Economist Tells Eric Garcetti That Much of His Jobs Agenda Is Misguided

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Thu, Jul 11, 2013 at 10:37 AM
click to enlarge Eric Garcetti supporting the local economy
  • Eric Garcetti supporting the local economy

Because he can read polls, new Mayor Eric Garcetti has made jobs his top priority. So it must have been dispiriting to get a briefing Wednesday from an economist who told him that the key elements of his economic agenda are misguided.

Garcetti asked for the briefing from Christopher Thornberg of Beacon Economics. Among other things, Thornberg told him that eliminating the city's gross-receipts tax -- which Garcetti vowed to do in his inaugural address -- will not turbo-charge the local economy.

Garcetti has promised to phase out the business tax over 15 years. Thornberg argues that doing so will simply lead to an increase in commercial rents, not to mention a massive decrease in city revenues. So while it will be very good for landlords, it won't have much net effect on the overall economy.

Thornberg also advised against "industry picking" -- doling out special favors to Silicon Beach and the movie studios. That happens to have been the other key element of the jobs agenda in Garcetti's inaugural address, but Thornberg thinks it doesn't work.

"I don't think government is any better than the private sector at picking which industries are winners and losers," Thornberg tells the Weekly. "It leads to all sorts of corruption."

Garcetti wants to reverse runaway film and TV production by expanding the state tax credits available to producers. But Thornberg argues -- somewhat controversially -- that that's a bad idea.

"The economic impact of the entertainment industry in L.A. is less and less about production and more and more office jobs," he says. "As long as we keep the office jobs, then you're golden."

So what's left of Garcetti's economic agenda? 

Thornberg does believe that local government has a strong role to play in revitalizing neighborhoods. The city can help private enterprise coordinate investment in rundown commercial areas, as has been done in downtown L.A. and Hollywood. 

During his campaign, Garcetti talked up the success of Glendale Boulevard in Atwater Village, which has become a bustling and prosperous neighborhood in the last 10 years or so. He vowed to take that model citywide with a "Great Streets" program. That idea,  Thornberg says, has a lot of promise.

But Thornberg also notes that L.A.'s economy is largely determined by broader trends at the national and international level. (Update: Thornberg called back to emphasize that national and economic trends dominate in the short run but that local policy can have a big long-term effect.)

The city's unemployment rate currently sits at 10.2%, versus 8.6% statewide. But as Thornberg explained to Garcetti, the L.A. unemployment number is an estimate based on the city's demographics. So if L.A.'s demographic subgroups were outperforming those in other cities, that wouldn't show up in the unemployment rate.

"The concept of using unemployment as a way of determining which cities are better run is just an incorrect way of looking at the world," Thornberg says

In other words, if Garcetti's policies were somehow able to boost local hiring, it would be impossible to measure that by looking at the unemployment rate. (Update: Thornberg says it would be possible to tell by looking at other indicators, such as tax receipts.)

Yusef Robb, Garcetti's spokesman, says Garcetti appreciates hearing contrary points of view.

"Mayor Garcetti is somebody who is always seeking to hear from the broadest range of opinions," Robb says. "Sometimes they agree with his opinions and sometimes they don't."

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