What economic policies lead to greater economic health? And what political policies will lead to better economic outcomes? These are complex questions, and can be difficult to test scientifically. However, it is useful to look at case studies in an effort to understand what policies work and what policies lead to disaster. Let’s take a look at the Golden State.
California has a $24 billion budget deficit. Unlike other states, California’s constitution requires a two-thirds majority legislative vote. This means the that minority Republicans—making up almost 40% of the state congress—have significant power to block legislation and budget plans that could avert further financial disaster. Because Republicans are against tax increases, the state is struggling to fix their current budgetary woes brought on by the global economic situation. When liberal social policy meets a policy of anti-taxation—and this combination is personified by Governor Schwarzenegger—we end up with exactly what California is facing today: A large budget shortfall, high unemployment, large numbers of foreclosures, and general economic sluggishness. Modest increases in tax revenues, effective utilization of federal stimulus dollars, and cutting costs are the obvious short-term solutions. But California’s budget crisis had been unstable from well before the global recession had an impact. » Read more: A Case Study in Economic Policy