Those Wacky Optimists

They’re back. Palo Alto economists Stephen Levy and Robert Arnold today will deliver their latest long-term state forecast, and the gloomy crowd who insist that California’s goose is cooked won’t like it. In their report, Levy and Arnold insist that California remains well-positioned--with the right industries, the right technologies, the right geography--to emerge from the recession as strong as ever.

“World market trends still favor California,” says Levy.

“California’s problems over the past two years are not the beginning of a long period of poor economic growth,” adds Arnold.

Oh my.

Won’t they ever learn?

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Levy and Arnold founded the Center for Continuing Study of the California Economy in 1969. Through three recessions and many crises--the energy crisis, the “business climate” crisis of the late 1970s, the growth crisis, the current “business climate” crisis, and so on--they’ve churned out analyses of the state economy. Their clients include utility companies and others needing strategic economic guidance.

These are not public men. Neither seems comfortable before a television camera. They are essentially numbers guys, more keen on discussing analytical models than, say, politics. They’d look natural teaching high school math. While they have experience in high-profile battles--most notably when they suggested, correctly, in the 1970s that California could prosper even without a proposed series of power plants--Levy and Arnold mainly toiled in anonymity.

Then came the winter of 1991. This is when Gov. Pete Wilson and certain business leaders began to scream for workers’ comp reform, insisting it was driving companies and jobs out of California wholesale. Gleeful reports in the national media about the death of the California economy soon followed. As the din increased, Levy and Arnold waded into the debate. They issued a “special report” intended to clear up what they called “a gross misunderstanding about why job losses have occurred in California.” While they agreed workers’ comp needed reform, they argued that most job losses could be blamed on larger forces: a down cycle in construction; defense cutbacks, mergers and other structural upheavals; a national recession.

With this report, Levy and Arnold became key participants in one of the state’s stranger political scrapes. Economics is a murky subject that gives even economists fits. Let politicians, public-relations experts and, yes, journalists into the fray, and it can get almost funny. Nuance goes out the window. Analytical models become less important than sound bites. Complicated questions are reduced to absurd simplistics. In the case of the California economy, the question became: Is the state sunk, or not? Most politicians and editorial writers seemed to agree it was. It fell to Arnold and Levy to explain why it was not.

Their quotes usually could be found at the bottom of the doom-and-gloom stories--an obligatory counterpoint to the prevailing view that jobs were fleeing to states with friendlier “business climates.” This made them enemies, especially among those promoting workers’ comp and regulatory reform as magic economic bullets. They took some shots. Their numbers were questioned. They were ridiculed, sometimes behind the back, sometimes not: Levy and Arnold, the wacky optimists.

“I was unprepared,” Levy said, “for how personal some of the stuff got.”

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What’s strange is this. Read their reports and Levy and Arnold hardly come across as rose-tinted economists. What they have said consistently is that the economic fault lines run much deeper than workers’ comp reform. In the report out today, they note that California remains a leader in foreign trade, high-tech, entertainment and professional services--prime industries for the future. But they also note that for three decades California has ranked dead last in public investment. And without good schools, roads and the like, the state’s advantages can disappear.

“These opportunities can bypass the state if investors believe that California doesn’t have a world-class work force, quality of life and infrastructure,” they say. “There are growing signs that California cannot compete for new high-paying jobs without dramatically increasing the state’s long-term public investment.”

Of course, building support for the scale of public investment Levy and Arnold suggest is needed would not be easy. It would require a level of vision and leadership and cooperation rarely seen in Sacramento anymore. By comparison, workers’ comp belongs on the consent calendar. Are they optimistic it can happen? Well, let’s just say that, like the rest of California, on this matter Levy and Arnold are realists.