California and Keynes

By SETH SANDRONSKY

California Gov. Jerry Brown, with credibility as a climate-change realist who backs reforms, also supports a budget policy of austerity. He wants to withhold $3.5 billion in state tax revenue from state spending, or $2 billion over the amount that Proposition 2 requires, a measure California voters approved in 2014.

His reason is to prepare the Golden State for the next recession. Given the downturn in China’s economy and plunge in the price of commodities, e.g., oil, California, the world’s eighth biggest economy, might not have long to wait.

Well, one thing is clear now. Like a broken clock that tells accurate time twice a day, the governor is correct that another economic downturn will arrive.

We know that an historic home-price bubble burst last decade, igniting the Great Recession. Stock and hi-tech market crashes preceded that.

In the Great Recession, a rising tide of fired workers filed for jobless benefits. California certainly needs funds for such a future event.

At the same time, withholding state money from the economy slows growth and job creation now. A bone of contention is Gov. Brown’s refusal to increase grant funding to adjust living costs for recipients of CalWORKs, “a welfare program that gives cash aid and services to eligible needy California families,” according to its website.

CalWORKS recipients spend their grants in the economy, which is 70% consumption. This spending helps businesses.

Reducing state spending harms private-sector firms that make, ship and sell goods and services. Austerity is not their friend.

Of course austerity is not limited to the Golden State. Take the eurozone.

In Spain, reduced government spending after the Great Recession has increased unemployment, writes Mark Weisbrot, Center for Economic and Policy Research co-director and co-author of the paper, “Has Austerity Worked in Spain?”

Why do austerity proponents dismiss government’s role in demand-management? We turn to the “law of demand.”

It describes a consumer’s decision to exchange cash or credit for a good or service that a firm sells. When a buyer delays a purchase that cash does not enter the economy.

Here is the rub. Consider the so-called “Say’s Law” holds that supply creates its own demand.

Think supply-side economics. When those at the top get more, their capital will trickle down to the rest of us.

President Reagan, who also catered to the religious Right, was a supply-side proponent. His heirs in both political parties, including President Obama, fall under the sway of supply-side economics to this day.

This is no small feat of ideology and policy. Antonio Gramsci’s notion of ruling class hegemony comes to mind.

In contrast, John Maynard Keynes, the top British economist, proposed government spending to prop up weak consumer demand in the depression decade of the 1930s. That policy saved capitalism then, with federal government spending (especially on armaments to prepare and wage World War II) under FDR a case in point.

Last decade, after the housing boom and bust, government demand-management strengthened a weak economy. President Obama’s American Recovery and Reinvestment Act of 2009, cut the monthly six-figure job losses of the Great Recession under President George W. Bush in part by helping states fund increased claims for jobless benefits.

Why ignore Keynes’ insights on government or state spending to prop up the economy? His views on weak consumption acting as a drag on growth and jobs remains relevant now.

In California and abroad, the neoliberal view the marketplace cures all ills of the economy infects politicians and commonsense generally, crossing party lines in the US and national borders. California Gov. Brown’s anti-Keynes, pro-austerity policy is proof of that.

Seth Sandronsky is a journalist in Sacramento, Calif.. Email sethsandronsky@gmail.com.

From The Progressive Populist, February 15, 2016

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