy proposals for various reasons.
First, his report makes clear that Whitman's proposed tax cuts for businesses and the wealthy would generate little economic benefit while making the state's budget problem worse at a time when it is already strained. He states that Whitman's proposal to cut spending and taxes is misinformed because government spending has a greater "multiplier" for creating jobs than do tax cuts in a severe recession. Additionally, he notes that taxes play a secondary role in the location of business and attraction of skilled workers when compared to other factors such as investment in public services and education.
Second, Reich points out that Whitman's plan doesn't specify from where the $15 billion will be cut nor how these savings will be achieved. Although Whitman asserts that the state government can provide the same level of services while reducing costs by 20 percent there is no evidence supporting this claim. Further cuts to the budget could lead to job losses and would more than likely affect education, health and human services.
Finally, Meg 2010 is assuming that deregulating business will automatically create economic benefits, but this is shallow thinking and hasn't always proven the case. For example, Reich demonstrates that lenient regulation of the California mortgage market led to the foreclosure of a quarter of a million homes. Whitman fails to address the California mortgage crisis and the need for reform.
Similarly, regulatory incentives imposed in California under the Global Warming Solutions Act of 2006 (AB 32) have allowed for the creation of new jobs, highly innovative industries and the increase in venture capitalist investment. Yet Whitman wants to eliminate AB 32, the bipartisan Act that established the first-ever mandatory reporting guidelines for global warming pollution, and set a statewide limit for carbon. Repealing the law through Proposition 23, as Whitman hopes to do, would dampen California's clean energy economy and its competitive edge.
Whitman's approach to California's economy is one of politics and rhetoric rather than sound fact-based solutions. Whitman's proposed elimination of climate change regulation would set California back by many years and her spending cuts would likely outweigh any positive stimulus from her tax cuts. It is quite clear that Meg 2010 is based on unreliable economic theories and studies as noted by the California Legislative Analysts Office. California cannot afford to be at the whim of Whitman's politics, especially not now.
Rebecca Friendly, CAP California Intern, contributed to this blog post.