March 27, 2009

The Silver Lining Behind California’s Gloomy Economy

By Annette Fuentes

New America Media

Editor’s Note: California’s unemployment is high and job loss continues, as the national economic crisis takes a heavy toll. But reports of the state’s demise are greatly exaggerated and the state’s future prospects are golden, according to a March analysis from the Center for Continuing Study of the California Economy in Palo Alto. Center director and senior economist Stephen Levy talked with NAM Editor Annette Fuentes about why he is hopeful about California’s future and what Sacramento must do to realize the state’s golden opportunities.

Your report on California’s 2008 economic performance presents the silver lining behind the cloud. On the one hand, California had big job losses. On the other, they aren’t permanent. Should this make us hopeful?

People should understand that this is a horrible, vicious recession, probably the worst since the Great Depression, but it seems it isn’t more than that. Recessions end and leave scars, but they do end. And when this one ends, California has plenty of opportunities in the areas where the Obama administration and the world are going. So we should be hopeful for our long-term future, but be cautious.

Why do you believe it is not worse than the Great Depression?

The national unemployment rate is not 25 percent—it’s nine percent. There aren’t bread lines—although soup kitchens are seeing some middle-class folks. But the government put in place tools after the Great Depression to prevent that from happening again. So we have unemployment insurance and food stamps. We have a safety net.

In addition, the current job losses, which are large and still growing, are primarily cyclical and do not represent any permanent loss of share in key sectors of the state’s economic base.

You found that most of the job loss is due to the housing downturn and consumers not spending. So is the solution simply to wait until mortgage money starts flowing and people start shopping?

Yes and no. The recession is caused by a shortage of customers. There is less a shortage of houses at lower prices now with so many houses in foreclosure, but people have less to spend and they’re saving more because they’re worried. So government does two things: It provides direct cash payments to people, and they may choose to become customers or choose to increase their savings. They should do what is best for their families. But some of the tax cuts and payments will be spent. Second, government becomes a customer and boosts spending on a massive scale—on weatherization programs and infrastructure.

California lost 81,000 manufacturing jobs, which was a smaller percent of all jobs than many other large states. So maybe the state isn’t doing as badly as some think.

The one main point of what I wrote is that we are not especially needy. We are not a special claimant. This is a national and worldwide recession. To the extent we see we are connected, we won’t get into the idea of special claimants and make comparisons: L.A. is worse off, or Michigan is worse off.

When you do that, you start to pressure the political process to make decisions based on political power instead of getting jobs to people who need them. What would be the theoretical basis for under-educated Latinos to be push-ed forward ahead of unemployed white construction workers in getting jobs? The issue should be, what would put most people back to work?

Maybe some groups have to take one for the team. What Obama is saying is, ‘If I don’t help the banks, there will be lots of victims, so get off my back. We agree that the bankers they were idiots, but you gotta do some things to restore stability. There is a greater common interest. You can’t govern from anger.’

California took a big economic hit when the dot-com boom went bust in 2000, and now again, the state is taking a bigger hit in the housing market crash. Yet Cali-fornia’s job growth still matched the nation’s. Why is it so resilient?

We have lots of offsetting strengths. We increased our share of venture capital funding and the whole entertainment and tourism industry was a growth sector until recently. We have the nation’s largest concentration of computer programming, architecture and design, and research and development. That is where a lot of the green jobs will be, in developing technologies. The Obama administra-tion’s agenda is favoring a lot of things we do.

More than 300,000 people joined California’s labor force in 2008, so it is still considered a land of opportunity. Why is that the case?

Some were immigrants, and maybe some of them were people who un-retired. Why people would un-retire at a time of no jobs, I don’t know. Part of the growth in immigration is family unification among people who had long time plans to come to the United States. We are in a no-place-to-hide situation. When the aerospace recession hit southern California, people left in substantial numbers in the late 1990s and the early part of this decade. Now, there is no reason to move because other states are in trouble.

One of the points of this recession compared to the last two in California is that we’re doing the same as the rest of the country. There’s no place to escape. Right now, if you come to California, you’re likely to be unemployed, but in a year or two, it will change. Housing and construction will come back. In that sense, I am more hopeful.

What does California need to be great again?

The theme is that California competes for private investment for new business by having solid public foundations. Public investment to attract private investment. That means a great workforce, great infrastructure, great communities for people to live and work in. One piece of that is educating this large generation of young people who can be a strength for us, but who may be the grandchildren and children of immigrants and may be at risk. Then it’s infrastructure: enough water and energy, the ability to get around, ports and associated inland transportaion. You have to do that without killing people through pollution. People want good schools and parks and great libraries. You don’t come to California just for jobs. You come with a family.

Yet California doesn’t seem committed to creating a quality public education system needed to educate the work-force for the 21st century.

We are conflicted as to whether we’re wiling to invest the resources in education and infrastructure in communities needed to attract world-class workers. All the public polls say that education is the most important issue, but we’re in conflict about whether we’re willing to spend the money. It is the unresolved issue. It underlies all the conflicts.

Is part of the problem demographics? The Californians with a stake in public schools are increasingly immigrant families who so far don’t vote in sufficient numbers to affect policy.

In Los Angeles, they just passed a $7 billion school bond. Most of the voters don’t have kids in schools, and yet those Anglo, aging baby boomers voted for more money for Latino and Asian school kids. They also passed a $3 billion community college bond. I see lots of local governments getting two-thirds of voters to approve money for a future they won’t be around for. There are people seeing connections across generations and communities.

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