October 13, 2003
by Irwin Stelzer
The British Prime Minister and Hollywood’s premier tough guy have similar advice for California governor-elect Arnie Schwarzenegger. Tony Blair once said that campaigning is a lot more fun and a lot easier than governing. And after congratulating Schwarzenegger on his victory, Clint Eastwood said, “Now the nightmare begins.” After all, it wasn’t so long ago that wrestler Jesse Ventura captured the governorship of Minnesota, only to fade from the scene after not much more than his fifteen minutes of fame.
When he eases his ample frame into the governor’s chair next month, Schwarzenegger will have to deliver on his promises. Ironically, his first act will be to increase California’s $8 billion budget deficit by some 50 percent when he repeals the unpopular auto tax that Governor Gray Davis had tripled. By then he will have learned that the possible savings from the line-by-line audit he has ordered will prove insufficient to close the budget gap.
Since Schwarzenegger has promised not to cut—indeed, to increase—the 40 percent of the state budget claimed by education, and since he has promised not to raise taxes, he is counting on two major revenue sources. First, he will rattle his beggar’s bowl in Washington. Schwarzenegger has noticed that California gets back from the federal government only 75 cents out of every dollar that it ships to Washington, not surprising given the fact that the state is the world’s sixth largest economy, just behind the United Kingdom, and that it is relatively rich. Rich states are supposed to subsidize less rich ones, as Britain has found out since it began supporting the lifestyles of French farmers by joining the European Union. Besides, President Bush has budget problems of his own. So Schwarzenegger will get a cordial reception, but no money. In fact, an administration spokesman has announced that there will be no more cash for the States, which have already received $20 billion from the Feds. He told the Wall Street Journal, “The best thing we can do for California . . . is to get this economy roaring.”
So Schwarzenegger will have to rely on the burgeoning economic recovery that is increasing the flow of funds into the U.S. Treasury, prompting a welcome downward revision in the projected federal deficit. If the recovery proves durable, California’s tax receipts will also increase, but not by enough to wipe out the state’s deficit. That’s why Schwarzenegger will find that real life in the state capital of Sacramento is a lot less fun than the make-believe world of Hollywood, where he was assured of happy endings even before his adventures started.
Meanwhile, Bush’s political team is trying to figure out whether the opening of Arnie Does Sacramento is good news or bad news. The initial reaction was that a Republican governor in the state that will cast the largest number of electoral votes in the upcoming presidential election is unalloyed good news for Bush. Even if Schwarzenegger can’t deliver California to Bush, he can make it sufficiently competitive to force the Democrats to spend time and money there, rather than assume they can carry it without much effort, as they have done in the past. Besides, Schwarzenegger ran well among Hispanics, union members, and women, three traditionally Democratic constituencies that Bush has been wooing. If Schwarzenegger can transfer his popularity with those groups to Bush, the president just might be able to move the state’s fifty-five electoral votes into the Republican column.
But second thoughts are now causing the celebration to be a bit more muted. Arnie and George W. don’t exactly see eye-to-eye on the social issues that are so important to the president’s hard-core backers. The governor-elect favors civil unions, gun control, and abortion rights, all anathema to the president and his core voters, and is hardly a living testimonial to the family values that Bush represents.
Worse still, Schwarzenegger was elected because the incumbent couldn’t control a mounting budget deficit, and because an outsider with a new broom that might sweep clean seemed attractive to voters. That’s not a combination of circumstances that Bush’s reelection team finds an attractive precedent.
Never mind that most voters were unclear as to just how their new governor would solve their problems. They knew three things about him.
First, he isn’t Gray Davis, who badly mishandled the deregulation of California’s electricity market, and compounded the felony by locking the state into long-term power purchase contracts at high prices set at the peak of a temporary shortage. As one who urged the governor’s energy advisor not to do that, I can testify to the shoddy nature of the thinking that Davis thought would solve his problems.
A second thing the voters knew was that Schwarzenegger promised not to raise taxes. He avoided the elder Bush’s “Read my lips, no new taxes,” but Schwarzenegger knows that if he reneges on his promise, he will soon join the former president in the private sector. Some Democrats are muttering that he will indeed have to raise taxes during his first hundred days in office, at which point they plan a recall petition of the sort that ousted Davis.
Finally, the voters know that the Democrats’ policies are causing a flight of businesses, jobs, and taxpayers from California to Colorado, New Mexico, Utah, Nevada, and Arizona. Regulation has been heaped upon regulation, many at the insistence of the environmentalists whose candidate polled a mere 3 percent of the vote in last weeks’ election. Taxes have been piled upon taxes, forcing businesses to seek more congenial locations. And the trade unions, most notably those that represent the teachers, have so over-reached themselves that 40 percent of their members, watching their jobs evaporate, defied union bosses and voted for Schwarzenegger.
Arnold Schwarzenegger is living the American dream—a penniless immigrant with brains to supplement his brawn, rising to the top. Or almost the top. Sitting in the office once occupied by White House-bound Richard Nixon and Ronald Reagan, he can be forgiven for watching with interest as Congress considers legislation to remove the constitutional requirement that an American president must be native-born.This article appeared in London’s Sunday Times on October 12, 2003.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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