California Economy Update Stephen Levy's Economy Blog, posted by stephen levy, a resident of the University South neighborhood, on May 19, 2012 at 11:19 am stephen levy is a member (registered user) of Palo Alto Online
A reader asked for an update on the California economy and budget. This post is about the economy and the next post is about the budget.
The overall CA economy is participating in the painfully slow natioal economic recovery. In the past year and a half CA has slightly outpaced the nation in job growth despite no upturn in housing construction and losses in local governement and education jobs.
The Bay Area is leading CA job growth with a year over year gain of approximately 70,000 jobs or 2.2% compared to the national gain of 1.4%. Job growth in the San Jose metro area including Palo Alto is even higher (3.3%) driven by gains in technology sectors. The state uenmployment rate is at 10.9% (still 3rd highest among all states) but down from a peak of 12.4%.
Local unemployment rates have come down more at 8.2% in Santa Clara, 7.8% in San Mateo and 7.4% in San Francisco.
Other areas in the state with the exception of Orange County are not faring as well although all areas are now in recovery.
Exports are at record levels and the housing market is beginning to stabilize. Local markets are doing better as witness the strong demand for downtown commerical space and multiple offers on some homes in Palo Alto once again.
The state economy is connected to the national economy, events in Europe and the Pacific Rim and to the continuing gridlock in state and national politics.
Economic growth will remain modest until these world, national and state issues see progress.
Posted by Jon, a resident of the Midtown neighborhood, on May 19, 2012 at 11:40 am
Did the state gain or lose non-farm jobs in April?
If the state lost jobs, how does the jobless rate decline? Do people just quit looking? If one includes the discouraged workers, those who quit looking, what is 'real' unemploymennt rate? If people are flipping burgers, instead of working to the level of their actual talent, thus underemployed, and one adds them to the 'real' unemployment figures, then what is the actual rate?
How will the budget deficit ($16B) affect job creation in CA, both private and public sector?
Posted by Kelton, a resident of the Charleston Meadows neighborhood, on May 19, 2012 at 11:51 am
"Economic growth will remain modest until these world, national and state issues see progress."
That progress will come sooner when the poor decisions to chase austerity are rectified. Europe has shown us that austerity only slows growth, further hampering the climb to recovery.
Even Governor Romney has admitted that to cut spending continues the recession: "I'm not going to cut a trillion dollars in the first year. And I heard a question. Why not? And the answer is: taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink and would put a lot of people out of work."
If elected, Romney will pursue stimulus as fast as he can, in that he can get the economy back on track fast enough to recover an give him a shot at a second term. Romney supported stimulus in 2009. He will cut some safety net programs, and of course cut his taxes, but will not jeopardize recovery and limit his 'destiny' for two terms.
What of the talk of cutting spending? I answer with a question - what Republican president has cut spending? Bush? Bush 1? Reagan? Ford or Nixon? Nope, nein, non, nee.... zero, zip, nada.
We need jobs bills. Pay for them by returning to the Clinton balanced budget era. Clinton spending, Clinton tax rates.
Jobs create revenue. Austerity does not. The Feds need to help states get out of this mess by putting folks back to work.
Posted by Jon, a resident of the Midtown neighborhood, on May 19, 2012 at 12:23 pm
What is economic stimulus? Does this mean just printing money, going into debt, funding projects that are 'shovel ready' or perhaps likely to be shovel ready, or perhps to fund projects for one's friends?
At the CA state level, deficits violate the state constitution. In other words, they are illegal. It seems to me that there are some people out there, who are waiting for federal bailouts. The federal government is not constrained by consitutional mandates. However, federal deficits can lead to inflation and stagflation (inflation, without growth).
Germany tried inflaton, once, and it led to Hitler. Germany will be a very hard nut to crack, in terms of reflating the Eurozone. Greece just kept spending on te public sector, now it is Greece, a discredied country on the way to becoming an adjective (as in: Greece poor; Greece dysfunctional)or a verb (as in: Can we Greece the debt?).
Back to California: We are beyond broke at the state government level. What can we, in this state, do to fundamentlly rethink the problem? Rasie taxes on the rich? Raise taxes across the board? Raising taxes comes with many risks, including outsourcing (both businesses and individuals). Can we get more bang for the buck (such as educational vouchers, banning public unions?)...unlikely, given the power of the unions. Can we open up off-shore oil drilling, and tax it? Can we allow nuclear power plants, and tax them? Or can we just adjust our lifestyle down?
I am looking for realistic ideas. Anyone have them?
Posted by Kelton, a resident of the Charleston Meadows neighborhood, on May 19, 2012 at 12:54 pm
Godwin strikes, again.
"However, federal deficits can lead to inflation and stagflation " Reagan tripled the national debt. Bush 1 added a trillion. Clinton added a trillion but in doing so he balanced the budget and left Bush 2 a SURPLUS of over one hundred billion. Bush 2 spent our surplus, then doubled the national debt. Let me know when your doom and gloom predictions of Wiemar inflation are going to kick in. In the meantime, congratulations, you're the Godwin winner for this thread.
Austerity does not solve anything. Austerity reduces growth, which reduces revenues, perpetuating the cycle (see: Europe).
We must build and employ our way out of this. If we do it correctly and quickly, we will come out of these terrible economic times not only sooner than the rest of the world, but with a stronger infrastructure and education system than austere practices would give us, setting America up to compete effectively in the 21st century.
It is a no-brainer. Europe proves that austerity slows growth. Time to build, time to grow, time to employ; let all the above raise our revenues and then balance the budget with Clinton era spending levels and tax rates.
Posted by Jon, a resident of the Midtown neighborhood, on May 19, 2012 at 1:08 pm
My memory is that Reagan broke the back of stagflation, accepted a strong recession, then used supply side economics that led to a strong recovery, as well as victory in the cold war. Clinton had the benefit of the cold war victory ("peace divdend") and the dot-com boom, as well as being forced to triangulate with Newt, with the help of Monica.
I am asking for realistic solutions to the CA economy. I would like to hear from someone who has them.
Posted by Kelton, a resident of the Charleston Meadows neighborhood, on May 19, 2012 at 1:47 pm
You commented on national level economics, I gave you the accepted solution from many, many economists.
Regarding state level - no state can dig themselves out in timely fashion without federal assistance.
You wax poetic about Reagan - Reagan did it by SPENDING! Reagan took a national debt of 900 billion and tripled it to $2.7 trillion. Reagan also raised taxes a half dozen times (on the wrong taxpayers, the working class while cutting taxes for millionaires.) Reagan SPENT. Look up David Stockman, Reagan's director of the OMB, and his NY Times piece "How my G.O.P. destroyed the U.S. economy."
Excerpt: "If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. So let's get back to the real world proven Clinton model after we build our way out of this recession.
Stimulus creates jobs. Jobs create more jobs. More jobs create revenue, then balance the budget. Clinton proved it.
As an aside, are you going for the hat trick? You won the Godwin with your mention of Hitler, you brought up Monica in a thread about the state's economic conditions, what's next? My bet is "socialism" or birth certificates. Somehow manage to mix in Ayers or Acorn?
Seriously, you have the nerve to ask for for realistic solutions after bringing in Hitler and Monica???
I'm done. You're devolving into fringe tea bag land - union busting, cutting jobs, reducing payrolls, offshore drilling (drill baby drill in a nation already awash in domestic oil,) asking others to reduce their lifestyle, etc..
Austerity isn't only painful, it's the wrong thing to do. Pouring gas on an economic fire. Jobs, jobs, more jobs. Americans should expect an improving lifestyle, not "can we just adjust our lifestyle down?"
Posted by Jon, a resident of the Midtown neighborhood, on May 19, 2012 at 2:11 pm
The Great Depression was not solved by FDR or Keynes. There was a 'depression within the depression' in the late '30s. Along came WWII, with all its sacrifices (and huge deficits), and it was caused, in a major part, by German inflation. America came out of WWII in a position to rebuild the world, and the American middle class excelled. These are hard facts.
Another hard fact: America is not where it once was, after WWII. There will be no more easy solutions, including stimulus/inflation/stagflation. The federal government has run out of dry powder, even wet powder. There is only one long-term solution from the 'stimulus' perspective, and that is inflation/stagflation. This means increased poverty, not prosperity,
Prosperity comes from increased productivity, but I rarely hear this, anymore. Mostly, I hear: Tax the rich!
For the sake of argument, assume that CA will not be bailed out by the federal government. Then what? WWIII? Or some realistic ideas about how to support our own state government? I am waiting for the latter, not the former.
Posted by Kelton, a resident of the Charleston Meadows neighborhood, on May 19, 2012 at 2:49 pm
You're wrong in your history re-write, claiming it was just WW2 that got us out of the First Republican Great Depression. FDR took office in March of 33, started up the New Deal and look at GDP growth: Web Link
Look up GDP in the 30's. Except for the dip around 37-38 when Roosevelt mistakenly started to cut spending, GDP was up with the spending programs.
As far as your claim: "There is only one long-term solution from the 'stimulus' perspective, and that is inflation/stagflation" again, I ask the question you failed to answer above - look at spending from Reagan on, and let us know when your doom and gloom predictions of Wiemar style inflation are going to kick in.
Statements such as "The federal government has run out of dry powder, even wet powder" are nonsensical.
"Prosperity comes from increased productivity, but I rarely hear this, anymore." I am here to tell you, growth comes with employment, while you want to make inane statements about powder. Besides, look at US productivity vs real wages. Productivity is almost constantly up, while wages have been comparatively flat since Reagan.
Tax the rich. Of course. When have taxes on millionaires and billionaires ever been significantly lower than they are now? With the Bush and Obama tax cuts, tax cuts on the wealthy haven't been lower since the First Republican Great Depression. And the 'job creators' have NOT created jobs, so let's go back to Clinton rates and spending.
Full employment is the key, not just fair taxes on all.
Posted by Kelton, a resident of the Charleston Meadows neighborhood, on May 19, 2012 at 4:00 pm
' Replace the word "Reagan" with "Carter" '
Carter did not TRIPLE the national debt , Reagan did. Carter was paying down Vietnam war debt.
Your ideas are all austere. You've got yours, so let others 'share' the pain. You want to dismantle government, you don't think government works anyway. You were wrong about Reagan, the First Republican Great Depression, inflation, Keynes, supply side and trickle down.
Posted by Yarn, a resident of the Monroe Park neighborhood, on May 19, 2012 at 6:39 pm
"Inflation and stagflation were a cruel tax on the poor" I am always curious about the segment that is always harping on inflation, to the point of bringing up Germany from 75 years ago. Kelton asked - after $15 trillion in debt by 4 of the 5 last presidents (not Slick Willy) when are you predicting inflation?
Jon - your last 6 posts are about national level economic discussions, presidents or economic history, and each ended with a sudden twist to a question about the state. Seems you like to engage at the higher level of the economy, often with nonfactual claims or opinions.
Posted by Jon, a resident of the Midtown neighborhood, on May 19, 2012 at 7:00 pm
Once a federal bailout is suggested, then I need to consider the logic of the national economy. However, let's leave that all aside, and just consider the California government fiscal situation, with no possbility of a federal bailout. What do we do, then?
Posted by stephen levy, a resident of the University South neighborhood, on May 20, 2012 at 7:43 am stephen levy is a member (registered user) of Palo Alto Online
I did set up three posts--one on the CA economy (this one), one on the topic being disucssed here (national policy) and one on the topic Jon wants to talk about (the CA budget.
Readers are obviously free to respond wherever they want but it might be less confusing if the three posts are used for the three topics.
While the CA budget and economy are related they are really two separate topics. The economy is in slow recovery, currently doing a little better than the national average as a result of strong Bay Area job gains. And the budget continues with deficits unresolved as a result of the unwillingness or inability of the two parties in the legislature to reach an agreement that should be relatively easy compared, say to the European or U.S. budget deficits.
Posted by stephen levy, a resident of the University South neighborhood, on Jun 15, 2012 at 2:07 pm stephen levy is a member (registered user) of Palo Alto Online
There are two sets of monthly job estimates and they bounce around a bit.
The answer to your question is that California added jobs in April and today's releaase estimates 33,900 jobs added in May, nearly half the national total.
I expect the May increase overstates the progress of the economy just as the April estiamte even after revision understates the progress of the economy.
There is a second survey of jobs taken in the sample that measures the unmeployment rate. That survey shows labor force and job growth in both months, which answers your question of why the unemployment rate dropped. Also the jobs survey usually quoted in the papers does not include self employment.
But the news is even better. Last week the U.S. Department of Commerce announced that California was one of the fastest growing state economies in 2011.
And for many local residents the news is even better as our metro area posted a job gain of 3.5% compared to the nation's 1.4% for the past 12 months and San Francisco was close behind.
None of this minimizes the still high unemplpoyment rates (Santa Clara County is 8.2%) or our political gridlock but it should provide confidence that the California economy is on a positive psth led by tech, trade and tourism.