The Magic Kingdom

It's fitting that Disneyland was created in California.

It's fitting because we now have two branches of state government that live inside the Magic Kingdom of the late 1950's - in two "lands" far away from reality. The Governor's Office has been relocated to Fantasyland. The Legislature has relocated to Tomorrowland.

Way too many of the voters of California also live inside the Magic Kingdom - in three radically different worlds far away from reality and incomprehensible to each other.

Some live in Main Street USA, a fictional early 20th century Midwest town totally without a corresponding community reality in 21st Century California.

Some live in Frontierland hoping to confront the challenges of the 21st Century with a muzzle loading rifle while wearing a coonskin cap - a reality that never existed in California even when Ronald Reagan was Governor.

Some live in Adventureland where crocodiles, hippos, and other "African Queen" dangers, completely foreign to and absent from 21st Century California, fill people with fear and consume tremendous amounts of their psychological energy.

We have a Governor - well, the Gubernator - who has proposed in his final budget to completely dismantle all care for low income children and the elderly. He has a reason. The State Government figuratively went bankrupt during his administration. He's opposed to tax increases or new taxes to fix things. So he proposes to dump off the increased cost of medical care for the kids of the underemployed and unemployed and for old people whose retirement nest egg went the way of the State's employees retirement funds.

In the meantime, two Republicans, people you might otherwise think are rational, want to become Governor in this situation, a situation that will be worse in 2011 and 2012. Like the Gubernator they have ideas about the budget. Unlike the Gubernator, between them they will have spent over $100 million on the primary election campaign, just to get nominated to run against Jerry Brown, the de facto Democratic candidate.

The candidate spending the most money is Meg Whitman. She has roughly the same understanding of Government as the Gubernator did when he was elected. She proposes to fix the State's problems by managing better. You know. Like she did as CEO of Ebay. Apparently, she doesn't understand that in California the Governor has clear authority over the employees in the Governor's Office, and no others. Apparently she doesn't understand that in California the Governor proposes a budget while the Legislature prepares and adopts one, if the leaders can find support from ⅔'s of the 80 members members of the Assembly and from ⅔'s of the 40 members members of the Senate.

Jerry Brown, of course, was the guy who started California down the road to bankruptcy when he was previously Governor and was dubbed Governor Moonbeam. I guess he thinks he can fix the problems he created.

Now let us move from Fantasyland where Governors and would-be Governors live, to Tomorrowland where the Legislature lives. In this Tomorrowland, if Californians can just get through until tomorrow, everything will be fine. So the Legislature has developed budgets for the last two fiscal years that basically have borrowed against tomorrow's wished-for economic boom to get us through, until tomorrow.

This year the Legislative leaders propose to borrow $9 billion from Wall Street to avoid drastic social service cuts. From the Sacramento Bee we learn:

To pay back the nearly $9 billion loan, Democrats propose ostensibly using container recycling deposits that consumers pay on beverages they consume. But that would cost the beverage recycling fund around $600 million annually, so Democrats propose a new tax on oil production to backfill the recycling fund each year.

In another twist, Democrats want to pass their oil production tax with only a majority vote, using various sales tax shifts to get around the state's two-thirds vote requirement.

They said their proposal not only would avoid cuts but reduce fee hikes at universities and give $900 million in new money to local governments.

But Assembly Democrats offered no projections for what would happen in future years, when the state would not have access to the same influx of money. Because their plan would sustain spending at higher levels, the state likely would have to make deeper cuts in later years unless the economy roars back or lawmakers find another multibillion-dollar source.

To add to this weird borrow from tomorrow vision, Senate President Pro Tem Darrell Steinberg proposes to shift many social services programs to the counties. Today, of course, the state's counties are each trying to figure out how to cut millions from expenditures by July 1 without further gutting county operations to the point they are meaningless, particularly sheriff departments. Again, to quote the Sacramento Bee:

Steinberg said he's identified some of the kinds of social programs that could be shifted more to counties – senior care and children's services among them – but has no details to disclose less than three weeks from the Legislature's June 15 deadline to approve a budget.

One has to admire a vision of how one could believe this might possibly work - tomorrow.

In the meantime, many of the legislators who have sat through a few budget battle years are "termed-out" and will be replaced in January mostly by folks who have no idea how California's Government really operates. The rest are hoping to survive the election - to be there tomorrow.

We all should marvel at the potential of knowing we could have a Governor in Fantasyland who thinks she is going to be the State's CEO and new legislators in Tomorrowland who are equally ignorant in thinking something can be done, tomorrow, by the Legislature, about California's figurative bankruptcy.

On June 8, the George Bailey's, Davy Crockett's, and the Rosie Sayer's will cast their votes to determine ... who they will be able to cast their votes for on November 2. This is so that in January everyone can continue to live inside the Magic Kingdom happily ever after.

Except for a few pesky problems out there in surrounding "realityland" which threaten to darken the Magic Kingdom amusement park. We'll look at those problems next time.

The Fantasy Budget Game

While the "Hopeful Headline Writers Guild" seems to dominate the news media - my latest favorite is Hiring robust across nation; California could follow (you gotta love that "could") - it's time again to play the "Fantasy Budget Game" in California.

The players are the Gubernator Arnold Schwarzenegger and the other 120 goobers in the Legislature. Arnold is in his last few months as Governor. A number of legislators are in their last year in office. It's an election year.

On Friday, the Gubernator will release an updated, and presumably thinner, version of his January envisioned 2010-11 plan which included revised revenue estimates for the last six months of 2009-10. Since January every month politicians and all the news media have been comparing the State's monthly income numbers to those revised estimates. This avoids facing the farce that was the result of last year's Fantasy Budget Game.

This time last year the same goobers were working on a budget for 2009-10 and they did finally adopt Fantasy Budget. Last July I wrote:

Choose the size of your problem - $8 billion or $12 billion. Let's just agree that it's likely that the revenues shown in the adopted budget will be about $10 billion short by June.

Now, at the end of 2009-10, we learn that the income tax revenue expected in that budget was a mere 12% too high. Fortunately, Sales Tax revenue will have been only 2% too high partly because of the federal government's Cash for Clunkers program. And it appears that the manipulations-by-threat regarding the Corporation Tax will have resulted in the actual revenue being around 1% higher than the budget - a this-year-only result. So last year the goobers missed the big three revenue sources by only around $6.4 billion or by 7.5%. Add in the too-high budgets for other revenue, it appears that the General Fund revenue figures will have been $8 billion too high.

So, what do we know going into the new season of the Fantasy Budget Game?

The available numbers tell us a great deal about California's economy. The Sales Tax revenues adjusted for the 20% rate increase in April 2009 tell us that taxable sales are down about 20% from 2007. Income tax collections are down about 18%. And, adjusting for the manipulation, it appears that Corporation taxes are down around 17%.

Reportedly over the past 28 months California has lost around 1.2 million jobs or 7% of the jobs it had in November 2007 while the labor force has grown by about 2%. These number come from the federal survey data. But the State's reported number of "Unemployment Insurance covered jobs" support the 1.2 million jobs lost number.

This is the year that the State needs to determine how it can educate its children by spending 20% less per student than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

This is the year that the State needs to determine how it can provide services to the disabled, the poor and the elderly spending 20% less per beneficiary on average than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

Instead, for the next few months, the press will dutifully report the activities of the goobers as they play the Fantasy Budget Game. This will carry us through to the November election when the voters will elect those who will discover in January how bad things really are. By May 2011 everyone will understand that all the hard decisions delayed for the previous three years will have to be made. Right now they think that many hard decisions have already been made.

The Great California Slump is economic reality. And California is caught in a trap of its own making. By pretending that it is better to have a fully handicapped Legislature unable to respond to financial collapse, the voters created a Fantasy State Government. By adopting Proposition 13 and term limits, the voters confirmed the governmental style they preferred - avoid making hard choices.

We are determined to not be limited to selecting between candidates who point out we cannot afford the "free lunch" mentality. We don't want to choose between candidates who (a) promise to reduce services by leaving many children without medical care and education or (b) promise to increase taxes thereby reducing the amount of cash individuals have to buy necessities ranging from iPods to houses twice as large as our grandparents were comfortable in.

This California cannot continue beyond 2012 without entrenching into its soul many of the problems of a third world nation where the population is divided between:

• 50% who are always below, or are barely above, minimum poverty level, unable to educate and elevate their children, but hoping the latest lottery ticket will carry them to financial heights, and many of whom live in neighborhoods controlled by gangs (warlords, really) as government has failed to maintain a security presence;
• 45% who are middle class and in constant fear of losing that status but still thinking they could become wealthy with a little more effort; and
• 5% wealthy people mostly in secure communities with their own police forces, schools, and privileged lives and many of whom think they are sincerely trying to help the other classes.

And so the current goobers in Sacramento begin the 2010-11 Fantasy Budget Game. Other goobers run to become the new Gubernator. Meg Whitman, the likely Republican nominee, believes she can do something under a corporate (government) structure that leaves no room for creativity. Jerry Brown, the likely Democratic nominee, believes he can work with the State's financial problems he created the last time he was Gubernator.

It is time to take a hard look at dividing California into three states as I outlined a few years ago. Only by doing something that radical will California stop its plunge below mediocrity.

The iPad and Me

My wife bought an iPad, putting in an order directly through her iTunes account on the second day it could be ordered. She said she bought it mostly for me because I was going into the hospital for major surgery. (I'm now home recovering.)

The iPad arrived directly from China a couple of days after its promised delivery date because, as anyone but Steve Jobs would know, UPS doesn't do residential delivery in many areas on Saturdays including that all-magical April 3rd. It is the non-3G version with the maximum RAM 64 GB.

I come from a different perspective than the average iPad early adopter.

I first began working on computers in 1970 when a computer (now known as a mainframe) filled a room, had 32 KB of RAM, and punchcards were still being used for input. In the early 198o's we started a computer consulting and services business using Tandy Model II's which a were marvel - an 8 bit computer with 64 KB of RAM that fit on a desk. In one sense we have grown from early middle-age to senior citizen status owning and depending upon personal computers as the field advanced.

But we've never owned an Apple product. We don't have an iPhone. In fact, to us, phones are for making phone calls and we don't like compromise devices for taking photos or videos. Nor do we like being "on call." We know we aren't that important to anyone that we must be available to them during most every minute of every day. We also know nobody else is that important and that kind of living is destructively intrusive and not conducive to making good choices in the real world. So we are not among those embracing the iPhone and its clones.

The iPad comes into our world not as a general purpose computer. We own a first generation Sony Reader carrying a few downloaded books. It was almost a very good product, almost. And even though we are regular Amazon customers, the initial Kindle just didn't quite seem to make it either. The larger screen Kindle DX looked promising but too expensive for what it is. And it still had that totally worthless Sprint 3G hardware built in which I refuse to pay for.

Then Steve Jobs and the iPad came into view. We learned that the base price without 3G was competitive with the Kindle DX. And it could do some things that a computer can do - not necessarily well, but "good enough" as a supplement to an ebook reader. When we learned that Amazon offers a free Kindle App giving full access to the Amazon Kindle Library, well let's just say we could see the perfect ebook reader.

Having used ours now for a few weeks, I can say with full confidence that it is the nearly perfect ebook reader. And when we have access to WiFi, I can take a break from reading and browse the web keeping up to date. It also has a more than adequate notepad to take notes using the adequate touch screen keyboard, a calculator app (which I downloaded), and a few other conveniences.

It also plays music (as an iPod although we use the Pandora App when wifi is available), handles photos and plays videos on an adequate sized screen. (I'm not a gamer, but they say it does some of those well.)

In other words, it is a handy ...well... it's a ideal-sized-screen ebook, and with a notepad, calculator, web access point (when wifi is available), background music player, etc.

It isn't a techie toy. It's specifically not a personal computer. I think that Steve Jobs has been trying to make it clear that it is not a next-generation or niche computer. It is not a phone, thank God. It is what it is.

It is an extension of your individuality.

To a satisfactory degree apps make what it is "customizable" for each person. Hence, for our home it might become "the cookbook" as it theoretically could replace hundreds of cookbooks. And in our home when the Slingbox folks finish the iPad App (they have an iPhone App), it might be a handy portable TV.

It is the first "touch screen" in our home and it works. It doesn't take long to get used to it. Yes, I have to clean it frequently because my hands are inherently above-average oily. But it cleans up nicely.

Which brings me to "the competition." For over 25 years we have been using computers Microsoft operating systems, and we've never owned another Apple product and don't see any other Apple product in our future. And all four computers active in our home (two desktops and two notebooks) are Hewlett Packard. So keep in mind we would normally be inclined to HP and Windows.

Apparently HP is coming out with something called the Slate using Windows 7 to compete and the tech/business community is excited. I don't know why. Who would want to prepare complex documents like spreadsheets and PowerPoint presentations on a flat touchscreen? The notebook computer works just fine for that, when you can't get to your desktop. I don't want to fight the Windows operating system to read a book, open a cookbook, or some other simple task. And if I must buy and lug around a Bluetooth keyboard and mouse to make the stupid thing become a viable notebook computer, I might as well use a notebook computer.

In other words, I don't see the absence of teleconferencing features on the iPad a negative. It isn't intended to be another way your employer can control you 24/7. The iPad is about you as an independent person and if you are barely more than your job, don't get one. It is totally inconvenient for that environment.

The iPad is an individualistic extension of my life. And I like what that is - not about work, not about social networking, not about others - because it's not a computer or phone.

Oh, ...sigh... by the way - and I really hate to mention this - you can check your email if you choose to. And now that the ATT 3G version is out, you can keep up minute-to-minute with your 10,000 closest Facebook friends, if you must.

Brangelina Data and The NASDAQ

Regular swings in excess of 4% within a calendar quarter in the value of American wealth as represented by the stock market is a relatively new thing. Graphs can distort statistical information, but being an old guy my reality check with regard to American wealth is this graph of the Dow, the S&P, and the NASDAQ:


All that it shows is that something happened that resulted in the creation of wealth by the mid-1980's, if one uses the term "wealth" per its second definition in Dictionary.com: "an abundance or profusion of anything." The "anything" in this case appears to be the NASDAQ Composite, which IMHO is an index of stocks ...well... let me offer Wikipedia's explanation instead of my opinion:

Launched on February 5, 1971 with a base value of 100 points, the NASDAQ Composite (which was the National Association of Securities Dealers Automated Quotations) is a broad based index which is calculated under a market capitalization weighted methodology that began trading with median quotes for 2,500 over-the-counter securities. As of 2009, the index has grown to include over 3,000 companies.

With the creation of the NASDAQ, "over the counter" trading - what was thought of as the "iffy" securities trading in the category of placing a bet on 17 at the roulette table - suddenly became an index of wealth reported in the press along with the Dow Jones Industrial Average and the Standards & Poors 500 indices.

Psychologically this new index created an "enthusiasm" carefully cultivated by the financial industry and given credence by new economic theories and politicians.

When one sees distortion in wealth to the extent represented by the graph, you know you are dealing with the "anything" definition, but if you take a long-term historical view you likely need to substitute "nothing." It is not a coincidence that the "information age" came to be part of the economic jargon.

It has reached a point that "wealth" is being created by exchanging and storing information about "Brangelina" (that's a Wikipedia entry), and that is when "anything" is really "nothing."

The creation and sale of the servers that store Brangelina data created nothing of value, in that if those servers disappeared tomorrow it would not alter the human condition in any meaningful way. For those servers to start dying would in no way be comparable to a new potato blight or wheat leaf rust which might result in people starving.

When I look at that graph, I remind myself that much of that new post-1980 wealth is Brangelina data. I also remind myself the some of it is data on how to grow rice more effectively, which is data that has an inherent value to mankind.

This is why I think the world's economy still has a long way to go before it can stabilize and why I feel California's economy is in for a long "difficult" period. After all, we staked our economic well being on the technology being used to track the NASDAQ and being used to store and share the Brangelina Data. Even a major chunk of our economy is historically dependent on the success of marketing Brangelina data - Hollywood.

Unfortunately, we also appeared to believe in that marketing when we elected The Terminator as our Governor.

The California Politician Split Personality Poster Boy

State Controller John Chiang is the perfect reflection of California politics. This month he has offered both optimistic statements about the State General Fund and almost catastrophic predictions.

In other words, he supports both those in denial and those in fear for the State of California. His is the poster boy of the current California Politician Split Personality.

On January 7 his office released the December 2009 financial statement and a summary analysis. In the news release accompanying these two documents we were offered this meaningless statement:

“December receipts showed signs of improvement, but the State continues to face tremendous fiscal challenges,” said Chiang. “At best, this is the beginning of a long and gradual recovery.”

Within the summary analyis section labeled "What The Numbers Tell Us" he provided us with this Hallmark Card language:

California’s economy is beginning to see rays of sunshine through the clouds that loomed heavy over the State for more than two years. This can be seen in the State’s revenues, which improved again in December.

On the same day, he told KPIX veteran newsman Hank Plante that the State General Fund deficit could likely reach $35 billion (to put this in perspective in 2008 the General Fund revenues were $98 billion).

Four days later he joined State Treasurer Bill Lockyer and Finance Director Ana Matosantos in a statement that read:

California will have the cash resources necessary to repay the revenue anticipation notes on schedule in May and June. To execute its normal cash flow borrowing this summer, the state will need not only budget solutions, but cash solutions as well.

As California's finance team, our three offices will continue to work together to ensure California has sufficient cash resources to meet its constitutional and legal obligations.

Friday, just 15 days after issuing his Hallmark Card monthly report and 11 days after the joint statement, he sent a letter to the Governor and Legislative leaders stating:

...On April 1, the State will be in the red by $197 million, and our resources to pay bills are not expected to return to safe levels until April 21.

Barring any unforeseen circumstances, such as a spike in expenditures or precipitous decline in revenues, $2.7 billion in cash solutions are necessary to avoid a cash shortage in the current fiscal year.

Attached to his letter was this graph.


Notice the blue line - the one that shows what happens if the Legislature were to actually adopt a budget resembling the Governor's proposal which essentially was been rejected by the Democratic majority as it was being announced.

(What's missing is information with regard to cash is the increase in delinquent property tax payments and how that might affect the State's school funding obligations. But hey, those numbers are on the books of 58 counties and no one wants to look at the whole picture.)

What Chiang offers are projection numbers that tell us the State General Fund is a few calendar quarters away from complete devastation. Unfortunately, this latter information reflects the truth except for those who live in some fantasy virtual California that hasn't lost 1.2 million jobs since November 2007. That includes the public face of most California politicians who are in full "running for office" mode.

At some point someone in an elected statewide office is going to have to acknowledge the State of California entered a bare bones period in 2008.

In the meantime, the Legislature's most recent action - urged by the Governor - is to submit to the voters a proposed new General Fund supported $11.1 billion bond issue to provide low cost water to the corporate farmers and the corporate land developers of California. And right now, Legislative hearings are being held which will determine if the State should proceed to sell $9.95 billion in state bonds to fund the initial cost to build a high speed rail project.

Oh, and among the states, California, now has the worst-in-the-nation credit rating.

The Latest Round in the California Water Issue

While generally not doing anything meaningful about the budget crisis, the Legislature and the Governor worked closely to put what may become a very unpopular water bond measure before the voters.

While we're all waiting for the opportunity to vote on the matter, a "discussion" continues which illustrates why the water "debate" is becoming another matter on the list of things California voters are disgusted about.

In what appears to be a reasonable approach in the debate over Delta water, the National Academy of Sciences appointed a panel to review rules adopted by federal wildlife agencies to protect endangered Delta fish species. This was requested by Senator Diane Feinstein.

At the simplest (or simpleton) level, the problem has been portrayed as a battle between hard working American farmers (who are an endangered species themselves) and liberal environmentalists who care more about smelt than people.

This review lays out clearly the kind of players involved on the agriculture side. Feinstein acted in response to a letter from Stewart Resnick, owner of Paramount Farms. To quote from the Paramount Farms web site: "Paramount Farms is the largest grower and processor of almonds and pistachios in the world." In fact, its processing facilities occupy more acres than what one might think of as "a farm." Again, from their web site:

Ah yes, as Ma and Pa Paramount, their eight kids, and their trusty farmhand Jethro struggle to keep the family farm....

In fact, this is a political arena battle between large corporate farmers and large corporate real estate developers on one side against the interests of California's remaining fisherman who are in truth the only small businessmen and women who have a survival stake in the battle (yes, the Delta wildlife have a survival stake also, but can't vote) joined by those who value the Delta ecosystem - the environmental community and federal wildlife agencies.

According to the Sacramento Bee, this review will cost American taxpayers $1.5 million and it will be the third such review, as the Bee notes: "Two separate independent science panels have affirmed the importance of fall flows for Delta smelt." Will the third review be enough?

Senator Diane Feinstein, the Senior Senator from California and a Democrat, is the epitome of the American survivalist politician dependent on large corporations and whose conservative politics look and smell like dead fish.

California: The Bear Bones Era

Facing a $35 billion General Fund deficit, a State Debt equal to 5% of the U.S. National Debt, and a continuing economic decline, California government is about to enter "The Bear Bones Era" (excuse the pun).

In his last year of office, The Gubernator has revealed his budget proposal for 2010-11. And it's as political as one can design for a bankrupt State of California in an election year.

The Gubernator is a Republican in a State where Democrats have dominated a totally ineffective Legislature. The ineffectiveness of the Legislature cannot be completely blamed on the Democrats because Republicans can, with one-third plus one vote in either the Assembly or the Senate, block the budget approval process and any tax revenue increase proposals. The blame for this situation lies with the voters of California.

Facing a State General Fund deficit that State Controller John Chiang said on January 7 may reach $35 billion, hard choices had to be made. What the Gubernator has proposed as a budget for the State General Fund appears on the surface logical, if you consider long term economic recovery a goal.

He has proposed restoring hundreds of millions in state funding to California's state colleges and universities. He also has "pledged" to keep K-12 funding at current levels with some downward adjustments aimed at administrative cost and specific programs (but in fact has had to call for $2 billion in general cuts).

Education is good for economic growth. But if you take a look at his higher education proposals, they include a proposal eliminating the competitive Cal Grant program that funds the education of tens of thousands of students, students who tend to be lower in income and higher in grades. And in the higher education arena, that's the indicator of the election year political dilemma - what to do about the poor.

The Gubernator has focused his deepest cuts in health and human services as well as prison spending and wages for state workers. He knows, of course, that the Democratic legislators depend on a coalition of teachers' unions and other education interest groups, plus advocates for the poor and for health services, plus state employee unions. He also knows that the federal courts have blocked any attempt to cut the cost of prison operations, so in the end those cuts will have to be shifted to the only other large budget outlay, education.

By appearing to favor education, he is pitting one major source of Democratic reelection support against the others.

Of course, he's also included such gimmicks as asking the federal government of an extra $7 billion and pet proposals such as a 4.8 percent surcharge on all residential and commercial property insurance to raise $0.5 billion for fire and other state emergency response. He's also back with his proposal for coastal oil drilling leases, with funds to be used to support California State Parks.

His budget proposals do not constitute leadership for a shift in policy - California has no politicians calling for policy shifts. Instead, he has thrown his support behind the California Forward group which has developed proposals to tinker with the California Constitution and financial system, something that will not help but which might appeal to the voters who look for quick and easy answers. (For more details on this proposed tinkering see my August 19, 2009 post.)

No proposal on the table in Sacramento offers any real solution to the problem that even in the best of times California is ungovernable. None will solve the problems associated with The Great California Slump. As I stated in that August post:

In 2013 when (1) The Great California Slump ends and the economy starts to recover, (2) legislative districts are redrawn by an independent agency, and (3) legislators will be chosen in a process that includes open primaries (assuming the open primary measure is approved by the voters in 2010) then California State Government may appear less desperate. But the state will not really be governed more effectively. And more tinkering between now and then won't help.

There are really only two ways to make California "more governable": (1) adopt a completely new constitution limited to government structure with a bill of rights or (2) divide California into three states each with its own new constitution.

Since neither of those two things is going to happen, we are facing bare bones budgets for the State of California which could last well into the next decade. And it is hugely ironic that at this point the two people considered most likely to be the major party candidates for Governor this fall are:

• Democrat Jerry Brown who is the public official most responsible for march toward the ultimate collapse of our State Government when he stubbornly presided over the adoption of Proposition 13.
• Republican Meg Whitman who in the past 12 years was one of the two most significant players in developing a way for Californians to avoid paying sales tax on retail purchases.

Neither so far has offered one concrete suggestion as to how they are going to deal with financial and legal morass that is California government.

The California 2010 Hangover

California awoke with a big hangover on January 4 - the first working day of 2010 - due to a climbing State General Fund budget deficit. But never fear, the Gubernator is here.

Last year the Gubernator and the Legislature tackled the problems vigorously using smoke and mirrors instead of knowledge and understanding. Just how much was obscured by the Gubernator's smoke and mirrors was recently pointed out by a Superior Court Judge who said while overturning the State employee furlough plan:

(Judge) Roesch said the Schwarzenegger administration had argued that the emergency necessitating furloughs was the Legislature's failure to pass a budget, yet furloughs continued after it was passed.

Roesch also said furloughs have "interfered with the objectives" of several key agencies supported by special funds instead of state general fund revenue, causing delays at the Department of Motor Vehicles and in Social Security disability reviews.

"When employee positions are funded entirely by non-borrowable special funds or federal funds – as is the case for many of the agencies at issue here – the general fund savings justification for furloughs does not survive scrutiny," Roesch wrote.

The Schwarzenegger administration also had argued that it was furloughing all state workers – regardless of whether state, federal or special funds paid their salaries – because it would be unfair to hand pay cuts to some state employees, but not others.

Spreading the pain of pay cuts across the state work force was not "rationally related to any government purpose," the judge wrote.

"When the only justification underpinning the furlough of these employees that remains is 'labor parity,' the court cannot do otherwise than to conclude that respondents (in the administration) have abused their discretion."

He suggested parity was a fiction anyway because public safety officers and firefighters are exempted, while other agencies with key public safety roles, such as the Department of Health Care Services, were not.

What Arnold did with the furloughs was create the impression that they would go a long ways to "balance the budget" by reducing payroll. That sounds logical until someone explains that the "unbalanced" part of the budget is the General Fund which doesn't fund the wages of that person who should be at the counter at DMV but isn't there because Arnold wanted you to think he was balancing the budget.

The really disturbing thing about this is that I'm not convinced the Gubernator and the people around him understood they were just putting on a show and would have to settle up with the employees later.

The fallout from this stupidity has been significant, but in the "how dumb can we get" category with regard to the furloughs, the Sacramento Bee has offered us this story:

As Gov. Arnold Schwarzenegger prepares to emphasize job creation as his top priority in his State of the State address, his watchdog for federal stimulus dollars says a tiny state office is delaying hundreds of projects that could employ out-of-work Californians.

Laura Chick, state inspector general for American Recovery and Reinvestment Act funds, said Monday that the California Office of Historic Preservation has a two-month backlog in approving federal stimulus projects, some as small as installing a heating and air conditioning unit.

Chick said state-mandated furloughs have contributed to the backlog, and she suggested that the state should allow historians to delay taking furloughs.

It's been confirmed then that the Gubernator and the people around him had no idea what they were doing. But this is a bigger problem than it looks because the Gubernator and others are already holding out the tin cup in Washington while actually doing stupid things that keep bottled up what stimulus money we've been given.

So I'm not reassured to read today that the Governor is calling for the Legislature to start early their name-calling stalemate that will be the budget deliberations for this year:

Gov. Arnold Schwarzenegger intends to call the Legislature into emergency session to confront a nearly $6.3 billion budget gap in the current fiscal year. The governor is expected to outline his proposed solutions by Friday....

The emergency declaration....requires lawmakers to act within 45 days on his proposals or pass their own combination of cuts and revenue increases. There is no penalty if the Legislature fails to perform, although lawmakers are barred from adjourning or considering other issues until they act on the governor's plan....

It would be nice if the Legislature couldn't leave the Capitol Building until the budget is balanced. Then the half up for election this year couldn't run for office.

I'm not alone in my despair over the State of the State Legislature, according to Business Week:

“This is much worse than anyone thinks,” said Marilyn Cohen, president of Los Angeles-based Envision Capital Management Inc., which manages $250 million on behalf of wealthy individuals. She is moving clients out of California debt. “I have no confidence in the state Legislature.”

“We are looking at numbers that are going to be incredibly staggering to resolve,” California Controller John Chiang, a Democrat, said in a phone interview from Sacramento last month.

California last year relied on $20 billion of one-time fixes -- such as accelerated income tax collections and borrowing from local governments -- that are no longer available, according to the Legislative Analyst’s Office. With an election looming in November, Republicans lawmakers may also hesitate to back tax increases.

“The smoke-and-mirrors kind of solutions are not there, if in fact they ever were,” said Assemblywoman Noreen Evans, a Santa Rosa Democrat who heads the budget committee. “We simply can’t cut our way out of this deficit, and it makes matters worse because it is an election year and the governor is a lame duck.”

As I have repeatedly stated, the $21 billion deficit forecast over the next 18 months including the $6.3 billion for the current fiscal year is $10 billion too low.

Today, January 5, our Governor told us on the radio:

Now, as we enter this new year, there are signs that our economy is beginning to stabilize. For example, California's unemployment rate has begun to slowly tick downward.

Nothing could be further from the truth. While I don't expect everyone to understand just how misleading the job statistics are but the Governor's Office has to understand as much as the Sacramento Bee staff who offered this oxymoronic headline last month: Unemployment falls, but job cuts resume.

The State Employment Development Department offers in its news release a variety of statistics for spinning purposes, but one real number that should matter to the Governor was as follows:

In related data, the EDD reported that there were 781,449 people receiving regular unemployment insurance benefits during the November survey week. This compares with 740,272 last month and 593,670 last year.

The one federal Department of Labor statistical survey model (seasonally unadjusted) that I use every month shows that California has lost 1,125,319 jobs since November 2007 when The Great California Slump started, and that we lost 21,178 jobs in November.

But the most significant sign that our economy is in deep trouble is the State financial mess itself. There is no way out of it and it could very well be the straw that exacerbates the second dip in the expected "double dip" recession President Obama worried about last November in Beijing.

When I say "there is no way out of it" I mean that the State will be unable to do anything other than in the near future to significantly reduce buying goods and services from the private sector and in mid-to-late 2010 to lay off employees and force local governments and/or schools to lay off employees. The option of raising taxes doesn't exist and even if it did, the effect would be to pull money out of the suffering private sector.

When the largest State government in the United States cuts purchases of goods and services and lays off large numbers of employees just when an economic recovery is expected, forget the economic recovery.

That's the California 2010 hangover.

Celebrate the New Year now - 2010 will be worse in California

Get tipsy on California sparkling wine (aka erroneously as champagne which is produced exclusively within the Champagne region of France) and wish California a Happy New Year with glowing optimism.

When you sober up you'll be entering a sobering new year, 2010. It will be the Year of the Tiger in the Chinese Calendar, but in the California Calendar it appears it is going to be symbolized as the Year of the Missing Sea Lions.

The Missing Sea Lions are a good symbol of 2010 in California. They symbolize the 2+ million missing jobs that will plague California for the next decade.¹

The signs indicate the next dip in the double-dip is approaching. The fallout from the commercial real estate market collapse is about to be felt in the financial sector, particularly in California. Daily Finance summarized the situation:

Reports that commercial real estate (CRE) is suffering from a double whammy of soaring vacancies and declining valuations have been making news recently with sobering regularity. DailyFinance addressed the risks that CRE meltdowns pose to banks in early December. And in a stunning confirmation, just weeks later Morgan Stanley announced it was "walking away" from five San Francisco office towers, giving them back to the lenders. These accounts address the impacts on real estate investors, banks and hard-hit locales such as Southern California. But a bigger, often-overlooked, risk is the potential for CRE to remain a drag on the U.S. economy for years to come, or its potential to trigger a slide back into recession -- the so-called double dip that many fear.

Four primary factors are behind the tumble in CRE prices -- and they're eerily similar to those that powered the residential housing boom and bust:

• Overbuilding in marginal locales that lacked adequate jobs and services to support massive new commercial construction (malls, hotels, business parks, resorts, etc.)
• Excessive valuations fueled by low interest rates and easy credit
• Highly leveraged bets on future appreciation
• A banking sector that's extremely vulnerable to write-downs and losses from foreclosures

How much have prices tumbled? According to Moody's/REAL Commercial Property Price Index, CRE prices have plummeted 41% from the peak in 2007. Or in many cases, even more. For example, a hotel in Hawaii that sold for $250 million with a $230 million mortgage a few years ago is now only worth about half that amount.

Companies small and large that service other businesses are now in the process of learning they are holding worthless receivables or their customers' phones are disconnected. Trucking, for example, is an industry that is just now showing significant signs of distress.

This past week Arrow Trucking shut down operations stranding about 900 of its drivers across the U.S. and Canada after the company canceled its fuel credit cards. It sent two short text messages to the drivers telling them to turn in their trucks to the nearest dealer and offering a bus ticket to get home. According to the Tulsa World

Arrow failed to pay employees, failed to reimburse their expenses, failed to forward medical insurance premiums to insurers for the three to four weeks leading up to the shutdown, and failed to make pension and 401(k) contributions.

Also this past week, the nation's largest U.S. trucking firm handling less-than-truckload shipments under other names like Reddaway, New Penn, Holland, YRC, YRC Reimer, YRC Glen Moore, and YRC Logistics barely avoided bankruptcy according to Reuters.

Over the next quarter we're going to see just how shallow The Great Recovery really is. The President, armed with the best economic research available, has already admitted we will have a double-dip recession which he and Congress are trying to mitigate.

I wish the President well, but the actions of the federal government beginning in 2008 have slowed the inevitable arrival of the double-dip second crash effect in the financial markets only. In the real world where people work for a living, labor statistics keep reporting net job losses for each month.

The second dip will create its own ripples. Sometime in the next few months² it will become apparent to everyone that the nation's largest State, California, is truly. essentially, and totally a bankrupt operation, that all it can do from its General Fund is (1) pay it's debt payments, (2) fund the programs partially subsidized by the federal government if in some cases the administration waives maintenance of effort rules and (3) maybe sustain minimum levels of public schools, public health, and public safety services.

Courts have already taken over supervision of some some of the State's operations, but the lack of legal methods for states to file for an orderly bankruptcy will create further problems. According to a throrough Bloomberg report on California published Christmas Eve:

California Governor Arnold Schwarzenegger, anticipating a $21 billion state budget deficit, plans to ask President Barack Obama to ease mandates and minimums on social programs to save as much as $8 billion.

The Republican governor plans to seek the relief, according to a California official who asked not to be identified because details haven’t been resolved. Instead of seeking one-time stimulus money or a bailout, the most-populous U.S. state wants the federal government to reduce mandates and waive rules stipulating expenditures on programs such as indigent health care, the official said.

Of course, we Californian's aren't alone with our troubles. The Bloomberg article notes that 35 states and Puerto Rico have deficit problems. But California has the most intractable political problems.

In the meantime, we continue to read in December about the reality of The Great California Slump in newspaper articles:

• Only L.A. has worse roads than Bay Area
  
• Food stamp use soars
  
• Academic Senates votes to expedite program elimination process
  
• A two-tier California is now reality
  
• State's debt burden climbs higher
• California debt may be half a trillion dollars
  
• California's cities feel budget pinch as well
  

At the present time, everyone in power says we are facing a $21 billion State General Fund deficit to be covered in the 2010-11 fiscal year. I believe they are $10 billion low, but in the spirit of Everett Dirksen "a billion here, a billion there...." It really doesn't matter as there is nothing that can be done about it given the split in the Legislature where a two-thirds vote is required to do anything meaningful.

So, enjoy the New Year's celebration now.

---

¹ Before dismissing the idea that California is missing 2+ million jobs, let me explain. In November 2007 California had 17,209,617 people working according to the U.S. Department of Labor. In November 2009 California had 16,084,298 people working or 1,125,319 fewer jobs.

In addition, to maintain its economic growth at minimal levels California had to create about 210,000 net new jobs per year or about 420,000 more jobs since November 2007. That puts California in the hole as of November 2009 about 1.54 million jobs and counting. By this time next year California will be in the hole at least 2 million jobs that it will not recover in the next decade.

How can I be so sure those 2 million jobs can't be recovered in a decade? The math is simple. The first 210,000 net new jobs created each year don't count as they are the jobs needed to maintain minimal economic growth levels. We need to create 410,000 net new jobs each year to achieve full job recovery by the end of 2019. That's an average of 34,000 net new jobs a month. Indeed, we have done that for limited periods. But that is an average number that won't happen 120 months in a row.

The one thing that might save us is a population loss. If we lost 3 million job seekers, things would actually be better though State revenues would still be down.

² The Governor will outline the nature of his request for help in his January 6 State of the State address and we'll see just how bad he thinks things are in his budget to be delivered January 8.

California in 2010 - Democrats in trouble

The East Coast Ivy League Obama Administration isn't paying attention. The result could be trouble in California in 2010.

First-time voters and young people were the edge-voters that gave Obama an edge. In California, these young people are going to community college instead of the University of California or a California State University. They know the reason is not The Gubernator, but the liberal wing of the California Democratic Party that put the State on the road to bankruptcy during Governor Grey Davis' term.

And they know that the Obama Administration made a deliberate and considered choice to not bail out California and its state universities while bailing out a bunch of East Coast bankers who graduated from the Eastern Ivy League schools with the President and his wife. And they are now pushing community college as a solution to something.

Senator Barbara Boxer better hope these young people don't turn out in 2010 in large numbers similar to 2008. Community college is not the new home for liberal thinking, it's the new home for desperate job seekers.

And Jerry Brown - Governor Moonbeam. And now Candidate Vulnerable. From Wikipedia with footnotes:

Voters passed Proposition 13 during Brown's tenure as governor, and Brown has been criticized for not offering tax relief to homeowners and thereby paving the way for the success of the proposition. Wrote Harold Meyerson in the Washington Post, "As incomes and property values rose, Sacramento's tax revenue soared—but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and then froze property taxes—effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and '60s, California sank to Mississippi-like levels—the mid-40s—by the 1990s.

Surely I'm not the only older registered Democrat who remembers that Proposition 13 passed at the end of Governor Moonbeam's first term - that he, in fact, is the public official most responsible for march toward the ultimate collapse of our State Government.

In mid-2010 the State will be in a severe budget crisis for which the Democrats in the State Legislature will have no solutions. Jobs will scarce. Those most dependent on State aid will be feeling abandoned by the Democrats. The working poor will be feeling abandoned by the Democrats. Students are already feeling abandoned by the Democrats. State and local government employees will be feeling abandoned by the Democrats. Teachers will be feeling abandoned by the Democrats.

Yes, the wealthy liberals - in itself an oxymoron - in places like Marin and Silicon Valley will still be attending those fund-raisers with Barbara and Barack.

But what Barbara and Barack need to do is send CIA Director Leon Panetta back to California to take stock of his home State. It's in deep trouble and so are the Democrats. They are going to have trouble keeping a majority in the U.S. Senate, much less the 60 votes they need.

Impaired Vision

On Saturday, December 5, 2009, I stopped at my favorite optical store to pick up my sunglasses that I dropped off to have new lenses put in. They were moving in a bunch of cabinets and cases which I learned came from their other store located in a city in another county. They had closed that store. It was fallout from the state budget cuts as the population in that county is poorer than in ours. So I did a bit of research and came up with a story in the San Jose Mercury News which explained:

California's budget fiasco this year resulted in the elimination of optometry and optical services for adults 21 years and older, though there are exceptions for residents of nursing homes. As a result, those who least can afford health care coverage are no longer covered for low-vision evaluations and aids, leaving them at greater risk for injuries, accidents and depression.

And so the State saves money. And the store lays off employees. And the State loses income tax revenue and has to borrow money from the federal government to pay unemployment benefits to the employees because the State already spent all the unemployment insurance money it had collected from the store as an employer.

On May 26 I wrote here that California was experiencing an economic collapse later than the rest of the nation, a collapse I termed "The Great California Slump." I indicated that the collapse would begin in earnest in July.

I warned in August that some of the minimal "trickle down stimulus programs" could hide the imminent state budget disaster. I have repeatedly explained why the California economy will not recover during the next five or more years even if the national economy does make some recovery.

The fact is that the U.S. Department of Labor/California Employment Development Department statistics not seasonally adjusted raw data indicate that the California economy has lost 1,104,681 jobs since November 2007. If you add the net number of new jobs that needed to be added during the same period, we are down 1.5 million jobs in two years.

In my opinion California will be down 3.25 million jobs by November 2014 even though during that from 2011-2014 about 415,000 net jobs will be created.

As I warned in July, by late 2010 Californians will know that the State is in financial trouble. I didn't use any adjectives in the previous sentence to describe the "financial trouble" because any adjective used would cause readers to discount the true depth of the trouble. So let's turn to the Sacramento Bee's Dan Walters who last Sunday expressed the following:

Just how deeply in debt are our state and local governments?

The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate.

...The state's "general obligation debt"...currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees.

...A reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion.

...Local government general obligation debt...appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies.

There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds.

The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion.

Then there are the off-the-books debts incurred to paper over years of state budget deficits, such as speeding up tax collections that will have to be refunded later, postponing periodic payments to schools, making promises to schools about levels of future financing, borrowing money from special funds and taking local government funds that must be repaid later.

The state's unemployment insurance fund, meanwhile, is about $7 billion in the red, and that deficit is expected to more than double in the next year and quadruple by the end of 2011. The state has been borrowing from the federal government, but sooner or later it will have to repay the feds, probably by taxing employers.

Conservatively, then, California is probably more than $600 billion in debt.

Conservatively, then, the taxpayers of California are on the hook for about $48 billion a year in principle and interest payments on debt. Yes, some of this is from special revenues like gas tax or from local government revenues. But one needs to put the number "$48 billion" into perspective. The sum of $48 billion is not much less than the $56 billion the State collected in Corporate and Personal Income Tax in the 2008-2009 fiscal year. It is somewhat more than all the State and Local Sales Tax Revenue collected in the 2007-2008 fiscal year - $31 billion.

Any way you look at it, we taxpayers have a big debt payment compared to what we pay in taxes.

But that isn't even the problem. Los Angeles Times Columnist George Skelton described the upcoming budget battle as "dreadful:
Here's how nonpartisan Legislative Analyst Mac Taylor gently put it last week in calculating the latest general fund deficit: "Addressing this large shortfall will require painful choices, on top of the difficult choices the Legislature made earlier this year."

But, he added, "It is unlikely that the Legislature can address all of the state's massive, ongoing budget problems with permanent, ongoing solutions in the next year."

I don't have to be so diplomatic. I'll just say that there's no way these people can produce an honest budget that forces Sacramento "to live within its means," as Gov. Arnold Schwarzenegger persistently preaches, while consistently being one of the first to sin.

"Dreadful" is an interesting word choice. Dan Walters used the more colorful term "bloody" because the battle lines between tax increases and spending cuts are forming:

We don't know whether the ever-flexible Schwarzenegger will stick with his no-more-taxes mantra or, as he has done before, reverse himself. However, February's temporary tax increases have already stirred a backlash, and hitting taxpayers again in the midst of this record-deep recession would be politically almost impossible.

...They've scraped the bottom of the gimmick barrel, voters are livid and new taxes are functionally off the table. This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation default on its debts.

What's facing the Legislature is the lack of viable gimmicks. Debt payments and further school financing cuts are off the table, the latter because the state accepted federal stimulus funds requiring continued State spending plus the State owes $1 billion more for this year.

Even some of the gimmicks used this year were predictably unusable. Courts have blocked reductions in home care for the disabled, ordered $1.4 billion above the budget in spending on prisons, and said the State can't divert $800 million in gas tax funds to the General Fund. The courts have also overturned the furlough program for thousands of State employees.

Yes, the situation is going to be dreadful and bloody. But they really have no idea how bad it will be. We actually won't know the worst of it until May 2010. From December through April, we will find out just how much the extra income tax withholding and estimated payments plus the obvious corporate tax overpayments will become refunds. In that period, we will also find out, as I noted last July the total of property tax payments that "will not be made in this fiscal year due to foreclosures or simple lack of money."

And for the tax year July 2010 - June 2011, the drop in assessed value will have continued in many parts of California, meaning that there will be less money from that source for schools which will mean that other General Fund monies spent in 2009-2010 on other programs will be diverted to schools. And it will mean that cities, counties and special districts will have less money to spend on public safety, parks, etc.

Oh. And more people like the employees of the optical store will be laid off. One thing for certain. "Those who least can afford health care coverage" likely will not be "covered for low-vision evaluations and aids" before 2017, if ever, "leaving them at greater risk for injuries, accidents and depression."

The body builder, the technopreneurs, and the home builders

In the November 2nd TIME Magazine cover story:

"Whenever we have a problem, everyone makes a big drama — 'Oh, my God, it's the end. California is over,'" Governor Arnold Schwarzenegger told me. "It's all bogus." Schwarzenegger likes spin and drama too — he's issued warnings about a "financial Armageddon" — and he literally blew smoke in my eyes while we spoke. But his belief in the anything-is-possible dream of California is more than spin; he is, after all, its ultimate embodiment.

Yes, Arnold is the embodiment of California - an aging actor whose image is everything and substance is not very deep. In the case of California's economy, we do have a problem and the promise of California I knew in 1960 is over.

The article focuses on the promise of the future seen in the past of the technology entrepreneurs and venture capitalists - the technopreneurs - without any real analysis of either the past or the future that they represent to the vast number of Californian's who work for a living.

Californian's already know that most of those nifty high-paying technology jobs created between 1985 and 2005 have gone to people making half or less located in other countries and other states. But they keep hearing that the green revolution partly funded by the Obama stimulus bill will be the source of California's magical economy engine.

No one is explaining the truth about that, of course. A good example that has been in the news is Irvine, California's Fisker Automotive. Uh, who? Yes, you need to know who they are.

In January CEO Henrik Fisker announced at the Detroit auto show it would begin production of it's electric Karma in 2010. In June Fisker accepted the 2009 Production Preview Concept of the Year during a ceremony at the Automotive Hall of Fame in Dearborn, Michigan So what is Fisker? From it's web site:

Fisker Automotive is a green American premium sports car company with a mission to create a range of beautiful environmentally friendly cars that make environmental sense without compromise.

The concept was created between two independent companies who clearly wanted to make a difference in not only the automotive industry, but to the environment as well. Fisker Coachbuild, LLC and Quantum Technologies announced this joint venture partnership in September 2007. Fisker Coachbuild will provide exclusive design services for Fisker Automotive while Quantum Technologies (QTWW - a publicly traded company) will provide the latest technological advancements. Each car will feature cutting-edge plug-in hybrid penned as Q DRIVE exclusively for all Fisker Automotive vehicles.

A new segment is being created within the auto industry where people can really use their power of choice. They can choose to be environmentally friendly with their car purchase without compromising on the style and luxury that they are used to. We believe in less compromise and more efficiency.

Fisker Automotive strives to be a serious environmental alternative to other premium performance luxury cars on the road today. Fisker Automotive will be the first company in the world to have this type of a car on the road - a beautiful fast car that makes environmental sense.

Initial production is anticipated to be 15,000 vehicles annually with pricing to start at $87,900.

That's great! A California automobile manufacturer will begin production of its car in 2010. In Finland.

Well, they did have a problem. According to the company, the Karma has been designed and engineered in the U.S. with the majority (65% by cost) of its parts sourced from American suppliers. But they searched for a U.S. plant to assemble the Karma and found none that were willing and able to build the 15,000 of these advanced vehicles per year Fisker required. So they had to turn to Finland's Valmet Automotive, one of the most respected contract auto builders in the world.

But never fear. Fisker intends that the next generation Karma will be built entirely in the U.S. The fledgling American-maker of "green" autos was recently approved for a conditional loan of $528 million by the Department of Energy (DOE). Fisker's intent is that "the DOE funds will help create or save at least 5,000 U.S. jobs by bringing to market affordable, American-made plug-in hybrid vehicles and save more than 821 million gallons of gasoline (43.2 million barrels of oil) by 2016."

Of the loan funds, $169 million of the loan will be used in Pontiac, Michigan and Irvine, California to complete engineering work with primarily U.S. suppliers and $359 million will help support the planned manufacture of 75,000-100,000 plug-in hybrids per year at a retooled U.S. assembly plant, beginning in 2012. It was announced on October 27 that these California engineered and designed cars will be manufactured in the General Motors' defunct Pontiac Solstice and Saturn Sky roadster facility in Wilmington, Delaware.

According to earlier reports in the San Francisco Chronicle and the Wilmington News Journal, the plant is a good fit as its maximum capacity is about 250,000 cars a year. Since Fisker plans to export half its vehicles, the proximity of the plant to the Port of Wilmington is an advantage. And, of course, there is a pool of skilled auto workers.

One thing for certain, the cars won't be manufactured in California despite the closing of the GM/Toyota joint plant in Fremont as the plant is "way too big" according to Fisker.

Fisker is typical of California startups. It is financed by Silicon Valley venture capital firms, including Kleiner Perkins Caufield & Byers of Google fame, and which has Al Gore as a partner. The outlook that comes with the money is to focus on the quality of an idea. They know that experience can be purchased in the market place. In order to gain venture capital financing, Fisker and their startup competitor Tesla Motors had to produce a solid business plan that makes money "really quick" to use Henrik Fisker's own words.

Delaware Gov. Jack Markell has had staff working to locate an automaker for the Wilmington plant. Early in October Alan Levin, director of the Delaware Economic Development Office, was reportedly going to meet with United Auto Workers representatives to smooth the way.

California Governor Arnold Schwarzenegger, on the other hand, is in the deep end of water negotiations with the Legislature when he isn't complaining about federal judges undoing the budget deal. Arnold and the Legislature's leaders intend to solve the State's water problem with a multibillion-dollar water bond. That's just what California needs - our leaders creating more debt while standing back letting jobs go elsewhere.

The most fundamental truth facing Californian's who work for a living is that venture capitalists, technology and biotech gurus, Hollywood producers (aka "stars") and other pseudo-liberals who attended all those Obama fundraisers would not have been called liberals or progressives in 1900 or 1935. They either cannot or will not think in terms of employing Californians and Arnold is unable to think outside that box.

Sure, technopreneurs do invent stuff. But in the end, they find the cheapest labor to use to produce the product or service. During the initial process of development, the ventures do employ highly qualified, highly paid engineers, biochemists, and technicians, plus a few accountants, attorneys, and office assistant types. Then the ongoing production work disappears off into the reaches of the globe. Sometimes it takes awhile, but even Intel now produces most of its products elsewhere.

What we know is that the income disparity between professionals and managers and low-income service, construction, and farmworkers in California has doubled. Between 1993 to 2007, the share of the total income of the top 1 percent of earners went from 13.8 percent to 25.2 percent.

Technopreneurs are not going to significantly grow the economy for the average working stiff in California.

The reality for the California worker can be seen in the housing unit construction numbers that even a body-building actor should be able to understand. In February 2009 the California Building Industry Association (CBIA) offered:

The Association is forecasting just 63,400 units will be produced in 2009, a 3 percent decrease from the record-low 65,380 units produced in 2008. In comparison, the low point of the homebuilding recession in the early 1990s was 84,656 units in 1993, while the worst year during the recession of the early 1980s was 85,656 in 1982. To meet the need for new housing generated by population growth, the state estimates builders should produce about 220,000 new homes and apartments annually.

On October 26th the CBIA continued to move further away from Arnold's cheerleading pyramid in its monthly news release by revising its housing unit construction forecast for 2009 to just 37,700 total units, the lowest on record and half its February projection. The following graph would tell TIME Magazine and Arnold almost everything they need to know about California's economy:



The residential unit construction sector and the internet sector offer an opportunity for comparison of employment effects.

Since the fall of 2000 employment in the internet sector in California fell 46.7% which sounds like an employment disaster. But as a comparison, employment in residential construction in California dropped 38.5% from July 2006 to July 2009. But difference is in impact. The number of jobs lost in residential construction in the past three years is 3.6 times the number of jobs lost in the internet sector in nine years.

While neither sector is creating jobs for California, the fact is that employment in the internet sector was never greater than 33% of employment in residential construction and today represents about 20%.

If the Gubernator or TIME got the stars of technology and Hollywood out of their eyes, they would be aware of the statistics about California that came out in October. On October 9th, the Sacramento Bee reported:

California exports were down sharply for the 10th straight month in August from the same period a year ago, according to the University of California Center Sacramento.

...State import numbers were likewise dismal....

The following day the State Controller issued this news release:

State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in September. For the first three months of the fiscal year, total General Fund revenue was nearly $1.1 billion below the recently amended 2009-10 Budget Act estimates.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” said Controller Chiang. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag State revenues down. I urge lawmakers and the Governor to prepare for more difficult decisions ahead.”

On October 16th the LA Times reported:

Employers cut 39,300 workers from their payrolls last month, according to figures released this morning by the state Employment Development Department. That's nearly six times the number of jobs the state now says were lost in August, led by cuts in construction and government.

A separate survey of joblessness showed that California's unemployment rate was 12.2% in September, down from a revised 12.3% in August. The unemployment rate in September 2008 was 7.8%.

The lower unemployment rate as compared to August was clarified in an article in the San Francisco Chronicle on the same day:

But Stephen Levy, with the Center for the Continuing Study of the California Economy, said one of the biggest reasons for September's 12.2 percent rate is that many people quit looking for work and dropped out of the labor force.

However, the unemployment rate is not the important number. At the end of September California had 1.2 million fewer jobs then it did in November 2007. During the same period it is likely that an additional 385,000 persons entered the California workforce, which means we're in the hole 1.6 million and counting.

If anyone does the math anticipating public policy and technological development, they would discover it is highly unlikely that California will have as many people employed in 2015 as it did in 2007 and that may be true for 2020. What could be true for 2020 is that California will have a huge number of "permanently discouraged" workers, people for whom there is no chance for long-term employment at wages rising to the level of "middle class."

Apparently, economists are struggling with how to make this the accepted norm. According to one article:

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

So, at the end of October, using Fisker as an example, one can say that for Finland and the State of Delaware, our California technopreneurs and venture capitalists have been "an unparalleled engine of innovation" (using the words of TIME Magazine) potentially bringing new employment to many tens of folks here in the Golden State of 1.6 million unemployed people and new employment to thousands elsewhere.

That's OK, according to economists.

What's the purpose of an "economy"

In an October 12, 2009, article in Reuters, we are told:

The worst U.S. recession since the Great Depression has ended....

"The great recession is over," NABE [National Association for Business Economics] President-Elect Lynn Reaser said.

"The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines."

At Dictionary.com we learn that we can describe an economy as "the management of the resources of a community, country, etc., esp. with a view to its productivity."

That is consistent with what the NABE folks think. From that article:

The NABE survey, conducted in September, predicted real GDP growth expanding at an annual pace of 2.9 percent over the second half of this year. Output for all of 2009 is expected to contract 2.5 percent and next year, rebound 2.6 percent.

On the other hand the folks at Wikipedia offer a different definition: "an economy is the ways in which people use their environment to meet their material needs."

The difference between these two descriptions is informative. One is about people meeting their material needs. The other could be about computers and robots using resources to increase something called "productivity."

This first view is what economists measure without regard to what is being produced. It could be food for people. But it could be robots that produce more robots designed to produce robots. The benefits of productivity are quantified only in the sense that electronic numbers representing value transfer between the producer and the entity receiving the product. In an obvious sense today, everything that the economists measure are really the results of computers exchanging data.

So we apparently are about to see the end of The Great Recession because "productivity" is rising, according to the data.

About that second definition, the one that says an economy is about people meeting their material needs. Unemployment is still rising and jobs are still being lost. So while productivity may very well rise, it appears it's not accomplishing much towards meeting people's material needs.

Well, that's not exactly true. It's increasing the material wealth for substantially fewer Americans than it did three years ago. And it appears it is likely to continue in that direction, an increasing productivity that benefits fewer and fewer Americans.

I suppose at some point the first definition economy could consist of millions of robots serving the needs and desires of fewer than 10,000 people. Maybe even fewer than one person.

But if productivity is rising, "economists" apparently would see the economy as "healthy."

It should make one wonder, though. Are the "economists" who are quoted in news stories and "journalists" who write those stories people, or are they simply computers regurgitating data created by other computers? It's hard to imagine a human being accepting, much less announcing, information that describes an economy as in a "jobless recovery." But apparently it's all a matter of your definition and what you think the purpose of an economy is.

We don't seem to have a common definition for "an economy." Those who think it is all about productivity apparently don't see an economy as purely a description of activity engaged in to feed, clothe, house, entertain, or transport me and mine or you and yours. Instead it is purely a description of numbers exchanged between computers.

So if 10,000 Americans out of 300,000,000 are sufficiently involved in creating those numbers and the numbers are increasing to the benefit of those 10,000 then by definition the economy is fine. If the remaining 290,000,000 die from starvation and exposure it will keep some of the remaining 10,000 busy as morticians. That will show up as increased productivity indicating that the economy is growing.

Of course, that example would be rejected as unreasonable and ludicrous. So let's look at real examples occurring in real time now in what economists and journalists are describing as a "growing" economy.

This month the Mortgage Bankers Association is holding a convention in San Diego. What are their "people" saying? According to a report:

The Mortgage Bankers Assn. said Tuesday that it expected home foreclosures in the U.S. to continue to rise before leveling off late next year. The reason: Job losses have replaced adjustable subprime loans as the main cause of defaults.

Jay Brinkmann, the group's chief economist, predicted that unemployment would rise through next summer, causing delinquencies to rise. And because of the loss of income, it will be increasingly difficult to keep troubled borrowers in their homes by modifying their loans, he said.

As a result, the foreclosure rate is expected to increase "through the latter part of next year," Brinkmann said in San Diego at the trade group's annual convention. "And even when it starts to come down, it's going to come down very slowly."

We know that more folks are going to be thrown out of their homes. No, they probably won't die. Yes, families will break up as a result. But hey, productivity is going up. In fact, some economist will soon note that the vacancy rate of apartments is getting too low, spurring construction of more apartments. So people losing their homes to foreclosure actually could be reported as an increase in productivity within a few months.

Under the economists' definition of "an economy" it's purpose is being achieved.

Let's take a look at another foreclosure situation recently reported.

More California hotels are being pushed into foreclosure as tourists and businesses alike scale back their travel plans and owners are unable to pay their mortgages.

Statewide, more than 300 hotels were in foreclosure or default on their loans as of Sept. 30 -- a nearly fivefold increase since the start of the year, according to an industry report released Tuesday.

..."I have never seen so many lenders contemplating mothballing properties," said Jim Butler, a hotel lawyer and chairman of the global hospitality group for Jeffer, Mangels, Butler & Marmaro. "It can and it will get worse for the hotel industry."

The reality of this report is found in the probable multiplier effect of these property closures.

First, as each "property" closes it means a loss of jobs - service jobs. You remember "service jobs." Those are the jobs that were created in the past several decades to replace the loss of manufacturing jobs. "Service jobs" were the jobs economists and politicians pointed to as part of our growing employment and productivity.

Second, in addition to lost jobs, as each "property" closes state and local governments will see a reduction in related tax revenue which already declined in 2008. In the immediate term, the loss in sales tax and "occupancy tax or hotel tax" revenue will be significant to many tourist and convention destination cities and counties. That will result in more job losses. But in the longer term, properties will be devalued resulting some long term loss in property tax revenue.

This situation is not limited to California and the projection that it will get worse is very clear. Smith Travel Research is the primary source of hospitality industry projects which are being reported as follows:

Occupancy is projected to slide again in 2010 by 0.6% to 55.1%, while ADR (average daily rate) is forecast to decline 3.4% to $93.16, and RevPAR (revenue per available room) is expected fall 4% to $51.29.

That's on top of the STR's projections for 2009: an increase in supply of 3% and a drop of 5.5% in demand. STR's forecast projects 2009 hotel occupancy to be down 8.4% to 55.4%, ADR to decline 9.7% to $96.43, and RevPAR to end with a 17.1% decrease to $53.43.

Lower occupancy rates and lower room rates mean it will be a buyers' market for those properties in foreclosure well into 2012, if any buyers can be found.

The point is that the loss of these jobs in the next few months are not going to be offset by recent "less bad" sales and profit reports by Intel which closed two American plants this year - its 200mm wafer facility in Hillsboro, Oregon and the D2 plant in Santa Clara, California. Not-so-bad profits at Intel are not going to materially help laid-off, newly-homeless American Intel former employees meet their "needs," though a very few other Americans will show increasing asset values on their month-to-month balance sheets.

If because of how it is defined, a nation's economy can be healthy even though the increased productivity benefits only a few citizens, then that definition, "the management of the resources of a community, country, etc., esp. with a view to its productivity," is a problem.

To this writer, the definition should read "the management of the resources of a community, country, etc., with the goal to meet the material needs of, and increase the material wealth of, all the people residing therein."

Using my definition The Great Recession in the United States appears to have only just begun. And depending on which definition guides public policy, The Great Recession in the United States may extend for more than a decade.