Newsom Wants an AI New Deal

“Politicians never let an opportunity to grab more power go to waste, and Democrats are targeting public anxiety over artificial intelligence as their next opening. California Gov. Gavin Newsom is already talking about the party's chance for a second New Deal as he plots his run for President.

 

Mr. Newsom this month issued what he called a "first-of-its-kind" executive order to "prepare workers and businesses for potential AI disruption." The state can't clear its streets of homeless camps or prepare for wildfires, but we are supposed to trust elected leaders to know how to respond to economic changes from complex and fast-evolving AI technology.

 

While light on specifics, the Newsom order directs his administration to review "how worker voice is incorporated in adoption of emerging technologies" and "policies and practices that provide displaced workers with a safety net." This hints at more welfare programs and union favoritism.

 

Mr. Newsom told the left-leaning Center for American Progress this month that Democrats should talk about AI "as FDR talked in 1944, about a new social compact."

 

He suggested imitating Europe's generous wage replacement programs and job protections.

 

Perhaps he has missed Britain's debate, notably of late even in the Labour Party, over why a million young men and women have left the workforce while on the government dole.

 

If the government makes it hard for businesses to lay off workers, they will be more reluctant to add other jobs and hire young people with less experience. That's why the youth unemployment rate in France is upward of 20%. Mandated job protections -- whether imposed by government or collective bargaining -- make for a less dynamic economy and slower wage growth.

 

As for wage replacement, if workers can make nearly as much unemployed as they do working, many will stay home. That was one lesson from the pandemic when Congress juiced unemployment benefits and transfer payments. Unemployment stayed higher for longer, and businesses struggled to find workers.

 

Mr. Newsom also said he is considering "universal basic capital. I'm thinking about public equity funds and dividends. I'm thinking about ownership." Such ideas have come into vogue among the liberal intelligentsia, so expect Democrats to adopt the idea.

 

Universal basic capital looks to be socialism by a more politically palatable name. Under one version that some liberals have floated, government requires companies to hand over shares, which it puts into a fund. Politicians then distribute investment earnings from the fund to citizens as a "dividend."

 

For progressives, this has the virtue of giving politicians more control over more of the economy.

 

"Businesses are going to make a fortune, and that's why you cannot continue to have a payroll tax system that taxes jobs and then subsidizes automation," Mr. Newsom said.

 

Hmmm. This actually could be interesting. The U.S. tax system doesn't subsidize automation, but its high taxes and wage mandates do encourage employers to replace workers with technology.

 

If Mr. Newsom doesn't want to tax jobs, how about slashing income and payroll taxes? The top marginal tax rate in California on wage income over $72,725 (including a disability payroll tax) is 10.6%. Or how about repealing his state's $20-an-hour minimum wage for fast-food workers and climate regulations that have killed tens of thousands of jobs?

 

California is tied with Nevada and Delaware for the nation's highest unemployment rate (5.3%), followed by Oregon and Washington (5.2%), Illinois (5.1%), Connecticut and Michigan (5%). You don't need AI to discern what they have in common. With the exception of Nevada, the states are run by Democrats heavily influenced by public unions.

 

His statist bent aside, Mr. Newsom is recognizing the disruption from AI and trying to address it.

 

It's a warning to Republicans that they need to do far more to explain to Americans the great change AI will bring and their own ideas for how the country can benefit.

 

Otherwise voters may default to what will be the Democratic attempt to build a larger and even less affordable entitlement state.” [1]

 

1. Newsom Wants an AI New Deal. Wall Street Journal, Eastern edition; New York, N.Y.. 30 May 2026: A12.