Brown Betrays Her Ignorance of Economics

Brown Betrays Her Ignorance of Economics, by Ron Unz
Her ill-conceived plan to boost business is grounded in politics and geared to ‘correctness’
Los Angeles Times, July 28, 1994

Sometimes a single phrase can summarize an entire political philosophy. Early in her campaign for governor, Kathleen Brown announced her support for re-imposing California’s asset-forfeiture laws, which involve confiscating the property of individuals who have not been convicted of any crime. Her position paper defended such laws as a “badly needed source of revenue . . . for state and local law enforcement agencies.” In plain English, government needs the money.

Does it? Since the early 1960s, our state budget has grown from under $3 billion to more than $55 billion, an increase of nearly 150% even after accounting for inflation and population growth. Few Californians today would believe that this huge spending increase has made our state a better place to live. Instead, much of the increased cost of government has gone to pay for the sort of half-baked spending programs that Brown now proposes as tools for revitalizing our economy and society. Consider a few choice examples.

Brown proposes an employer tax credit equal to 25% of the salary of each new job created in California that pays between $17,600 and $60,000 (presumably jobs paying more than $60,000 might create Republican voters and therefore should be discouraged). Brown seems not to realize that this provides an enormous incentive for an employer to eliminate existing jobs and replace them with “new” jobs having different titles, perhaps with the same employees doing the same work.

Even worse, Brown would “allocate” these tax credits according to a whole range of subjective evaluation standards, such as whether a company is part of an “emerging” industry (as decided by bureaucrats), whether it joins a business cluster (whatever that means) and how many minority workers it agrees to hire. Thus, even firms that actually created new jobs would get the tax credits only if they filled out endless new paperwork–or paid off the right politicians and bureaucrats. The only jobs that Brown’s proposal would create are for government bureaucrats, private sector paper-pushers and the lobbyists who act as their go-betweens.

Brown also proposes creating a fund to provide venture capital to start-up companies. The fund would be administered by a volunteer board of private venture capitalists and would provide funding to companies that had failed to attract funding from private venture capitalists. This authorizes political appointees to risk public money on companies for which they, as private investors, had already refused to risk their own private money. Such language almost guarantees massive losses to taxpayers. Brown seems unconcerned about the business logic of her economic proposals, but she is very concerned about their “political correctness.” The firms that are to receive government largess are not just those that government bureaucrats in their infinite wisdom divine will create the jobs of the future, but should be minority- or women-owned as well. Presumably, the ideal Brown entrepreneur is a politically connected and physically challenged minority woman in a government-selected industry. The question of whether such individuals will actually create new wealth for California appears entirely secondary.

None of these obvious business flaws would be apparent to someone like Kathleen Brown. As a member of the Los Angeles school board, she learned to bend to the prevailing political wind and presided over the decay of one of America’s finest public school systems. As a “rainmaker” at a prestigious law firm, she learned that names and personal connections mattered more than the quality of legal briefs. And as state treasurer, she has learned that product differentiation among the major Wall Street public-finance bond houses is almost nonexistent, with highly lucrative contracts being based primarily on political connections, campaign contributions and minority set-asides. How can Brown even understand the concept of meritocracy if she has never had any contact with it?

Brown’s California would retain enormously high tax rates on the successful many in order to subsidize the well-connected few. We would regularly read stories about the latest government-sponsored success, but never learn of the 10 companies silently driven into collapse to pay for that one public-relations triumph.

Anyone who has followed the international news over the past decade knows that state-managed economies are always far better at publicity than at productivity. But, as a prominent Brown supporter explained to me in a private conversation a few months ago, “Kathleen Brown is an economic illiterate.”

Ron K. Unz, a Silicon Valley computer software entrepreneur, was a Republican candidate for governor in the June primary.

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