I don’t know how the US press is reporting it, but according to the UK press, California is on the verge of economic collapse. IOU’s were issued to public workers, lawmakers can’t agree on a budget and neighbouring Nevada has instigated an advertising campaign to lure businesses away from California. Governor “Ah-nuld” Schwarzenegger (who for the rest of the article will be referred to as “AS” as I can’t be bothered to write his name out every single time) is trying his best to bring business to “Cali”. He’s gone on a jaunt to Asia to try and drum up trade. And his press folk will announce even the smallest win.
Bloomberg reports that Hyundai is investing $150m to expand its (already existing) North American headquarters, which is already located in California. The whole project will involve constructing a new building in Orange County (about 1500 new construction jobs … until the building is up) and doubling the amount of Hyundai employees (reducing the Californian unemployment rate). “This means thousands of jobs for California at a time when they are needed most and an important boost to our local and state economies, “said Governor AS, “I have pledged my continued support as these fantastic companies move forward with these investments.” This expanded Hyundai venture will create $273m in economic output for California.
There might be a quid-pro-quo. AS took a test ride on Korea’s KTX bullet train. California is planning to build a high-speed railway (if they can find the mony) and companies from Germany, France, China, Japan and Korea are interested in the $40b project.
“We hope Korea will bid on the high-speed rail. It will be a terrific partnership,’’ AS said.
Any other Asian entities want to help plug the $19b budget gap California has? Now is the time to do it. The press you get from buying a building will be worth the investment. A few years ago, you could buy a mansion in 90210 for more and people would have complained that the neighborhood is going down. These days, you may get a railroad thrown in.
“…according to the UK press, California is on the verge of economic collapse.”
True.
…lawmakers can’t agree on a budget…
This is the biggest part of the problem. In a rational system, it would be possible for the government to actually do something, even if it’s painful. In California, it’s nearly impossible to do anything except for the most milquetoast, populist nonsense. You see this at the Federal level as well, but the Federal government has a few more options than a state does, and the supermajority is more a “spirit” thing than the actual law.
It’s really fascinating: between the supermajority requirement and the tendency to make even the puffiest legislation a matter for a referendum, it’s like it’s designed to discourage any real work from getting done. Funny how the most liberal state has a conservative-by-design government structure. Greece is actually more effective.
Partisanship doesn’t help. To quote Wikipedia’s entry:
The majority Democrats fought to minimize cuts to programs, while most of the minority Republicans refused to accept any tax increase
No one wants to make the necessary cuts, nor do they want to pay for the services they want and/or need. If you wanted a case study on how democracy can have real problems, this is it. Again, in a sane system, they’d either increase taxes, decrease spending, or a mix of both. What this system encourages is doing nothing whatsoever while allowing infinite opportunities to fingerpoint.
The problem is not employee salaries. It’s not too little or too much tax. It’s complete fiscal paralysis.
Perhaps you’re right… but if we eliminated the 2/3 majority, spending would simply not decrease – it would remain the same or increase, as the Democrats have proven unable and uninterested in reigning meaningful spending in, even during a recession… that’s one of the key reasons why we still have no budget. That disinterest in cutting spending would force the state to borrow even more, worsen the credit rating and very likely cause the economic collapse Cammy mentions. In this scenario, a business exodus would be unavoidable, as taxes would be raised to pay for this mess, worsening the unemployment, which is still one of the worst in the country.
The CA budget has been months late for the last several years because our representatives aren’t being honest with themselves or with us about services that must be cut and having a realistic dialogue about the relationship between tax increases and jobs.
I do agree with you on the proposition process, though. We Californians are like passengeres on a train where everyone has access to the brakes. It’s ridiculous.
That referendum process has also led to much mandatory spending, reducing the ability of the legislature to cut programs even further. Most people don’t seem to understand that when they mandate money for a program it comes from somewhere other than the tooth fairy. No wonder the legilature is fearful of any real cuts to department budgets, especially the ones who ran on “what free stuff I can bring to you” platforms, which would be a majority of the legislators and nearly 100% of the democrats.
Moderately left-wing political parties all over the western world have figured out that you will, at some point, need to reign in spending. Canada’s Liberals figured this out last decade, and it looks like bits of Europe are getting a clue. Austerity is the word of the day, even among socialists.**
The Democrats aren’t doing this, not because of their political stripe (they’re generally to the right of most other nations’ left wings) but because of brutal partisanship. The Republicans are faced with the same: ideology doesn’t matter, and indeed isn’t that different, so differentiation comes in the form of knee-jerk opposition to whatever the other guy is doing.
In California this is particularly nasty because of the supermajority requirement. Two more political parties and an end to propositions would go a long way to fixing this mess.
** No, really. I know this is hard for non-Americans to believe but it is true. The other telling point is that non-insane right-wingers across the globe have come to realize that you can’t cut revenues (taxes) and expect to “make up the difference in volume” as it were.
I agree that the supermajority requirement for a budget is not the real problem. Rather the problem seems to be polarization where the left spends and the right cuts taxes. So each year we spend more and collect less. Then the politicians blame each other.
This state is a “where’s mine?” type of entitlement atmosphere that makes me wonder why I ever moved here.
As people have said, the bad part is that the federal government looks more and more like California. Spending with abandon while still cutting taxes. Idiocy.
I agree that the supermajority requirement for a budget is not the real problem. Rather the problem seems to be polarization where the left spends and the right cuts taxes. So each year we spend more and collect less. Then the politicians blame each other.
That’s the supermajority in action. Or rather, not.
If you didn’t need to throw a tax-cut bone to the right, you’d have the revenues to support spending. You’d probably also have a greater willingness to cut on the part of the left because they wouldn’t need to pander quite as much; they’d be able to cut and not worry so much about losing legislative “marketshare” as they’d only require 50% to get anything done.
Plus, you’d get everything done a hell of a lot quicker, which helps confidence in the economy in general.
Economic collapse… meaning bankruptcy?
That actually would help in that it would void union contracts and force all of the state unions (prison guards, teachers, etc.) back to negotiate unsustainable benefit packages and retirement windfalls.
I don’t think that will happen, though, as anyone in public office pushing for that would be voted out by a populace who doesn’t know how to balance a checkbook.
+1 for the Governator, though. Rather than pissing off companies outside of CA as the LA mayor has done (pushing for AZ boycotts, telling gas companies he doesn’t want them here), AS is trying to wrangle up more jobs for his constituents.
“I don’t know how the US press is reporting it, but according to the UK press, California is on the verge of economic collapse.”
It’s worse than you think. Arnie caved, now what?
Part of California’s problem is mass low-skilled immigration. According to the US National Academy of Sciences, the average native Californian family paid an extra $1178 in taxes to finance average transfers of ~$3,000 to immigrant families.
Of course, the political sclerosis Psarhjinian describes prevents anything from being done about anything.
The CA stalemate is the inevitable result of a political system that rewards lawmakers for handing out govt largesse while punishing them for trying to pay for that largesse, and a media that will rip the head off of any lawmaker (right or left) that dares to craft a compromise across the aisle. And I fear that the federal govt is well on its way to a similar stalemate.
The real problem is that government has changed from doing what’s best for the country regardless of cost (I don’t mean debt, I mean social sacrifice) or present concerns to doing whats best to keep you elected (being a Rep. or Sen. is a damn good job and one that can be open ended). Term limits would fix this to a degree (Amendments to the constitution do not have to go through the federal government, they can go through the states, the founding fathers included this provision for a reason) with the line item veto taking care of the rest.
I used to tell my daughter that she would live to see the world as a very different place (environmentally, economically, socially, etc.), I am beginning to think that I will live to see it as well (not quite to the stage of buying gold and ammo yet)
California has very string term limits for all state elected offices, and the problems have only gotten worse since those “reforms” were put in place.
Term limits make the elected officials the tool of the unelected civil service. About the time an elected official learns how to be effective, they have to leave office.
The big money that pull the party strings will just have a different candidate to control more often. Changes nothing in my mind but I’d like to try it just to be sure… make them feel as uncertain as the rest of us… LOL!
California has the sixth highest tax burden in the nation, so the “supermajority” requirement hasn’t prevented the state from raising taxes. The idea that taxophobic Republicans have prevented California from raising the revenue it needs to function is nonsense. The state has, by every measure, very high tax rates. For that matter, the state with the highest overall tax burden, New Jersey, is also a fiscal basket case, which further suggests that the root of the problem is a spending one, not a reluctance-to-raise-revenue one.
For that matter, I’d like to see where the right has successfully cut taxes in California in recent years. (Proposition 13 was 32 years ago, so that one doesn’t count.)
From what I can see, the Republicans have, at best, prevented taxes from being increased, which, at this point, is a good thing, considering California’s already high tax burden. They are cutting off the alcoholics from getting any more booze…
Are you considering just income tax?
That said, what California has is a poor tax system: it relies mostly on income and sales taxes–mostly income—and hardly at all on property taxes. It’s income tax regime isn’t smart and is regressive. Because of the supermajority it’s very slow to react decisively and has to resort to backhanded measures to get more money, especially at the local level.
Eliminate the supermajority and the pandering it requires and things would improve. The last thing California needs is further balancing of the scales; it sounds good (“cutting off the booze supply”) but it also prevents the alcoholic from getting treatment and drives them to drink aftershave instead, which is what’s happening now.
Or, to extend your metaphor, if a Republican house were in control they’d be allowed to lock the drunk up as well.
The sixth highest tax burden takes into account ALL taxes.
And California has a very progressive income tax structure, with higher rates on the top earners. It has one of the most progressive state income tax structures in the nation.
The simple fact is that California spends too much money. It went on a spending spree in the 2000s – particularly in the area of pension benefits for government employees. It is also much more generous with welfare benefits than other states (the state government has made it very hard to sanction people who don’t look for a job while on benefits). Making it easier for state government to raise taxes is NOT the answer.
“Or, to extend your metaphor, if a Republican house were in control they’d be allowed to lock the drunk up as well.”
Sounds like a plan to me! At least that way the “drunk” can’t hurt anybody (individuals or businesses).
Instead of staying home and working out a budget deal, the unbelievably unpopular governator is out running around the world on a trade mission. He has no pull at home and is a lame duck, so he really isn’t in any position to cut any deals during his boondoggle at all. AS has said that he is fine with kicking the budget ball down the field to the next Governor. Meanwhile, California isn’t paying many of its bills and many businesses which contracted with the state in good faith are first dipping in to their credit cards, then closing up shop.
I don’t live in CA and never will. And that’s too bad because it’s a beautiful interesting place with a huge variety of places to live. Great weather and so much potential for return to greatness.
It’s also right next to Mexico and the invasion is almost complete. As soon as the economic winds stopped blowing the ship came to a halt. The crew running the state killed the goose that lays the eggs with high taxes, incredible regulations, and relative indifference to small businesses who were fleeced. It’s hard to say if too much management or not enough is the problem since it depends what you look at.
AS’s terms as governor were not great ones but considering the system in place what could be expected? You would have to replace the governor and the rest of the stat house overnight to have any meaningful impact and then take on the powerful public employee unions. Even if that was possible 2/3rd of the budget is spoken for in entitlements and commitments that makes it impossible to spend less.
A Greek Tragedy for sure.
My 2c:
The Governator has done as well as any human could; he is absolutely an improvement over his predecessor. (The predecessor, Gray Davis, was recalled because he didn’t effectively deal with CAs self-inflicted electrical power crisis, a separate topic.)
The biggest problem in the CA budget is: pensions. My understanding is that government pensions all over CA (and all around the US) got inflated during the dot-com bubble. Every pension plan was realizing huge gains in the stock market, and the politicians generously promised all the expected riches to government workers. The city of Pittsburgh, CA has already declared bankruptcy over this. In my home city of San Jose, municipal pensions costs have far outstripped everything else in the budget, and the fight to reduce them (e.g. layoffs) is happening right now. At the state level, the Governator has already addressed this; alas, he won’t get credit because everybody is too upset by the problems he didn’t solve.
IMHO the super-majority requirement (2/3) in the legislature is a big part of the problem. With a majority budget, the party in power runs the show; in the current CA legislature, that means the Democrats win. This probably means more taxes &etc. However… it forces *something* to happen, and if it’s judged to be bad, the majority power can be punished in the next election. If it’s a competitive election…
Currently, most CA Legislators are elected in “safe” districts, where you can only lose by insufficient pandering to the extremists at home. Ergo, in Republican districts, taxes, spending, immigration and crime are all bad, and you win the next election by “taking a stand” on these hot-button topics. In Democratic districts, you win by standing up for services for the infirm, avoiding cuts to local police and fire, sympathy for the (unionized) working man… You know the drill.
With these “safe districts” and the super-majority requirement, nobody can be blamed for screwing up the budget.
CAs term limits were enacted mostly to end the lifelong tenure of Willie Brown, former speaker of the CA Assembly. Mr. Brown is a very talented politician who could get budgets passed &etc. However, anyone with that much power for that long… (insert pithy quote here). While I admire Mr. Brown’s political skills, I have less admiration for his dedication to the Public Good.
CA also needs a redistricting process that isn’t controlled by the current legislature; this is how we got the current scheme of mostly “safe districts.” I understand this is being addressed now. However, IMHO the budget problems won’t get fixed until we give up the super-majority requirement.
As for Nevada, it’s a nice place to visit. :-) NV can advertise all they like, but most of the NV economy is based on tourism and gaming, and I don’t see that changing any time soon. Las Vegas is the poster child for the housing bubble; years will pass before they recover. Also, NV has a worse water shortage than CA, or would, if their economy was bigger. CA should probably be more worried about India and China.
After all of that, CA is still a nice place to live, if you have a job. :-)
stuart
I agree, the Silver State is a different animal economically than CA. The upside of the real estate bubble bursting is that a decent house can be had for $140k. NV also has a lot of warehousing and dirty(er) manufacturing that was driven off by the awful tax and regulatory environment of Kali. I can name two firms off the top of my head that have closed manufacturing sites in CA and relocated to Northern NV. On the other hand the education system here is weak so employers that need a lot of skilled labor pass on the area.
The majority Democrats fought to minimize cuts to programs, while most of the minority Republicans refused to accept any tax increase They’re called ” Screwed coming & going” literally.
Karlifornia has more people than the great white north , Republic of Canuckstan.
Lived in California from 1957 to 1993 when I fled to re-enter the USA.
One has t6o experience the horde of low-skilled fast-breeding legal and illegal immigrant tidal wave to understand the social and economic costs.
Last statistic I saw showed that 2/3rd of Los Angeles County births were to illegal aliens.
Illegals cost California BILLIONS of dollars more than what they inputted into the tax systems.
Ample info resources upon the Web for those who want to investigate.
Other reasons for economic problems in California but the illegals can not be discounted and being the number one destination for legal immigrants hurts.
One Washington Beltway think tank determined that every individual South Vietnam refugee from that era cost the taxpayer a minimum of one-million dollars each. I do not have the time to seek info sources to sate others’ whims, I am working on memory alone but I spent several years of researching during my “activist years.”
Other legal immigrant groups have also been quite costly and so many have never been very productive, being a net economic loss except for, interestingly, immigrants from China, Japan and Korea whose cultures have tended to produce immigrants that have mostly been a net positive for the state and the USA as a whole.
It is obvious that not all cultures are equal!!!!!
IF the majority of “entrants had been from northern Asia California MAY have been in an economic boom period the past three decades!!!!!
What is scary is the adage declaring that as California goes so will the rest of the country in the next 20 years.
To simplify affairs….. I will place the blame upon political correctness.
Too many in the USA have lost the backbone needed to be a viable country.
The barbarians are not at the gates… they have entered the California and the USA by the multi-millions and the realm is decaying, likely doomed to fall.
The house is divided.
The “diversity is our strength” cult has defeated any demands for at least a minimal set of unifying bonds.
I do believe that’s the most coherent thing I’ ve ever seen you post. And that final line deserves to be repeated. There is nothing wrong with demanding that anybody who wants to permanently relocate here commit to being an American.
“Lived in California from 1957 to 1993 when I fled to re-enter the USA.”
Quote of the day sir! Sadly though as you stated the rest of the country may be going the way of California.
Nothing wrong with referendums and it’s not the fault of having two parties.
The problem is:
1) Conflicting laws. If a new law is established by referendum, for better or for worse, all prior laws that contradicts the new law must be scraped.
2) Lack of law enforcement. For example, IOU is not legal currency. Paying employees IOU isn’t really legal. If everyone adhere to the law, then no IOU should ever be issued, the employees will be automatically laid off when there is no funding. Problem solved. Public workers get pay for their work. Citizens get the service they pay. No deficit, no debate. New referendum if you are not satisfied.