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| California's scary sneak preview | |
| 2010-01-03 | |
| We Californians pride ourselves on the crystal-ball quality of our state. Auto emissions regulations, the tech boom and bust, Ronald Reagan, Hispanic immigration, the anti-tax revolt, the mortgage bubble, the struggle for gay rights, most movies, the popularity of Richard Nixon, the unpopularity of Richard Nixon, plastic surgery, and Tiger Woods's marital problems were all tested in the Golden State before being released to audiences nationwide. The next likely item on that list is not a happy one, however. California is in a total fiscal crisis. It's had to slash state services to the bone and will have to cut further.
California's fiscal crisis will look sadly familiar to close watchers of the national checkbook. That's because California is not having a fiscal crisis so much as a political crisis. The trigger may have been the recession, but the root cause was written into the state constitution, and it was visible long before the housing boom went bust. In California, passing a budget or raising taxes requires a two-thirds majority in both the state's Assembly and its Senate. That need not pose a problem, at least in theory. The state has labored under that restriction for a long time, and handled it with fair grace. But as the historian Louis Warren argues, the vicious political polarization that's emerged in modern times has made compromise more difficult. All of this, however, has been visible for a long time. Polarization isn't a new story, nor were California's budget problems and constitutional handicap. Yet the state let its political dysfunctions go unaddressed. Most assumed that the legislature's bickering would be cast aside in the face of an emergency. But the intransigence of California's legislators has not softened despite the spiraling unemployment, massive deficits and absence of buoyant growth on the horizon. Quite the opposite, in fact. The minority party spied opportunity in fiscal collapse. If the majority failed to govern the state, then the voters would turn on them, or so the theory went. That raises a troubling question: What happens when one of the two major parties does not see a political upside in solving problems and has the power to keep those problems from being solved? If all this is sounding familiar, that's because it is. Congress doesn't need a two-thirds majority to get anything done. It needs a three-fifths majority, but that's not usually available, either. Ever since Newt Gingrich partnered with Bob Dole to retake the Congress atop a successful strategy of relentless and effective obstructionism, Congress has been virtually incapable of doing anything difficult because the minority party will either block it or run against it, or both. And make no mistake: Congress will need to do hard things, and soon. In the short term, unemployment is likely to remain high and the economy is likely to remain weak unless Congress can muster another round of serious stimulus spending. The economist Karl Case, co-founder of the famed Case-Shiller housing index, now believes that earlier optimism about our economic recovery -- which he shared -- was misplaced. "The probability is very high of a serious double dip like 1982," he told the New York Times. The housing market seems to be sagging again, and the government's interventions -- not just the stimulus but also relaxed standards at Fannie Mae, Freddie Mac and the Federal Housing Authority -- are set to end. Further out, the long-term deficit problem, which is driven largely by health-care costs, is startling. The Center for Budget and Policy Priorities estimates that debt will reach 300 percent of gross domestic product come 2050 -- and that estimate might be optimistic. But solutions seem unlikely. No one who watched the health-care bill wind its way through the legislative process believes Congress is ready for the much harder and more controversial cost-cutting that will be necessary in the future. Similarly, Sens. Kent Conrad and Judd Gregg recently suggested a bipartisan deficit commission that would reach a consensus on the budget and report back to a grateful Congress. On Tuesday, a Wall Street Journal editorial showed the conservative interest in such compromises: Republicans should "agree to a deficit commission only if it takes tax increases off the table," it said, reminding wavering Republicans that "President George H.W. Bush renounced his no-new-taxes pledge and made himself a one-termer." These two problems get to the essential difficulties confronting the nation: There is no doubt that minority parties generally profit in elections when the unemployment rate is high. But given that reality, what incentive do they have to help the majority party lower the unemployment rate? Further out, there is no doubt that the majority party has an incentive to prevent a fiscal crisis on its watch. But what incentive does the minority party have to sign on to the screamingly painful decisions that will avert crisis? In another system of government, that wouldn't much matter. In our system of government, which requires a supermajority in the Senate for most projects, it matters a lot. On Jan. 20, for instance, the Senate is expected to vote on raising the debt ceiling. Generally, this is a bipartisan vote, as the debt is a bipartisan creation. This year, Senate Minority Leader Mitch McConnell reportedly told Majority Leader Harry Reid that if he wants an increase in the ceiling, he owns it and needs to find the votes for it. That's the sort of budgetary brinkmanship that brings us back to California. The lesson of California is that a political system too dysfunctional to avert crisis is also too dysfunctional to respond to it. The difficulty is not economic so much as it is political; solving our fiscal problem is a mixture of easy arithmetic and hard choices, but until we solve our political problem, both are out of reach. And we can't assume that an emergency, or the prospect of one, will solve the political problem for us. If you want to see how that movie ends, just look west, as we have so many times before. | |
| Posted by:Fred |
| #19 ALl you guys missed it - the perfect tip as to the bias in the article: long-term deficit problem, which is driven largely by health-care costs WRONG! Its cause by massive government spending in excess of tax revenues. The write of this is full of it, misdirecting and constantly trying to cast blame away from where it belongs: the lack of fiscal restraint by Democrats (and their union buddies) in structuring state and federal spending to rachet up, but never down. Its the gold-plated union retirements, benefits, contracts and political payoffs that are sinking California. Its the pork spending and political cronyism payoffs via budget (Yeah you Murtha) that's killing the federal budget. The most recent example is the "health" bill: it "saves" 368 billion from medicate by putting in 118 billion in NEW TAXES and 250 billion in medicare payment/service CUTS (and dumps many of them on the states, mandated but unfunded). But here's the fun part: It then turns around and "borrows" from the "savings" onthe Medicare books - which are NOT partof the budget when it comes to accounting -- in Congress crooked accounting borowing form medicare and social security doesnt count the same as treasury debt. They leave an IOU in medicare for over 250 billion to pay for pet projects. this is an IUO that isnt accounted for, its "off the budget". Its that "off budget" crap that is killing the government. If a business were to keep books like that they'd be arrested for fraud. Put the Government on GAAP based accounting, and see the TRUE deficits. They are staggering. And THAT is the problem, not this red herring of "healthcare spending". |
| Posted by: OldSpook 2010-01-03 14:48 |
| #18 The problem in Caliphornia is an excess of democracy. Our founders constructed mixed government with a balance of democracy, oligarchy and monarchy. For the last 225 years we have eroded the oligarchical and monarchical powers to increase the democratic powers. As a result we have a class of irresponsible professional legislators who will do whatever is necessary (read bribe the voters) to be reelected. Until this is changed, deterioration will continue until the man on the white horse rides in. And it started with the first Roosevelt, not the second. |
| Posted by: Nimble Spemble 2010-01-03 14:14 |
| #17 The big problem in California is the pension plans for state workers. And the numerous commissions (great place to park former legislators, political hacks, etc.), the on-job benefits (like a car) given legislators, state employees (two pairs of eyeglasses per year for example) and those in the state education system, the heavy emphasis on regulations and (especially) regulatory enforcement... |
| Posted by: Pappy 2010-01-03 13:31 |
| #16 Only in the sense of a bull "servicing" a cow. |
| Posted by: Omoter Speaking for Boskone7794 2010-01-03 12:57 |
| #15 We are headed for 2nd world status unless there is a huge change in Washington. We're already there. A decade of zero job growth (net government gains, private sector shrinkage), a real unemployment rate in the range of 15-20%, crushing tax & regulatory burdens at all levels of government that stymie economic growth, etc. are clear signs of that. We've already become a banana republic whose political masters have pressed the peasantry into the service of a few monied interests. And legally mandated spending on third rail entitlements (along wiwith a host of other public sector stupidity) guarantees a currency collapse as running the printing presses has become the government's favored tactic to deal with poor Treasury auction participation. Politicians have little inclination to fix these problems and enough of the sheeple are succeptible to sound bite politics & the whims of the media to guarantee that no serious discussion, let alone action, can occur. |
| Posted by: AzCat 2010-01-03 12:53 |
| #14 The big problem in California is the pension plans for state workers. A cop or fireman commonly work overtime their last couple of years and cash out their vacation so that when the amount of pension they get for retirement is determined they get the max among. Gaming the system. It ensures most cops and firemen retire with benefits greater than the vast, vast majority of Americans. I have nothing against police or firemen, and you'd almost be a moron to not work the system that was set up, but this has been going on for years and the politicians have done zero to fix the problem since they want the union votes. |
| Posted by: rjschwarz 2010-01-03 12:44 |
| #13 Just BAN / REVOKE: Unionization by anyone whose salary is paid by the taxpayer: Defined benefit pensions that are sweeter than anyone in the private sector can get; Politician to lobbyist progression. Then privatize EVERYTHING except courts and police... |
| Posted by: M. Murcek 2010-01-03 12:34 |
| #12 Oh, California will get their bailout. Then in the 3rd quarter when it has run out of money and comes asking again, the feds won't have any since the Chinese won't pay up again and the only option is bankruptcy or printing more dough. Then, shit will really fall apart as the feds are bankrupt and hyper deflation kicks in. |
| Posted by: DarthVader 2010-01-03 12:30 |
| #11 and you'll discover that most state services don't actually serve. |
| Posted by: Bright Pebbles 2010-01-03 12:09 |
| #10 The addiction facing AMerica is the excessive use of credit in every aspect of personal and collective fiscal decisions. People generally have lived better lives than their incomes would allow through the use of deferred or borrowed payments. In the near term this use of credit sparked in the equities and realty markets inflationary spirals that fed the false expansion of perceived value. The tech bubble colapse, the housing bubble collapse, and now the looming bond bubble collapse all reflect the cost coming due. California is hoping to ppostpone the pain by getting the federal government and Odumbo/Pelooney/Reidiculous to front even more printed paper. Folks, we are in way too far to avoid a really crappy decade ahead, but the more they postpone, the uglier the endstate gets. I'm bailing out of CA sadly to avoid the more imminent mess, but the entire nation is slipping into insolvency due to debt. We are headed for 2nd world status unless there is a huge change in Washington. |
| Posted by: NoMoreBS 2010-01-03 11:22 |
| #9 Under Barry, the other "56 States" could be on daily rations of bread and water and they would STILL be paying tribute to California. There are far too many Democrats there to let it fail. |
| Posted by: Besoeker 2010-01-03 11:14 |
| #8 “The trouble with socialism is that you eventually run out of other people's money.” —Margaret Thatcher Trouble is that California isn't out of other peoples money yet. Expect a big bailout by the Obama administration. California will gladly pick your pockets to continue to pay for their excesses. |
| Posted by: DMFD 2010-01-03 09:47 |
| #7 There are two problems here: 1) Most all politicians of every strip personally gain from obscene levels of spending. 2) It is ONLY the big spenders that have to compromise. The problem we have here is that of a victim faced by a thief who steals $1000. Is it a compromise if the thief gives back $500? There is NO movement among fiscal conservatives to totally defund the gov't. So they are locked into spending. There is NO movement among fiscal libertines to spend less than they want. Therefore, the conservatives have no leverage and no platform to try and get a message out. |
| Posted by: AlanC 2010-01-03 08:12 |
| #6 #4 This is a long time coming. It started with the new deal and was pushed along by the great society. pharma benefits added to it. I remember many of the old timers [now gone] predicting this, those who had experienced FDR and the "New Deal." Something along the lines of "when will it all end" is a statement I recall hearing frequently. |
| Posted by: Besoeker 2010-01-03 07:07 |
| #5 In the short term, unemployment is likely to remain high and the economy is likely to remain weak unless Congress can muster another round of serious stimulus spending. The Prosecution rests. |
| Posted by: g(r)omgoru 2010-01-03 02:05 |
| #4 This is a long time coming. It started with the new deal and was pushed along by the great society. pharma benefits added to it. medicare is out of cash in 7 years. If healthcare goes through, it will collapse earlier because the reimbursements cuts will cut facilities just like the Mayo clinic announced it is not taking any more medicare patients at one of its clinics on Friday. There is no compromise to what is coming. Entitlements have to be slashed and the sooner the better. The longer it is left the worse it gets. Just as the longer the money creation goes on to prop up the lower end housing via Fannie/Freddie/FHA the worse it will be when the Fed withdraws supports and real interest rates apply. It took nearly 80 years to get to this. Its not going away in a week. The question is whether the American people have the character to do what needs to be done, or whether it will be left to the bond market and the currency market to deal with the hyper inflation which will arise if these issues are not addressed sooner rather than later. We are about to witness generational warfare. |
| Posted by: Omoter Speaking for Boskone7794 2010-01-03 01:52 |
| #3 Yep, that is exactly my point. The VOTERS gave the minority the power to DEMAND changes to the budget. That should be respected by the majority, but unfortunately, it has not been. Thus all the wringing of hands about how the Golden State is ungovernable. Ney, I say. Simply respect the minority and govern with a two thirds coalition. |
| Posted by: rammer 2010-01-03 01:44 |
| #2 Problem is - only the Republicans have been compromising - and compromising some central, basic, Conservative ideals (smaller goverment, fiscal responsiblity, etc...). And compromising entirely too much - McCain and the second term of Bush are two prime examples. |
| Posted by: CrazyFool 2010-01-03 01:28 |
| #1 It is a shame that the majority can't figure out that they need to compromise to accomplish things. That is what the voters wanted. |
| Posted by: rammer 2010-01-03 01:07 |