The California Financial Crisis
Did Governor Arnold Schwarzenegger Improperly Cut taxes?
Jun 17, 2009
California is again going through a serious financial budgetary crisis and the juxtaposition of two major concepts of economic theory have basically competed to rule the roost in Golden State since World War II and have a had major impact on the California economy and its system of operation.
The first is Keynesian macroeconomics which main tenants according to author Dudley Dillard contends that tax cuts should be used to increase demand, not supply, and thus should be targeted at cash-strapped, lower-income earners, who are more likely to spend additional income (i.e. stimulus payments of 2008 and 2009 in the U.S.), according to author of The Economics of John Maynard Keynes: The Theory of Monetary Economy, Dudley Dillard.
Also known as Keynesianism this theory is based on the ideas of 20th-century economist John Maynard Keynes and employs a holistic approach to the notion of any given country's monetary policy taken by their central bank, in addition to fiscal actions taken by its government to stabilize financial output over any given business cycle, according to Dillard.
The second, known as Supply-Side macroeconomics according to author Byron Fisher, is a theory that economic growth can be most effectively created using incentives for people to produce goods and services (or supply), such as adjusting income tax and capital gains tax rates, and by allowing for a greater flexibility by reducing regulation.
In his book The Supply and Demand Paradox: A Treatise on Economics, Fisher writes that Journalist Jude Wanniski coined the popular phrase in 1975, after the ideas of economists Robert Mundell and Aurthur Laffer. So today we often here supply-side economics referred to as "trickle-down economics or Reagan-nomics, after the economic policies of the 33rd Governor California Governor and 40th President of the United States who more than any other chief executive in modern history railed against government benefits and the American social safety-net first in California and then as President of the United States.
The Shock Doctrine and the Rise of Disaster Capitalism
As outlined in her book, The Shock Doctrine: The Rise of Disaster Capitalism, author Naomi Klein goes into great detail about how for thirty years as a respected Nobel Laureate economist at the University of Chicago, Milton Friedman had unprecedented access to world leaders including U.S. President Ronald Reagan as one of his top economic confidants.
Klein notes in her book that it was Reagan who (with advice from Friedman), began to dismantle welfare in the United States as it was known to that point, just as he had done in California.
Although supply-side economists may have had a strong advocate in Reagan,first as Governor of California and then as U.S. President the disaster capitalism theory expressed by Friedman was not first tested in the U.S., it was first tested in 1970's in Chile under dictator Augusto Pinochet.
According to Klein, the idea was to actually create a crisis in a country or allow one to take shape and then, "orchestrate raids on the public sphere in the wake of catastrophic events, combined with the treatment of disasters as exciting market opportunities, or disaster capitalism."
California Has Had Budget Problems for Years
In a recent speech to some supporters in California, the current governor outlined a history of financial mismanagement by the state, including borrowing money from city and country governments with promises to pay the money back and little else. This constituted state government in effect ripping off city and county governments in times past, according to a recent speech given by the Governor Schwarzengger.
Although a law was passed last legislative session to insure the repayment of borrowed funds, the governor is still seeking them, as well as a bail out of some 30 billion dollars from the federal government.
Why is the World's Eighth Largest Economy in Such Bad Shape
When Governor Schwarzenegger came to office he promised to clean house and cut taxes. And cut them he did. He cut the revenue generating car tax and other taxes that created revenue while increasing government spending by 40% according to reports by a group called Taxpayers United who attempted to recall the governor in 2008.
And the current economic situation is not good. If California does not resolve its budget crisis in the next couple of months the state could actually be forced to shut down due to lack of funding, according to Governor Schwarzenegger.
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