California Dreaming

Arnold Schwarzenegger may believe that he would be sitting in Barak Obama’s chair in the Oval Office if only he had been born a US citizen. Instead he runs California, which may be the nation’s largest state while being at the same time the one closest to economic ruin.

As of December, California had an unemployment rate of 9.1%. That news is days old now so it has very little value on its own.

What may end up being novel about the California jobless rate is how quickly it can be reversed by the capital which will be injected into the economy by the new federal stimulus package. The state may end up being a very large canary in a coal mine. The foreclosure rate in California is one of the highest in the nation and the state government is projected to run a deficit of $40 billion over the next two year.

Writing about the possible effect of the $825 billion federal program,The Los Angeles Times reports that "The House bill, which is likely to be voted on next week, would bring the state more than $11 billion in health care and education money that could go directly to reducing the deficit through mid-2010." Additional funds would come into the state for building highway and other transportation infrastructure.

Based on the theory that $825 billion can buy or save three million to four million jobs, at least 200,000 of those should be in California. If the gigantic package works, foreclosure rates should shrink rapidly and home prices should stabilize.

If there is any consistent financial criticism of the administration’s plan to revive the economy it is that the money goes into the system too slowly. It will take months to get capital for large infrastructure programs from the Treasury to the private enterprises that have to do the work and hire the people. In regions where enough workers are not available to carry out some of the plans, the people may have to be relocate to fill the jobs. The soft underbelly of the plan is its logistics.