Proof that California's economy is not representative of the rest of the country
June 12, 2009
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Yesterday, I posted that I felt as though a blogger named Denninger was being hypocritical by criticizing a Bloomberg article for being too bullish on the economy by using flawed logic to make the national economy look worse than it really is (see post: The flawed logic of the silly Karl Denninger "Downturn Moderating? More LIES!" post). In short, Denninger took sales tax data from the state of California and then used it to deduce that the entire United States was in a depression. I argued that the California economy is in much worse shape than the country as a whole and that it is flawed logic to use data from it to show what rough shape the United States is in.
It took a little digging, but I found an organization that tracks changes in state sales tax revenue on a monthly basis. To be honest, the entire process of researching this has been fairly interesting. The group that tracks this data is called the National Conference of State Legislatures. It's absolutely amazing what you can find out there on the Internet. Here is a list of the year over year change in sales tax receipts by state: State Tax Performance June 2009.
Denninger stated that in California in May 2009 "revenues from sales taxes sagged by 7.6 percent." It appears as though the decline in sales tax revenue is lessening as the year progresses. In April, sales tax revenue in California was down a whopping 13% versus the same period a year earlier. The drop in May was around half that. As many, including myself have claimed, the economy is still in a recession but the pace of the decline is slowing. We are no longer in the panic driven economic freefall that we saw at the end of 2008 and the beginning of 2009. The trend is moving in the right direction.
The question remains whether the California economy is a fair representation of what the economy is like in the rest of the country. Here are the facts:
In April 2009, California's decline in sales tax revenue was the second worst out of the 39 states in the U.S. that collect sales tax. The only state that experienced a larger drop in sales tax revenue than California in April was Washington state (0.1% more). In fact, in April 10 of the 39 states that collect sales tax saw their revenue from it increase versus the same period a year ago.
I rest my case (someone owes me a dollar). I think that it's pretty clear that extrapolating data from the state of California to the rest of the country is faulty logic. Yes, the U.S. economy is in bad shape. Yes, it will continue to get worse for a while and the eventual recovery will be weak. But things are not as bad in the country as a whole as they are in the messed up state of California and the pace of the decline is slowing.
Deej
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