Gov. Schwarzenegger won on a substance-free campaign ““ and
I’m not talking about drugs. But now that he is in office,
heading the fifth largest economy in the world, he’ll have to
face the same nightmare of problems that got Gray Davis fired.
Let’s all hope he does well. That said, it does not look
promising.
Take, for example, Schwarzenegger’s campaign claim that
there are “billions of dollars” of waste within the
California budget. Since then, his top financial advisor released a
report which the Los Angeles Times said, “offered no
revelations about state spending and fell short of
Schwarzenegger’s campaign pledge.” Recall that
Schwarzenegger also said his advisors could not make heads nor
tails of the state budget because it was so problematic. California
will spend about $74 billion this year, which is expected to rise
to almost $86 billion next year. Meanwhile, the deficit between
what the state government takes and spends for 2004-2005 will be at
least $10 billion, and with the vehicle licensing fee already
repealed, as Schwarzenegger promised, that number will be closer to
$14 billion.
14 billion dollars. That is twice as many dollars as there are
people on the planet. Our budget gap is 50 times the number of
people in the entire United States.
Do you really think all those billions are being wasted? Is the
money being spent on K-12 teachers’ fat-cat paychecks? Are
the public university professors (like the ones here) running off
with the $14 billion in the form of their state-provided
Bentleys?
Now, I know that something like a state budget is a complicated
thing, and the details of it must be mind-boggling, even for an
actor. But the general terms of it are not all that
complicated.
California spends most of its money on schools. (Bet you
didn’t see that coming, seeing as how UC fees increased by 30
percent this year and may well jump up by 40 percent next year.) At
$34.1 billion, almost half of next year’s projected spending
of $86 billion will be spent on K-12 schools, California State
Universities and UCs. The state will spend $27 billion (31 percent)
on various Health and Social Service programs, including Medi-Cal
benefits and CalWORKS. Prisons will take $5 billion more, paying
interest on the state’s debts will amount to $4 billion, and
the rest is spent on other things, such as roads and policemen. In
other words, the money is being spent on things that people should
all want.
So, while the details of the budget may be written in Sanskrit,
the basic picture is clear. Now, do you really think you’ll
find a 16 percent gap in this budget? It’s not like
California has a defense department that can spend billions free of
serious oversight.
Schwarzenegger has promised he will somehow fix our
state’s budget. So far, he has offered up a $15 billion bond
that would tide us over. But a bond is a loan to the state. Loans
must be repaid. Who will do the repaying? You and me, that’s
who. A bond is like a time machine. It takes the debt of today and
magically transports it to the future when you and I will have to
pay for the bond. By the way, Schwarzenegger has told us many times
that financing deficits with borrowing is a no-no. Yet he is now
proposing to do exactly that.
Inevitably, some will say that our fiscal problems were caused
by the state’s recently fired government ““ and thus the
answers to the problems cannot be found in the government. What
they mean is that the free market will save the day. It’s not
a very complicated argument, when you get down to it. Economics
tells us, they’ll say, that there are laws of supply and
demand which make for healthy market equilibrium. Government
intervention, such as taxes or subsidies, just gets in the way of
this. And that’s that.
Maybe not. We have seen disastrous examples of letting the
market work its magic very recently. Case in point: the energy
crisis. The state decided to deregulate the energy market. The hope
was to create lower energy prices. Instead, prices soared.
California had rolling blackouts. And now we have a Governator.
The market did not serve us well in this instance. Unregulated,
the energy firms ““ including such prestigious names as Enron
““ colluded to artificially inflate prices. Or, to put it
another way, they robbed Californians. This is not a problem with
economic theory; rather, it is an oversight on the part of our
theorists. Economics also discusses natural monopolies ““
cases in which it is better for society to have just one firm
produce a certain good. One of the classic examples is public
utilities like energy.
Thus, it really is not quite as simple as saying “let the
market fix it.”
Our new governor will probably be one of those people talking
about letting the free market sort our economic mess out. After
all, he has told us repeatedly that he is a businessman, or a
capitalist, if you will. This sort of talk is about as empty as his
fiscal claim that there are billions of wasted dollars hiding
somewhere in the mess of our state’s books. They are both
ideas that sure sound nice, and they’re easy to understand.
They are also completely devoid of any content.
So let’s hope he does have some real ideas in his bag. But
I wouldn’t be too hopeful.
Raimundo is a fifth-year political science and economics
student. E-mail him at araimundo@media.ucla.edu. Send general
comments to viewpoint@media.ucla.edu.