Wednesday, August 18, 2010

How Not To Revive California

Harold Myerson, writing in the Los Angeles Times today, lays bare the economic ignorance that dominates the media and our government. In an op-ed titled "Reviving California's economy: Meg Whitman versus Jerry Brown", he compares the economic development planks of the two gubernatorial candidates and draws the wrong conclusion.

First up, Whitman.

Both Whitman and Brown understand that loss of manufacturing is a key factor in the state's economic decline, and they have put forth economic plans to address it. But neither of their strategies does enough to restore the state to its onetime industrial preeminence.

Whitman seeks to remedy the problem through classic Republican policies: reducing taxes and regulations on businesses. Some of her targeted tax cuts make sense, like increasing the R&D tax credit and creating a tax credit for factory equipment. But the massive cuts she proposes to state services will only further the decline of California's aging infrastructure and harm a public education system that badly needs improvement.

You can tell where this is going already: any cuts to California's bloated government are probably bad. At any rate -- on to Brown.

Brown also favors tax reductions for factory equipment, and outlines other incentives to boost manufacturing. He also commits himself to major infrastructure upgrades, and he singles out the clean-energy sector as the industry the state should do most to help. Unlike Whitman's plan, his clean-energy program has a demand as well as a supply side: By mandating that 33% of the state's electricity come from renewable sources, his plan would create a larger market for the industry it seeks to boost.

Well, isn't that brilliant? Brown will stimulate both demand and supply! And he'll do it by legislating that utilities provide 1/3 of the state's power from renewable sources and by subsidising the renewable generators. To Mr. Myerson, this is pure genius -- a sort of perpetual-motion economic engine.

The end result must be a tremendous increase in electricity costs and a resultant tsunami of energy-intensive manufacturing leaving the state. The few "green" companies created by Brown's munificence (furnished by the taxpayers) will serve only to draw capital away from what few profitable unsubsidized operations that remain.

Raising costs is a very odd way, indeed, to encourage manufacturing and is a sure-fire recipe for economic ruin. It's emblematic of the sort of economic thinking that typifies the modern left and I think that, this time, Californians will recognize it for the foolishness it is.

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