Why has this been the big deal in California?

Budget deficits are awful for individuals. This means they are spending more than their income. But governments are not individuals. Their purpose of existence or role in the economy is different, have different borrowing and revenue capabilities, and their ‘lives’ never end.

One role of the government at any level is the stabilization of the economy. That is, government engages in policy to reduce the severity of the downturns (limit unemployment) and reduce the potentially high inflation during strong economic growth.  Of course, if your political philosophy is Libertarian or anarchist (they are connected), then you would wish no role for the government in this or most any capacity. There are very interesting philosophical and economic bases for this, but that topic will not be broached here at this time. Business_Finance_57127

In the current civilization, government and the central bank step in to stabilize the economy. The government typically runs deficits during slow growth or recession years in order to stimulate the economy. It is desirable to then have budget surpluses in strong growth years. This doesn’t always happen though, unfortunately.

To be concerned with balancing the budget, especially during high unemployment is negligent. Government budgets need not be balanced every year. Some years deficits should exist, other years surpluses. We haven’t had as many surpluses because generally during good times, people wish more services from the government without new taxes. So, the government spends to improve living standards (this includes education at all levels, more help for the elderly and infirm, etc).

The furloughs, layoffs and cutbacks by the state and local governments we have been experiencing actually prolongs the downturn and worsens unemployment. (I can explain this should anyone comments about this.) This has been anathema with stabilization policy as advised by many economists. The Federal government is following a policy opposite of California’s.

The California total domestic ouput is between a whopping $1.8-$1.9 trillion currently. The deficit is approximately $20 billion. The deficit as a percent of  California total domestic output, therefore, is a paltry 1.1% approximately. So, as I wrote above, why the big deal?

I do wish to close by mentioning California has significant ‘structural’ type of problems which require the serious re-evaluation of what we want.

About George Jouganatos, Ph.D.

Professor of economics for over 18 years, taught economics, finance, and quantitative analysis at UC Davis and Santa Cruz, California State University, Sacramento, and University of San Francisco. Has written many economic impact, efficiency, cost, and feasibility studies; designed economic models, strategic plans, and performance measures. Has written and conducted seminars in the field of economics of development, political economy, economic history, environmental economics, public policy, operational analysis, and economic modeling and forecasting. Over 25 years of consulting services providing economic and statistical analysis for the private and public sectors. Specialties include, but not limited to, personal injury, wrongful death, wrongful termination, housing discrimination, employment discrimination, economic loss, business valuations, lost profits, divorce, general economic and public finance issues. Consultation and testimony for numerous attorneys in California, New York, Nevada, Iowa, Montana, British Columbia, Oregon, New Mexico, and Hawaii. Expert witness and article contributor for www.ForensisGroup.com

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