As California’s recession steadily worsens with no end in sight, the state’s economy may descend into a full-blown depression, according to a new statewide forecast released Wednesday.
The state’s budget meltdown weighs heavily on California’s economy, according to the respected UCSB Economic Forecast, fueled by the political ineptitude of the Capitol’s leaders, who show that “even when faced with extraordinary crises, California is unable to make hard decisions.”
“California’s economy continues its descent into the depth of its most serious recession since World War II,” economist and Calbuzz contributor Bill Watkins writes in the forecast.“…It is possible that when this is over this recession will meet the technical definition of a depression in California.”
The UCSB forecast ( membership), presented to a business group today in Salinas, presents a gloomier picture than some other recent economic reports, which have projected a recovery beginning in 2010.
By any measure – employment, housing, retail, tourism, industrial, banking – the UCSB study found little evidence for optimism and plenty for California’s economy continuing “to perform far worse than will the U.S. economy.”
Forecasting “continuing job losses and declining economic activity,” Watkins said his analysis of economic data and trends found “no signs of any positive innovations in the forecast horizon.”
The state budget mess presents a two-track problem, because tax increases and spending cuts both accelerate a negative feedback loop that deepens the slowdown in the overall economy:
“California’s budget issues are likely to be made worse by continuing economic decline,” he wrote. “Perversely, the budget then negatively feeds back into the economy.
“The problem is not likely to see relief, at least in terms of increased revenues, before late 2011. Therefore, it is likely that the uncertainty associated with the budget and the declining spending or increased taxation will be a drag on California’s economy for several quarters to come.”
Watkins also cast a jaundiced eye on the efforts of the governor and the Legislature, saying politicians of both parties have simply reverted to knee jerk positions during an extraordinary crisis that requires bold leadership and innovative solutions:
“It is truly striking to see politicians of both parties use the same arguments in the current budget debate that they have used for years” in the wake of the May 19 special election debacle, he said.
“Interpretations of that election have varied, but it’s impossible to interpret the election as a resounding affirmation of the status quo. But, based on what I’m hearing from Sacramento, that appears to be the position that our political leaders are taking.”
— By Jerry Roberts and Phil Trounstine