California’s Return to Prosperity

By: 
Al Jacobs

As my home state of California entered the year 2020, its financial prospects appeared to be remarkably bright. On January 10th Governor Gavin Newsom submitted his 2020-21 State Budget proposal, projecting a surplus of $5.6 billion, and introducing it with the following representations.

“As 2020 begins, California’s economy is the strongest in the nation and the fifth largest in the world. We’re eliminating debts, paying down pension liabilities, growing our reserve funds – the largest ever at $21 billion – and one out of every seven new jobs is in California.”

As to specifics, there seemed to be sufficient funds available to address many historical problems never before considered. One program he advocated would be to expand full-scope Medi-Cal coverage to low income undocumented Californians aged 65 and above. He also included a $500 million tax credit program to continue state sponsored housing development, along with an additional $331 million to fund housing counselors and other legal aid agencies specializing in safeguarding non-paying tenants from eviction. The governor’s budget proposals also included more than $1 billion to create the California Access to Housing and Services Fund, designed to develop affordable housing units, supplementing and augmenting rental subsidies and stabilizing board and care homes.

Also included was the creation of an Adverse Childhood Experiences cross-sector training program, with the goal of reducing adverse childhood experiences and toxic stress. And building on the universal preschool system and affordable child-care system, his budget proposal planned to expand preschool with additional funding for 10,000 additional full-day slots, moving us closer to a goal of universal preschool for all four-year-olds. And the costly programs continued to flow with no respite. At the time the state seemed capable of anything … anticipated expenditures were being allocated as though the currency printing press resided securely in the governor’s private study.

Let me now introduce you to the pessimist’s creed, known as Murphy’s Law. A version of it reads: “If anything can go wrong, it will … at the worst possible moment.” In February of 2020 Murphy descended upon California in the form of a novel coronavirus. Although it arrived as the winter virus traditionally appearing year after year, for some inexplicable reason it became identified by the political establishment as a re-creation of the mid-14th Century bubonic plague. Accordingly, on March 04, 2020, as part of the state’s response to address a deadly infestation, Governor Gavin Newsom declared a State of Emergency. Among other things, he proclaimed:

“Today’s proclamation builds on work already underway by the California Department of Public Health, California Health and Human Services Agency, Governor’s Office of Emergency Services, and other agencies which have been on the front lines of the state’s response to COVID-19 since January. The State of California is deploying every level of government to help identify cases and slow the spread of this coronavirus.”

On March 17, just 13 days later, the governor delivered an update at a news conference where he announced he put the National Guard on alert, and added that martial law – which is when civil laws are suspended and a military force is in charge – is available for use. “We have the ability to do martial law … if we feel the necessity.” He made it clear he was prepared to commandeer society if he so chose. Admittedly, this can certainly be appropriate under certain circumstances, and we acknowledge throughout history martial law has been employed.

As an example in 1922, after Italian Prime Minister Benito Mussolini declared only he could correct what he described as political chaos, he took charge and effectively restored order. His actions were also uncompromisingly harsh … and ruling by edict can be an exhilarating experience.

We’re now ensconced in a California exactly six months past the January 10th moment of financial nirvana. In July, with the prior surplus of $5.6 billion replaced by a $54.3 billion deficit, the numbers look atrociously less favorable. The reasons for the cataclysm are easily explained. The governor’s 2½-month statewide lockdown of a majority of Californians resulted in a loss of employment by more than 6 million workers. The forced closings of millions of businesses decimated the economy. And finally, the fear instilled in many impressionable citizens, who imagine any social activities will result in catastrophe, turned them into recluses who now avoid all interpersonal contact.

The reaction to the COVID-19 pandemic impacted every sector of the state’s economy, causing record high unemployment – almost 1 in 5 Californians who employed in February are currently out of work – and assistance from the federal government is needed, given the magnitude of the crisis. However, the governor continues his efforts to close businesses and restrict normal activities of the public, leading only to a further stifling of the economy.

With California now descending into economic depression from which it may not easily emerge, we must consider what actions are required to bring us out of our dilemma. Limitations to be immediately eliminated are the restrictions currently imposed on the state’s business community. Restaurants must be allowed to function as they did before the closures. This means the arbitrary distances mandated between persons will cease at once, enabling full attendance for diners, as well as permitting buffets, such as Souplantation, to operate once again. Businesses considered nonessential by some government official warrant being once again permitted to function in an unrestricted fashion.

Quite simply, reverting to the way millions of normal Americans conducted their affairs over the past two and one-half centuries, with minimal interference from officialdom, is the only way we can return to an economically viable society. As long as bureaucratic directives dictate how employers will run their businesses and whether or not an employee may show up for work, we’ll remain mired in the same sort of lunacy which caused the Soviet Union to finally expire in 1991.

In conjunction with the elimination of government imposed limitations on the citizenry, the governor must end his State of Emergency … and not merely phase it out over time, but conclude it at once. This may not be so easily accomplished, however, if for no other reason than Gavin Newsome appears to be in his splendor as one who revels in ruling by decree. In any event, as long as he appears to possess the legal authority to interfere with reinvigorating the state’s economy, there’s no telling how long he will extend it and how much harm he will cause. If he does not voluntarily relinquish his authority, he should be forced to end it, however it must be accomplished.

Lastly – but most decidedly of vital importance – the huge mass of persons who became induced to believe the COVID-19 virus is the 21st Century version of the Black Death, must be reeducated to recognize it’s a relatively innocuous organism with a mortality rate no greater than one in ten thousand. Only those persons with serious underlying ailments need concern themselves with its presence.

Instead of attempting to prevent its spread with masks and distancing – thereby simply deferring the surges, which must eventually come if it’s ever to be rendered harmless – we’ll be far better off when 330 million Americans contract it … with virtually all recovering.

I’ll conclude with a recent observation from Dr. Sara H. Cody, M.D., Yale School of Medicine, epidemiologist and Public Health Director in Santa Clara County, who just announced: “We’re at a point in this pandemic when it’s crystal clear COVID-19 will be with us for a long time, and so we need to adapt to a new way of living that keeps us all safe. And especially in Southern California, what we’re seeing reflects an exponential growth in transmission that will be extremely difficult to control, and bring back under control.” To this, I can offer only one suitable response: God save us from the experts.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. Al can be contacted at al@abjacobs.com

 

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