Arnold Schwarzenegger came into the governorship as a fervent disciple of free market economist Milton Friedman.
When Friedman died in 2006, the governor declared him "one of the great thinkers and economists of the 20th century, and when I was first exposed to his powerful writings about money, free markets and individual freedom, it was like getting hit by a thunderbolt."
Five years into his governorship, however, Schwarzenegger has morphed into an acolyte of Friedman's chief rival in the arcane field of macroeconomics: John Maynard Keynes, who advocated government spending to ease economic recession.
As the New York Times obituary of Friedman put it: "Flying the flag of economic conservatism, Mr. Friedman led the postwar challenge to the hallowed theories of Lord Keynes, the British economist who maintained that governments had a duty to help capitalistic economies through periods of recession and to prevent boom times from exploding into high inflation. In Professor Friedman's view, government had the opposite obligation: to keep its hands off the economy, to let the free market do its work."
Schwarzenegger's shift of allegiance has fully flowered as the state copes with what may be the worst recession since the Great Depression. The governor is pleading with President Barack Obama and Congress for billions of dollars to finance what he says are nearly $30 billion in "shovel-ready" public works projects while pushing the Legislature to speed up highway construction and other infrastructure financed with the $40-plus billion in bonds that voters approved in 2006.
The spending, he said, would slow California's soaring unemployment, now among the worst in the country and headed for double-digit levels. The state had 1.7 million unemployed workers in December, up by more than 600,000 from December 2007.
Philosophy aside, would massive public works spending make a significant dent in that joblessness?
The economists' rule of the thumb is that every $1 billion spent on public works creates or saves about 20,000 jobs. The most generous estimate of additional construction from state and federal sources is about $20 billion over the next couple of years, which would translate into about 400,000 jobs, thus reducing the unemployment rate by two or three percentage points, according to Jed Kolko, an economist for the Public Policy Institute of California.
Public works could have an especially sharp effect on California because construction has been the fastest-shrinking employment category, down 11 percent in the last year, thanks largely to the the housing industry's meltdown.
As welcome as those jobs may be, however, we should also keep in mind that they would be temporary at best, dependent on the ability of state and federal governments to borrow money. Longer-term recovery is utterly dependent on Friedman's markets turning around and producing growth in private sector activity.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
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