Sunday, August 29, 2010

Did Californians break their contract?

Mark Thoma, whom I admire, approvingly posts Michael O'Hare's letter to his students. Professor O'Hare says something that really bothers me:

...for a variety of reasons, California voters realized that while they had done very well from the existing contract, they could do even better by walking away from their obligations and spending what they had inherited on themselves. “My kids are finished with school; why should I pay taxes for someone else’s? Posterity never did anything for me!”

As Professor O'Hare correctly notes in the header to his blog, "everyone is entitled to his own opinion, but not his own facts."

So before we accuse middle-aged Californians of being greedy, we should consider four things. First, California ranks 4th in state and local per capita spending in the country (and number one is Alaska, where the tax price of government service is essentially zero). Second, about 2/3 of California bond referenda that go to the public receive the 2/3 super-majority necessary to get passed. Third, we in Los Angeles County voted two years ago, in the middle of a recession, to tax ourselves to pay for transportation infrastructure. Finally, we absorb more people from the rest of the world relative to our population than any other state. These facts are more consistent with generosity than greed.

I understand Professor O'Hare's frustration with California's state budget process and with the threats against the wonderful UC and Cal State systems. Those who know me know that I enthusiastically support all kinds of public spending. But Professor O'Hare's rhetoric could well alienate many whom he wants on his side, and may actually give aid and comfort to the Sarah Palins and Glenn Becks of the world.

13 comments:

minka said...

If you knew more about what was going on in the public schools (where my son is a student) or the state public universites (where I teach) you would be clear that Califorians of a certain age did indeed break their contract.

There are two kinds of problems I encounter. For the first kind I must take personal action. For the second, solutions can only be found by taxing rich people. (By Supreme Court fiat, corporations are included in 'rich people'.)

Richard H. Serlin said...

"California ranks 4th in state and local per capita spending in the country"

But your comparing to the other states which have also slashed spending on high return government investment over the last generation of Republican dominance.

Richard K. Green said...

Richard,

Since 1990 (the oldest data I can find quickly), state and local spending has risen by about 2.57 fold, while GDP over the same time rose by 2.34 fold (end date is 2006).

Richard H. Serlin said...

And a big thing is the need for, and importance of, high return social investments has increased greatly over time as the economy has advanced technologically, but at the same time far right ideology took hold and stagnated or starved government spending on such investments.

In the high tech world of today education, for example, is far more important to productivity than it was 50 years ago, or 100 years ago, but our investment hasn't come close to increasing commensurately. In fact, in many important ways it's decreased. It used to be easy in California for any kid to afford a college degree, and without having to work 25, 40, or more hours per week while going to college full time, greatly hurting his learning and odds of graduating.

If we still had the same attitude toward high return government investment today as we did in the 1950s and 60s (a golden age of growth), then California would have universal free pre-school and bachelors degree -- how long have we been stuck at only free K-12, while the need for education to be highly productive has sky-rocketed?

California has actually regressed while this need has accelerated greatly -- a generation ago college was almost free, like k-12. Now it's very far from it.

Richard H. Serlin said...

With regard to your 1990 data, I bet it's fallen if you take out the rise in medical costs (and especially if you take out the Democratic Clinton years).

But again I think a big point is that as a country advances more technologically, high return government investment of the kind the free market will grossly or inefficiently underprovide (due to long established in economics market problems like externalities, etc.) becomes more and more important.

In 1810, there was little need for education. The vast majority just did low tech farming and there was not much to learn in school. Medical costs were tiny because there wasn't much for a doctor to learn and there wasn't much he could do.

As a country advances the need for these social investments increases and we've fallen far behind this increase over the last generation in California and in the country as a whole.

Here’s a fantastic quote from leading growth economist Paul Romer of Stanford:

As just one example, recall that the increasing returns to scale that is implied by nonrivalry leads to the failure of Adam Smith’s famous invisible hand result. The institutions of complete property rights and perfect competition that work so well in a world consisting solely of rival goods no longer deliver the optimal allocation of resources in a world containing ideas.

– Forthcoming American Economic Journal paper, page 8, at:
http://www.stanford.edu/~promer/Kaldor.pdf

Richard K. Green said...

I could be convinced that California should spend more; I would just like first to know why we seem to spend more than other states and not get as much in return. FWIW, I would not wish to live in Arizona or Nevada because they starve government services so much.

More to the point, I just did not find it fair to criticize the people of California for being greedy; I also think it politically counter-productive.

Richard H. Serlin said...

Again, you have to compare it to the increase in the need for these high return government investments. From 1990 to 2006 state and local spending did increase a little faster than GDP, but a higher percentage of students go to college in 2006 – and we should want that, and a lot more, but that's going to require more government spending. And obviously we haven't kept up on a per student basis in California when it's become so dramatically harder for California kids to be able to afford to go to college than it was a generation ago.

And clearly medical costs are a lot higher in 2006 than 1990. But as a society advances technologically it should be (smartly!) spending relatively more on medical care and research.

I do agree the biggest thing starving revenue and spending in California is its horrible supermajority requirement. You noted some tax increases Californians voted for, BUT they really dropped the ball on voting against a universal pre-school referendum – that's just the kind of thing you would have expected from California during its golden age. It should be noted this kind of thing is best done however on a national level, as a nationally required and funded minimum standard that any American should expect.

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