Despite the economic slump, despite irresponsible policies that have doubled the state's debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is - and you have to wonder if California's political paralysis foreshadows the future of the nation as a whole.
It's a key point. Without the insanity of Prop. 13, making revenue so unstable and volatile from year to year, and completely inequitable, locking in older homeowners while increasing the tax burden on younger ones, the crisis would be as manageable as other states. Without the Trojan horse of the 2/3 rule for taxation snuck in through Prop. 13, the tax structure would not become the hideous, mangled beast we see today, where the effective tax rate is higher for the lowest-income Californians than for those with the highest income. And without the growing extremism of the Yacht Party, where anyone who breaks Grover Norquist's pledge draws an effort to drum them out of the party, perhaps Sacramento would be populated with public servants who want to fix the problem instead of break it.
Krugman's point is to sound a warning bell for the nation at large, to view the problems of obstruction and dysfunction at the state level with a wider lens. He explains that Republicans have "been driven mad by lack of power," with the extremist rump faction predominant. But even then, he gets that California's problems are unique.
So will America follow California into ungovernability? Well, California has some special weaknesses that aren't shared by the federal government. In particular, tax increases at the federal level don't require a two-thirds majority, and can in some cases bypass the filibuster. So acting responsibly should be easier in Washington than in Sacramento.
But the California precedent still has me rattled. Who would have thought that America's largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?
It's a sad commentary, when the finest liberal columnist in America basically reassures his readers that no government could possibly be as ridiculously constructed as California's.
Paul Krugman has a good column today about how state balanced budget needs lead to perverse outcomes during an economic crisis that demands fiscal stimulus.
But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers - state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation's economic future.
These state-level cutbacks range from small acts of cruelty to giant acts of panic - from cuts in South Carolina's juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.
As Krugman notes, it's crazy to cut public spending at the same time that private spending is drying up. It's a recipe for a Hoover-esque depression with no investment or economic activity, and no way to increase consumer spending or create jobs.
Krugman acknowledges that balanced-budget rules are only a part of this problem in the states.
The answer, of course, is that state and local government revenues are plunging along with the economy - and unlike the federal government, lower-level governments can't borrow their way through the crisis. Partly that's because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren't, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.
Are governors responsible for their own predicament? To some extent. Arnold Schwarzenegger, in particular, deserves some jeers. He became governor in the first place because voters were outraged over his predecessor's budget problems, but he did nothing to secure the state's fiscal future - and he now faces a projected budget deficit bigger than the one that did in Gray Davis.
That's absolutely true. And the suffocating 2/3 requirement is most of the problem here. But once we get out of this crisis, hopefully with some assistance from the federal government for Medicaid and public works, we need to think a little more creatively about how to reduce the risk of a state's fiscal trap on the greater economy. One idea is allowing state governments the ability to deficit spend, perhaps through the creation of some federal Stimulus fund that states facing certain deficits can tap. This is the framework behind the National Infrastructure Bank proposed by Sens. Dodd and Hagel last year, but I would broaden it out. There's also the option of federal guarantees for state bond markets to increase investor confidence, or allowing states in a fiscal emergency to borrow at lower federal rates in the short term. These are steps similar to those being used to bail out banks, with the Fed intervening in the commercial paper market, and they should be tools for the states as well.
With structures like this in place, just maybe we can phase out the balanced budget amendments that force these bad choices on the states. Ultimately, California can't ask for help until they help themselves. The bond market will simply not improve until investors are assured that the state can manage its own affairs. But after the failed Schwarzenegger Administration, the next governor should think seriously about giving the state flexibility in an economic downturn, rather than going along with the necessary steps to making things measurably worse.
Since the days of Reagan, America has been chasing a Theory.
Since the Clinton era, and the rise of NAFTA and Global Free Trade, our "Corporate Leaders" have been conducting an unprecedented Social Experiment.
The Experiment: Economic Darwinism
The Test Subjects in this Experiment: none other than American Workers and our "more competitive" counterparts, overseas.
Supply-siders have argued that Economic Growth comes from empowering Corporate Interests to become "More Productive", by whatever means necessary. Be it "Tax-Give-aways to the Wealthy", or "Job-Give-aways to Poor Foreigners", well that's just fine with them, long is it results in Corporate Growth.
Supply-siders are happy to trade away American Dignity for the sake of short-term Profits: "American Workers just need some retraining. They just need to apply themselves."
"We just need to learn to Adapt" ... (to Global Markets?)
That's the Theory, that's the Spin. What are the Results of this on-going plan to outsource the American Dream?
Sunday night we all watched the man who should be president take the world stage to spread the message of his now Academy Award-winning film An Inconvenient Truth: there are measures that each of us can take to slow global warming and it is our duty to do so.
In his column Colorless Green Ideas (behind firewall,) NY Times columnist Paul Krugman uses his own platform to do the same and in so doing provides some historical context that demonstrates how California can serve as a model for the nation on tackling global warming.
He begins by paraphrasing Gore's oft-heard refrain:
The factual debate about whether global warming is real is, or at least should be, over. The question now is what to do about it.
Krugman can barely hide his contempt for those that still deny the climate crisis. And he takes little solace from the fact that fewer and fewer of them seem to deny the phenomenon's existence outright preferring instead to resist the notion that humans can ever hope to have any effect and to insist that such an effort would come at too high a cost.
