The Governator Is No Economist

Arnold Schwarzenegger is swiftly proving that he is close to clueless when it comes to economic issues. Two articles in the LA Times (links here and here) disclose his latest lunacy.

First, he proposes to put in place a 90 day moratorium on foreclosures. He hopes to induce lenders to modify loans during this period by offering them an out on the moratorium. If they can prove they are aggressively modifying loans then they could avoid the freeze. That shouldn't be too hard to game, should it? The governor must not be reading much recent history either. If he had he would know that Massachusetts tried this and saw their foreclosure rate soar 460% after the end of the first 90 days. If you're going to kick the can down the street do it long enough to make sure the problem is somebody elses.

He was just warming up though. He also wants to raise taxes and cut spending in order to deal with a looming $24 billion deficit. His plan is to increase the sales tax by 1.5%, broaden the base of goods and services that are subject to the sales tax, charge Californians five cents a drink for alcohol and on and on. On the spending side he wants to cut $2.5 billion. Part of that will come from state workers taking two extra days a month off without pay and forfeiting two paid holidays. By the way, the sales tax increase would raise the sales tax rate in Los Angeles to 10.5%. Ouch!

Evidently Arnold subscribes to an obscure branch of Austrian economics that suggests raising taxes and cutting spending in the middle of one nasty recession is good policy. I at least hope that's the case because I don't want to believe that one of my favorite actors is that incredibly dumb.

Actually, he should just sit tight. It looks as if the November stimulus package is going to contain some real aid for states. Don't spend your political capital on this one big guy. Let the feds shovel some money your way and leave it up to some poor schmuck from Kansas or Georgia to go back to his constituents to explain why he's spending their money to bailout profligate spenders like California.

Tom Lindmark