| Waiting for Growth |
25 August 2003
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California -- America's Engine or Millstone
Warren Buffet, Sage of Omaha, Chairman of Berkshire Hathaway, and advisor to Candidate Arnold Schwarzenegger, has said that the troubles in California could tip the US back into a slow or no growth future. The admirable Mr. Buffet is the master of the obvious, but at a time when the economic situation couldn't be murkier, such observations are welcome. California can drag the US down, but it can also pull the US up. And vice versa.
America is blessed with California as a member of the Union despite the occasional sniping from the east. America's economy is the largest in the world in large part because California's is the fifth -- Germany, Japan and the UK fill up the gap in that order. Some 10% of the US GDP is California's. Not surprisingly, then, the Golden State has a great influence over the US economy.
However, the mess the state is in did not arise in a vacuum. When Silicon Valley was booming, and the 1990s were blooming, California's state coffers were rather full. Like a sailor on shore leave, Californian leaders spent what they had (as did many other states' governments). Now comes the bar tab.
However, California is not an autarky but rather an integral part of a great US and world economy. As demand elsewhere starts to pick up, things California makes (with the exception of any more Jennifer Lopez-Ben Affleck movies) will bring money into the state. The key at this point is for the state government not to make things worse the way the Hawley-Smoot Tariff made the Great Depression worse.
The next governor should make sure the schools stay open, state employees are not laid off in huge numbers (remember after 5 pm and on week-ends they are consumers with money to spend), and that the infrastructure is maintained. If that is done, it doesn't matter who the governor is. In a year, it will all be a bad memory.
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