Delivered: January 8, 1979
The new year on which we now begin is a year of testing. Once again our economy is careening down the path of inflation that inexorably leads to recession. At such a time, it is right to reexamine our assumptions, state clearly our goals, and work confidently for the future.
1979 is the international year of the child. Those born this year will graduate in the class of 2000. What they inherit will depend on the courage and vision we pass on to them. Whether Californians in that year are up among the best or stagnating in the continuing aftershocks of obsolete technology and pervasive foreign imports, that depends on us.
Today we see the ethos of our moment dominated by “getting and spending” rather than innovation and risk. The depressing spirit of the age ungratefully feeds off the boldness of the past. Where there should be saving for the future, I see frantic borrowing. Where there should be investment in productive capacity, I see frenetic consumption.
California has been called the great exception. From the mystic aura of the name itself to the conquest of outer space, California has inspired greatness among its many immigrant people. Gold, forests, rich agricultural fields, high technology, universities of excellence, the Pacific horizon, diverse ethnic groups – all these have converged to keep our state a dream for the hundreds of thousands who still cross our borders each year. In the last four years, 1.5 million jobs have been created and the proportion of people of 16 employed in the wage economy has ground from 56 percent to 61 percent, a participation rate matched rarely anywhere in this country or anywhere else in the world. Over 14 million motor vehicles each month set new records in gallons of gasoline consumed and miles driven over our roads.
Our 22 million people produce each year more than the combined effort of the billion people who inhabit India, Pakistan, Indonesia, the Philippines, South Korea, Nigeria, and Zaire. We have the most advanced technology, the most stringent environmental laws, a strong legal commitment to equality, the highest transfer payments to those who depend on government and the most advanced labor laws.
Yes the mistrust of our public institutions and mere anxiety about our future economy are more the order than the exception. Three quarters of the people do not trust their government. More than half of the eligible citizens in California again decided not to vote in the last election. Why? Why the anti-government mood? I asked this same question four years ago and now I believe I understand. Simply put, the citizens are revolting against a decade of political leaders who righteously spoke against inflation and excessive government spending but who in practice pursued the opposite course.
It is in this fundamental contradiction between what political leaders have said in their anti-inflation and anti-spending speeches and what they have actually done in their fiscal policies that we find the cause of today’s political malaise. The ordinary citizen knows that government contributes to inflation and that runaway inflation is as destructive to our social wellbeing as an invading army.
The economists will argue about the fine points but the people know that something is profoundly wrong when 75 percent of government spending decisions are automatically decided by past formulas and not present lawmakers – formulas that ensure that government and its taxes always keep ahead of inflation.
People know that something is wrong when the federal government stimulates inflation and inflation raises the face value of prices, income and property, so that the taxes on each grow higher and higher. This perverse government money machine has created a fiscal dividend for local, state and federal government and allowed all three to expand faster than inflation and faster than real economic growth. These unauthorized dividends are now being cancelled. The tax revolt is being heard.
There is much to learn about the unprecedented primary vote and victory of Proposition 13. Not the least of which is that the established political union, and corporate powers are no match for an angry citizenry recoiling against an inflationary threat to their homes and pocketbooks.
While it is true that the tax revolt has increased the privileges of the few, it has without question inspired the hopes of many. Plain working people, the poor, the elderly, those on fixed incomes, those who cannot keep up with each new round of inflation or protect themselves from each subsequent round of recession, these are the people who are crying out for relief.
But in their name and in the name of misfortune of every kind, false prophets have risen to advocate more and more government spending as the cure – more bureaucratic programs and higher staffing ratios of professional experts. They have told us that billion dollar government increases are really deep cuts from the yet higher levels of spending they demand and that attempts to limit the inflationary growth of government derive not from wisdom but from selfishness. That disciplining government reflects not a care for the future but rather self-absorption. These false prophets, I tell you, can no longer distinguish the white horse of victory from the pale horse of death.
In this decade government at all levels has increased spending faster than the true rate of economic growth, taxes per $100 of income have climbed steadily. The cure for inflation has been administered with a vengeance. Yet most people feel worse, not better, about their government benefactor. The elderly find their fixed income eroding in half; those about to retire fear their future pensions will never keep pace. Ten million California workers see their wages rise but not as fast as prices. Those on welfare obtain larger grants but find more expensive groceries.
It is time to get off the treadmill, to challenge the assumption that more government spending automatically leads to better living. The facts prove otherwise. More and more inflationary spending leads to decline abroad and decadence at home. Ultimately it will unwind the social compact that forms the basis of our society.
Lord Keynes, in whose name many of the false prophets claim to speak, had this to say on the subject:
“By a process of inflation, governments can confiscate, secretly and unobserved, and important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some … There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” (“The Economic Consequences of the Peace” J.M. Keynes)
Government, no less than the individual, must live within limits. It is time to bring our accounts into balance. Government, as exemplar and teacher, must manifest a self-discipline that spreads across the other institutions in our society, so that we can begin to work for the future, not just consume the present.
I propose that this year the state government lower the amount of taxes it collections per $100 of income to the level of four years ago. This will require a billion dollar tax cut. Such a tax reduction should, on a percentage basis, give the greatest benefit to renters and those at the lower and middle level of the income scale. A flat tax credit combined with an increase is renter assistance will accomplish this goal.
Some might ask, how did the state obtain this billion dollars? Did the state extract it from the new wealth or increase production? Was there a vote of the legislature to levy a new tax? No! Quite simply the perverse money machine of inflation is artificially raising income, poverty, prices, and profits and combining with pre-existing state law to generate a tax windfall. Unearned, unvoted, and undeserved.
Next, I propose that for the first time since World War II, we actually decrease the number of positions in state government. A reduction of 5000 is reasonable and attainable without significant layoffs. It will mean that in 1980 we will operate government with fewer employees than we did in 1977.
I see this as state government, not working less, but becoming more productive. Jobs in government, education, and health constitute a substantial part of the work done in our state. Yet, it is in these fields where productivity is declining. Each year government employment grows. Each year we spend more money on fewer students. Each year we increase dramatically the amount spent on medical care. Are we better governed? Are we better educated? Are we healthier? Perhaps, but not commensurate with the additional dollars and taxes spent on each. The time has come for California to pioneer and increase productivity in these fields. It is a myth that services such as government, teaching, and curing lay fundamentally beyond those processes which have created our modern agriculture, our electronics, and aerospace. Our higher standard of living comes directly from work that uses the latest tools and the most imagination. Unless we improve the way we learn, the way we heal, and the way we govern, it is inevitable that our standard and quality of life will decline.
We are in the midst of an information revolution that draws its center from the computer and communication industries of California. As the power of the human mind expands through the technology of our own state, the challenge will be to use the new tools to expand learning, to prevent disease and make government leaner as it becomes more effective.
As government makes itself more productive, it must also strip away the roadblocks and the regulatory underbrush that it often mindlessly puts in the path of private citizens. Unneeded licenses and proliferating rules can stifle initiative, especially for small business. Society is more interdependent and our capacity to harm both nature and ourselves is greater than ever. Yet many regulations primarily protect the past, prop up privilege or prevent sensible economic choices.
These are the rules that should be changed in the ongoing self-examination by each department of government. Where economic incentives, instead of rules, can accomplish the goal, they should be tried.
Finally, in order to ensure that we permanently slow the inflationary growth of government, I will support an appropriate constitutional amendment to limit state and local spending. Such measures are difficult to draft but are justified today in order to recapture a sense of the common interest as opposed to the narrow and special interests that combine to push spending beyond what is reasonable.
I will also support the resolution now pending before the legislature calling upon Congress to propose a constitutional amendment to balance the federal budget or to convene a constitutional convention to achieve this goal.
The roller coaster of inflation followed by recession is out of control. In the last 12 years, leaders of both parties have tried in vain to slow its reckless course. At the same time, states compete with each other to extract more and more federal grants that are financed out of the deficits and not the productivity of the nation. It is, therefore, right that these same states join together to demand a constitutional amendment that will serve as the occasion for finally restraining the inflationary spending of the federal government. The nation, no less than the individual states, must eventually balance its books. The excuse that only annual deficits promote full employment is refuted by the continuing decline in productivity and investment which form the only true base of long term employment.
A constitutional convention to propose an amendment to balance the budget is unprecedented, but so is the paralysis that prevents necessary action.
The time has finally come to balance what we spend with what we produce.
To truly achieve this, we must enlist the talent of all the people in our society. This is what I call investment in human capital – an investment we have yet to fully make. Despite the affluence of California, too many still languish in the backwaters of our society.
We encounter each day the paradox of unfilled jobs existing side by side with unemployed or underemployed people. The challenge is to break down the remaining discriminatory barriers and encourage business, labor and government to provide on-the-job training, apprenticeships, and full upward mobility. We can never reach our full capacity unless we liberate the human spirit and enfranchise all the people of our state – whatever their color, their language, their disability, their age or their sex. To more completely achieve this goal, I will support the necessary changes in our Fair Employment Practices Act, to include prohibitions against discrimination based on sexual preference. The diversity of our people can be a cause of hatred and anxiety or the source of strength and continued advancement. The choice is ours.
As we expand the opportunities for those within our borders, we must recognize the affinity that we have with those beyond. No small part of our present wealth or our future possibilities derives form our location on the Pacific rim. The trade and widening exchange with Mexico, with Canada, and with our more distant neighbors in the far east, offer potential still rarely imagined.
After the first Americans and long before most of our ancestors arrived in California, our neighbors from Mexico were naming cities and dividing our lands. For too long we have ignored Mexico. Unless we understand that California and Mexico are linked by history, geography, families and a common future, we will miss one of the great opportunities of the next decade.
Let us also not neglect the other forms of life and natural systems on which we all depend. The soil, the sun, and the water make possible our forests and the wood we take from them, as well as the food that our farmers are able to produce. This timeless beauty will endure only if we have proper reverence and respect for our natural systems. The air can become cancerous, the water polluted, and the soil eroded. It is up to us to so manage growth and technology, that we enhance the quality of our environment, not undermine it to the loss of those who will come after us. Many a civilization has fallen with its forest and eroded with its soil.
I said that 1979 was year of testing – testing whether these people that fill the freeways of California have the vision to prepare for the year 2000. Is Alexander Solzhenitsyn correct when he says that: “A decline in courage may be the most striking feature which an outside observer notices in the west in our days”? Will we make the sacrifices to protect our land and to create the new energy sources that will power our factories? Will we invest in the information revolution and continue to dominate the conquest of outer space? Will we see beyond the stereotypes and embrace our human diversity?
To all of this I must answer with a resounding yes. California will build for the future, not steal from it. And as we do, we will know in our hearts patriotism is not just defending the country of our fathers, but preparing the land for our children.
(This is a preliminary text. The governor may depart from the text or make additions thereto, but he stands by all statements in this text.)