That’s where we find ourselves. The U.S. is at peace and despite President Trump’s claims, there’s no national emergency. And yet we’ve only seen debt as a higher share of GDP during the years of 1945, 1946, 2020 and 2021. Then, Republicans and Democrats knew to scale back. Now, debt explodes during emergencies and continues to grow in peacetime.

In 1946, after World War II, debt-to-GDP was 106%. It declined to just 25% by 1980, not only because of inflation and economic growth but because of real fiscal discipline. With budgets nearly balanced, the fruits of a booming private sector could actually reduce the burden. Beginning in the Reagan era, discipline gave way to a new normal of chronic budget deficits.

Three forces made the shift possible:

First, and the main cause of the mess we are in, is that the entitlement state became enormous, yet untouchable. The Social Security reforms of 1983 are a rare example of bipartisan structural reform of a major entitlement program in U.S. history. Since then, despite economic and societal changes, the program has never been reformed. Never mind that it faces insolvency and the potential for automatic benefit cuts of more than 20% in 2033. The same is true of our other major debt driver: Medicare. And Medicaid is growing far beyond its original intent.

Democrats, occasionally helped by Republicans, have worked to expand welfare programs meant for lower-income people to those in higher and higher income brackets. The most recent and extreme example is the COVID-era expansion of the Obamacare tax credit to wealthier taxpayers, a significant share of whom enjoy early retirement. The fight over its continuation is what the government shutdown is about.

Second, Republicans discovered that promising tax cuts without offsetting spending cuts was politically painless so long as one claims that they “pay for themselves.” There is one rare and recent exception: this year’s “One Big Beautiful Bill,” which included $1.5 trillion in spending reductions over 10 years to offset some of the tax cuts. It’s not enough, but it’s something. Meanwhile, the Democrats love to claim that debt wouldn’t be a problem if the rich paid their “fair share.” They already do pay an enormous amount in taxes. But the numbers still don’t add up.

Finally, the Federal Reserve, starting under Chairman Alan Greenspan in 1987, learned how to anesthetize the political pain of budget deficits by keeping interest rates artificially low and monetizing debt. Politicians concluded that they could borrow endlessly without suffering political consequences. The problem is that this only works insofar as investors don’t worry that they will be paid back with inflated dollars.

That illusion has vanished. Interest costs have surged from $372 billion annually just a few years ago to nearly $1 trillion today, surpassing what we spend on defense or Medicaid. Within a decade, yearly interest payments are projected to nearly double, reaching $1.8 trillion. Even without new programs, the built-in deficit would keep rising and outpace economic growth. And Washington keeps adding more deficit spending.

This decade’s bipartisan binge has debt on track for 166% of GDP by 2054. I don’t think we will actually reach that point, because inflation will break out and stabilize the debt. That would destabilize the country and inflict enormous amounts of pain and lost purchasing power. So, my point remains: Politicians on the left and right see that the debt is exploding and are doing nothing.

The current politics of this crisis are as bipartisan as its origins. Democrats defend every entitlement and dream up new benefits. Republicans demand more defense spending and still more tax cuts. Both claim that faster growth will somehow erase the arithmetic, but growth alone can’t close a structural gap this large.

Even sustained 3% real annual growth — a questionable assumption given the implications of an aging population and crackdown on immigration — would produce about $4.4 trillion in extra revenue over a decade, while total deficits will total $21.7 trillion.

Don’t be fooled: The debt explosion is not driven by waste, fraud or foreign aid. Nor is it the result of a lack of revenue. It’s the direct result of reckless promises to retirees, the cost of healthcare and an unwillingness to pay the bills honestly. For most of American history, debt fell when wars ended and peace returned. Since 1980, we’ve managed the opposite: peace without prudence and prosperity without restraint.

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The upbeat findings were part of the annual “Southern California Economic Update” published by the Southern California Association of Governments.

“The outlook for the near-term future is positive for the Inland Empire,” Chief Economist for the Inland Empire Economic Partnership Manfred Keil said. “First, steady growth in the U.S. economy is expected over the next six to 18 months, driving increases in spending. Second, migration to the region will increase as households move from the coastal areas and elsewhere in search of more favorable housing costs, which will trigger continued growth in population-serving industries such as healthcare, retail trade and leisure and hospitality services.”

Keil joined SCAG Executive Director Kome Ajise and others for an Economic Roundtable in Riverside Thursday to spotlight key points from the SCAG report.

“The risk of recession is sharply lower than it was a year ago,” Ajise said. “Consumers continue to drive the state and regional economies with their spending, and business investment in equipment and software is sharply higher. This should extend into 2025 as interest rates soften.”

Analysts said significant developments in logistics, healthcare and energy projects, along with steadily increasing tourism, will result in economic positives over the coming year. Labor growth and capital investment are assured.

“Housing construction and sales should rebound as the cycle of interest rates turns lower,” according to the report.

The Inland Empire ranks as the 12th largest metropolitan statistical area nationwide, within 200,000 residents of the Boston-Cambridge MSA, which is ranked No. 11.

“Challenges remain,” the report stated. “Comparing wages to gross domestic product, the Inland Empire ranks 300th out of 390 MSAs. Also, proposed hefty tariffs on imported goods, in particular from China, could reduce imports and negatively impact the region’s logistics industry.”

The full report is available at scag.ca.gov/news/2024-southern- california-economic-update-now-available-online.

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The countywide jobless rate in September, based on preliminary EDD estimates, was 5.6%, compared to 6.2% in August.

According to data, the September rate was nearly a half-percentage point above the year-ago level, when countywide unemployment stood at 5.2%.

Mecca had the highest unemployment rate countywide in September at 13.4%, followed by Coachella at 13.1%, Cherry Valley at 10%, Desert Hot Springs at 8.1% and Rancho Mirage at 7.9%.

The combined unemployment rate for Riverside and San Bernardino counties — the Inland Empire — in September was 5.4%, down from 6% in August, the EDD said.

Bi-county data indicated payrolls expanded by the widest margin in the public sector, which added 9,100 positions, mostly in the education sector, as more teachers, administrators and support staff returned from summer hiatus.

The agricultural, health services, information technology, professional business services, and trade and transportation sectors grew by an aggregate 6,300 positions.

Payrolls shrank by the largest amount in the construction sector, which declined by 2,200 jobs last month. Meantime, the financial services, hospitality and manufacturing sectors collectively shed 2,300 jobs.

Miscellaneous unclassified industries additionally contracted by an estimated 600 jobs, according to figures.

Only the mining sector was unchanged in September.

The statewide non-seasonally-adjusted unemployment rate last month was 5.3%.

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The Safe and Secure Innovation for Frontier Artificial Intelligence Models Act (SB 1047) was seen by many as a necessary safeguard on the technology’s development. Generative AI covers systems that produce new content in text, video, images and music – often in response to questions, or “prompts”, by a user.

But Newsom said the bill risked “curtailing the very innovation that fuels advancement in favour of the public good”. While agreeing the public needs to be protected from threats posed by the technology, he argued that SB 1047 was not “the best approach”.

What happens in California is so important because it is the home of Silicon Valley. Of the world’s top 50 AI companies, 32 are currently headquartered within the state. California’s legislature therefore has a unique role in efforts to ensure the safety of AI-based technology.

But Newsom’s decision also reflects a deeper question: can innovation and safety truly coexist, or do we have to sacrifice one to advance the other?

California’s tech industry contributes billions of dollars to the state’s economy and generates thousands of jobs. Newsom, along with prominent tech investors such as Marc Andreessen, believes too many regulations could slow down AI’s growth. Andreessen praised the veto, saying it supports “economic growth and freedom” over excessive caution.

However, rapidly advancing AI technologies could bring serious risks, from spreading disinformation to enabling sophisticated cyberattacks that could harm society. One of the significant challenges is understanding just how powerful today’s AI systems have become.

Generative AI models, like OpenAI’s GPT-4, are capable of complex reasoning and can produce human-like text. AI can also create incredibly realistic fake images and videos, known as deepfakes, which have the potential to undermine trust in the media and disrupt elections. For example, deepfake videos of public figures could be used to spread disinformation, leading to confusion and mistrust.

AI-generated misinformation could also be used to manipulate financial markets or incite social unrest. The unsettling part is that no one knows exactly what’s coming next. These technologies open doors for innovation – but without proper regulation, AI tools could be misused in ways that are difficult to predict or control.

Traditional methods of testing and regulating software fall short when it comes to generative AI tools that can create artificial images or video. These systems evolve in ways that even their creators can’t fully anticipate, especially after being trained on vast amounts of data from interactions with millions of people, such as ChatGPT.

SB 1047 sought to address this concern by requiring companies to implement “kill switches” in their AI software that can deactivate the technology in the even of a problem. The law would also have required them to create detailed safety plans for any AI project with a budget over US$100 million (£77.2m).

Critics said the bill was too broad, meaning it could affect even lower-risk projects. But its main goal was to set up basic protections in an industry that’s arguably moving faster than lawmakers can keep up with.

California as a global leader

What California decides could affect the world. As a global tech leader, the state’s approach to regulating AI could set a standard for other countries, as it has done in the past. For example, California’s leadership in setting stringent vehicle emissions standards through the California Consumer Privacy Act (CCPA), and its early regulation of self-driving cars, have influenced other states and countries to adopt similar measures.

But by vetoing SB 1047, California may have sent a message that it’s not ready to lead the way in AI regulation. This could leave room for other countries to step in – countries that may not care as much as the US about ethics and public safety.

Tesla’s CEO, Elon Musk, had cautiously supported the bill, acknowledging that while it was a “tough call”, it was probably a good idea. His stance shows that even tech insiders recognise the risks AI poses. This might be a sign the industry is ready to work with policymakers on how best to regulate this new breed of technology.

The notion that regulation automatically stifles innovation is misleading. Effective laws can create a framework that not only protects people, but allows AI to grow sustainably. For example, regulations can help ensure that AI systems are developed responsibly, with considerations for privacy, fairness and transparency. This can build public trust, which is essential for the widespread adoption of AI technologies.

The future of AI doesn’t have to be a choice between innovation and safety. By implementing reasonable safeguards, we can unlock the full potential of AI while keeping society safe. Public engagement is crucial in this process. People need to be informed about AI’s capabilities and risks to participate in shaping policies that reflect society’s values.

The stakes are high and AI is advancing rapidly. It’s time for proactive action to ensure we reap the benefits of AI without compromising our safety. But California’s killing of the AI bill also raises a wider question on the increasing power and influence of tech companies, given they raised objections that subsequently led to its veto.

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