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Campbell’s Egghead Budget Talk Wows Cato

Jun4

campbellprofessorTom Campbell became the first politician in history Wednesday to have staff members hand out nine pages of photocopied economic charts to his audience before delivering a speech.

“If you would turn with me to page three,” the Republican wannabe governor began, speaking to a group of about 60 members and fans of the libertarian Cato Institute meeting in Santa Barbara.

Campbell, with both a PhD in economics and a law degree, who was no doubt the goody-goody in the front row who always had his hand up, led his listeners through a 30-minute seminar on the state budget crisis, monetary policy and the coming wave of inflation. His rather rudimentary visual aid handouts included five fever charts, three bar graphs and two tables, plus a full-page explanation of Milton Friedman’s money supply equation (MV=PQ).*

You gotta’ hand it to him, the guy knows his audience.

Over broiled chicken, rice, chardonnay and a light chocolate mousse with some kind of rolled cookie the size of a fireplace poker stuck in it, the Catoites listened raptly to Campbell’s pitch. When an institute official noted in his introduction that the conservative economist Friedman had been Campbell’s faculty adviser at the University of Chicago, they ooohed and ahhhed in the same way Calbuzz might if, oh say, Miss Universe strolled into world headquarters. When he’d finished his speech, they loudly applauded when he answered “Yes” to a question of whether he is running for governor.

“Right now, it’s all about name ID,” the candidate told Calbuzz in a pre-lunch chat, “and unlike my opponents, I don’t have the money to buy it.”

As a political matter, we asked Campbell, Arnold’s former state finance director, what he foresaw as the likely outcome of the festering budget mess in Sacramento. He ticked off three scenarios:

1-Obama and the federal government get involved in providing loan guarantees so California can go into the market and get Revenue Anticipation Warrants to pay its bills. He thinks this is unlikely politically, because it would cause too much resentment among other states, adding that if Obama does act, he worries the president will attach a bunch of strings to protect the unions as his top priority.

2-The Legislature throws up its hands, repeals its earlier approval of a two-year budget, and passes a new budget with $25+ billion in phony “anticipated revenues” or some such gimmick. Because it would be a new budget, Arnold would regain the power of the line item veto to cut any spending he wanted and the political onus for the pain would all be on him. “The constitution does not require the Legislature to pass a balanced budget; it requires the legislature to say they passed a balanced budget,” he said, dryly.

3-Dysfunctional partisan “stalemate” returns, the Legislature is unable to pass a budget, and the state starts missing payments on its bills sometime in July. At that point, he believes, some unpaid vendor or vendors would file a class action suit and the state would find itself in court being ordered by some federal judge (Article 1, Section 10 of the U.S. Constitution prohibits states from defaulting, Campbell helpfully pointed out) to sell off assets and take other actions to pay the bills. The candidate said he sees this as “the most likely outcome.”

When Campbell talks about the budget, compared to the rest of the cock-and-bull-peddling gubernatorial pack, he ends up looking like the guy Diogenes spent his life searching for. To his credit, Campbell even told the tax-hating Cato crowd that a big part of his short-term solution for the budget mess would be temporary 36 cent-a-gallon increase in the gas tax.

“I want to be candid,” he told them, “even if it loses me some voters.”

*Weed whacker footnote: In the money supply equation – MV=PQ:
M= money supply
V= velocity of money (i.e. how often money changes hands in a year).
P= price level
Q= GDP

Campbell figures that within the last year, the federal government has increased the nation’s money supply – through stimulus, TARP, tax rebates, mortgage bailouts, assistance to Freddie, Fannie, etc – by $2.8 trillion dollars, or about 34%. When the economy recovers, and the velocity exchange returns to normal, he estimates the practical impact of that will be an increase in inflation of at least 13 percent in the first year. Go figure.


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