Your eyes on California Government

AUG. 29, 2011

By JOHN SEILER

California’s “Jobs Gap” with the rest of America jumped to a record high, according to new calculations. In 2010, I devised the “Jobs Gap” to measure how much worse unemployment is in California that the rest of America.

The Jobs Gap is calculated by subtracting the national unemployment level from California’s.   Of course, the major factor affecting California’s economy is national economic policy. What the Jobs Gap calculation does is filter out the “noise” of the performance of the national economy. What’s left is the affect of California policy on state jobs.

Below is the latest yearly chart. (The 2011 number is an average through July.)

Notice the green line at the bottom. That’s the “Jobs Gap” number. It shows that, as recently as 2006, the Jobs Gap was small — just 0.3 percentage points above the national average.

Then it increases rapidly, until it reaches a record level of 3.0 percentage points in 2011.

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Causes

What caused the increase? More study needs to be done. One culprit was the housing boom-bust, which hit California especially hard in 2007-08. But Arizona also was hit. Yet its current unemployment rate was 9.4 percent for July, just 0.3 percentage points above the national rate.

Another factor for California was that, after Gov. Arnold Schwarzenegger lost his 2005 reform election, he shifted to the Left on economic policy. In particular, he signed into law AB 32, the Global Warming Solutions Act of 2006. It mandates reductions in greenhouse gas emissions in California of 25 percent by 2020.

Just to show how fast things have changed in five years, “Global Warming” now is called “Climate Change” because of rising skepticism of a human role in the earth supposedly getting hotter.

From 2003 to 2005, Schwarzenegger played the “goal tender” role of vetoing most jobs-killer bills. Hence, the state’s economy performed fairly well, as the Jobs Gap numbers show.

Put his signing of AB 32 in 2006 indicated he not only had fallen down as the “goal tender,” but was actively helping the other side — the jobs-killing side — score points. There was no one left with any power in California to defend jobs.

Gov. Jerry Brown, in office since Jan. 3, 2011, has only made matters worse. Here is the monthly Jobs Gap chart for 2010-11:

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It’s Getting Worse

Again, notice the green line. It soared to 3.4 percentage points earlier this year, but then started declining as the national economy improved. California exports also have been strong.

But in July, the Jobs Gap began increasing again. It’s too early to say why this is happening. But Brown has been as relentless as Schwarzenegger in attacking jobs. In particular, Brown signed a law mandating that one-third of California’s electricity must be generated by renewables by 2020. It likely will sharply raise energy costs.

Moreover, the average Jobs Gap for 2011, from January to July, was 3.0 percentage points — the highest yearly average so far. The average for 2010 was 2.8 percentage points. And as recently as 2009, it was 2.3 percentage points.

And with the Jobs Gap increasing again, it looks like there’s no respite in sight for Californians still standing in job lines.

Dismal Jobs Creation

“Jobs creation was dismal in July, when only 4,500 more jobs were created than in June” for California, Esmael Adibi told me; he’s director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis at Chapman University. “In the summer months, high school kids and college graduates join the work force. My concern is: What happens in August with the jobs numbers? Lots of things are going wrong. The stock market has been declining. Then there are the problems with the European banking system.”

He said that, earlier in 2011, five immediate economic problems threatened the California economy. Two have been resolved.

1. First was the Japanese earthquake and tsunami, which cut exports from California. “The worst is over, they’re in recovery,” Adibi said.

2. Second was that oil prices were soaring. They since have receded.

But the other three problems remain:

3. The state budget in June was resolved with “a solution that is no solution,” he warned. The budget was “balanced” by anticipating $4 billion in extra revenues that just aren’t going to happen. Indeed, earlier this month Controller John Chiang and Brown’s own Department of Finance reported that revenues were declining.

Next January, Adibi said, major adjustments will need to be made to push the budget back into balance.

4. The European banking situation continues to get worse.

5. The federal government’s continuing problem with debts and deficits. “These are government, man-made problems,” Adibi said. ”Unless we get a solution on the debt and deficit, the market might act as it is now. This is not good news for the economy.”

He said that the Federal Reserve Board, having propped up the economy with record low interest rates and money printing, now is “out of options. The real problem is a lack of certainty in government. In Europe, they’re acting like a bunch of children. Government is incapable of realizing what is going on. Improvement can only come with fundamental changes.”

California Solutions

The American states, including California, are at the mercy of faulty federal policy. But Adibi said the the California Legislature and Brown still can “get their acts together and fix the budget. They can reduce the bureaucracy and streamline the permitting.”

Only in the last few weeks has Brown noticed that California just isn’t creating enough jobs. He appointed as his new Jobs Czar Michael Rossi. In my article, “Brown’s ‘Jobs Czar’ Really a Bailout King,” I broke the story that Rossi’s was a banker whose main accomplishment was grabbing federal bailout money, not creating real jobs.

And last week Brown released a gimmicky jobs plan that won’t help at all.

If Brown really were serious about reducing California’s Jobs Gap, he would immediately take two steps:

1. Announce that he no longer supports any tax increases. Instead, he’s reviving the flat-tax reform he once championed.

2. Suspend AB 32 for one year, as the law allows.

Otherwise, there’s no reason why anyone should believe he’s serious about closing the Jobs Gap. And jobs and businesses will continue fleeing the state in record numbers.

Tags: AB 32, Arnold Schwarzenegger, Esmael Adibi, Jerry Brown, jobs, Jobs Gap, John Seiler, unemployment