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Friday, January 11, 2013

California’s Turnaround: Brown’s Budget Surpluses

By early 2013, California had turned the corner from deficits—$9 billion in 2011 and $25 billion in 2010—to anticipated surpluses—$785 million for the fiscal year ending June 2013 and $851 million in the year thereafter. The lack of balance between billions and millions suggests that Keynesianism may contain a fundamental imbalance in favor of consumption, at least in a democratic context. The prudent proposals by Jerry Brown, California’s head of state and chief executive, point to the ability of a republic to responsibly manage its fiscal business even within the overall imbalance.
 
                    Unlike a prime minister, Jerry Brown is not in the legislature, but in addition to being the chief executive he is also the head of state.

Specifically, Brown proposed raising total expenditures by 5 percent, which would not absorb all of the surpluses. Even though his plan would increase spending on education and healthcare, he “vowed to push back at legislators eager to raise spending quickly.” After years of cutbacks, it was undoubtedly very tempting to spend all of the surpluses while still being able to brag about a balanced budget. Yet giving into such temptation would entail considerable risk. “I am determined to avoid the fiscal mess that the last few governors had to deal with,” Brown told reporters as he introduced his budget proposal for the 2013-2014 fiscal year. That he was willing to hold even himself back from additional spending in education and healthcare is a testament to his sense of fiscal responsibility over even his own political ideology.

Put another way, Jerry Brown put his role as head of state above furthering a partisan agenda. That Democrats had won a supermajority in both chambers of the legislature makes his self-restraint all the more laudable. Indeed, Connie Conway, the Republican minority leader in the Assembly, said she supported Brown’s messages of fiscal restraint and support for education. Generally speaking, the voluntary self-restraint of the majority party for the good of the whole is supported by the minority party.

Brown’s attempt to set up a “rainy day” fund is prudent and thus in the interest of the republic. The minority party could hardly object. Even so, the proposal could have been improved by dedicating a sizable portion of the surpluses to reducing the government’s accumulated debt. Being debtless is itself a sort of “rainy day” fund in that the government would have greater leeway in raising new debt in a crisis. In Keynesian terms, taxes should even be raised as an economy improves—all that revenue going to paying off all the debt incurred in the last downturn. Whether stemming from an imbalance between booms and busts or in democracy itself, the tendency for government debt to accumulate even between cycles is a serious problem that not even Jerry Brown’s prudence fully answers. Even so, Brown could have done much worse in spending away the anticipated surpluses.

Source:

Jim Christie, “California Budget Surplus? Governor Introduces Plan That Eliminates Deficit,” Reuters, January 10, 2013.