Nationalize California!

I ended my post on Friday last week with a tongue in cheek question: should we nationalize California? Given the turmoil that has erupted since the announcement of a budget compromise this morning, nationalization may now be a serious option.

“California is a true banana republic – it would be laughable were it not for the tragedy about to unfold.”

California has managed itself to the edge of oblivion, and like GM or Chrysler it deserves no sympathy at all from the rest of us. It has a convoluted and seriously damaged legislative system riddled through with anachronistic nonsense like the perverse ‘proposition’ process that allows any rich group of people to band together and collect enough support to pass legally binding single issue proposals. These propositions are a deep rooted part of the current malaise: they contort the budget process and prevent any form of holistic management of problems. They are an activists dream, but a managers curse.

Similarly the state’s constitution is plainly out of date with its insistence on super majority votes for tax increases.

These two ridiculous governance antiques, plus the states deeply divided voter base, have produced a level of incompetence that has now reached comic proportions.California is a true banana republic – it would be laughable were it not for the tragedy about to unfold.

Because the proposition system has blocked property tax revenue increases – it worse than that: it has generated a huge diversion of tax burden away from the wealthy and onto the poor – California relies disproportionately on income taxes for the bulk of its revenue. naturally in a time of job loss and wage cuts that implies a big fall in state income.

At the same time other propositions allocate money to things like education.

So the budgetary room for maneuver is minimal.

Throw in an electoral system rigged to ensure re-election of incumbents of both parties, and it is surprising that the state has not imploded before. There is no incentive for elected officials to be responsive to voters: they are generally assured re-election. So personal advancement comes from adopting ever more extreme partisan positions. The result is that the state’s legislature is populated by politicians on both sides of the aisle who have a near kamikaze desire to be seen as inflexible: there are no-tax absolutists, and no-spending cut absolutists, but precious few people trying to solve problems.

The place is a joke. And it is an exemplar of how not to construct a democracy. It is ‘me-ism’ run amok. No wonder it sent us Ronald Reagan: the ultimate ‘me-ist’.

Now the chickens come home to roost.

With revenues collapsed, no ability to raise revenues because of the ‘no-tax’ folks, and an unwillingness to trim spending because of the ‘no-cut’ folks, the state’s budget has spiraled out of control for months.

Today’s ‘compromise’ is a resounding defeat for the people of California: services will be slashed, tens of thousands of jobs will be lost, and the state’s debt will rise sharply. The school system is about to be thrown back decades. And the poor will suffer the loss of many basic safety net programs.

In other words this is a victory for the Hooverites.

So: the state’s recession is about to deepen. Those lost jobs are lost revenues for local business. The damaged schools system suggests an impaired competitive position down the road. Lost jobs also means lost tax revenues: thus adding to the very problem the job cuts are designed to solve. And the new borrowing adds to the state’s future tax bill.

Examples of the carnage: 20,000 teachers fired; there will be no music teaching, no art, and no physical education funded. Low income children, about 930,000 of them, will have their benefits cut. Cities and other municipalities will lose about $4.7 billion in state funding – so they will have to cut also. And $1.3 billion will be cut from low income health care generally. And oil drilling off the coast of Santa Barbara is to be given the go-ahead.

Quite what oil drilling will do to solve a near term crisis I don’t know, but it looks as if the right wingers won this one hands down. Their property taxes won’t go up, so those pockets of wealthy citizens are safe, and they’ve just assured a good supply of low educated cheap labor to mow their lawns in the future.

It makes me cringe to think that an economy as wealthy as California’s: it is huge by international standards can be so poorly managed.

Nonetheless that’s where the state now is.

Unable to pay its debts because its citizens presumably don’t care about either the quality of life or their fellow citizens enough to figure out a better way of government.

As I said: were this GM the credit markets and the world at large would be walking smartly away from the place. It would be on its knees begging for assistance. We would be discussing a bail-out and the terms to attach to it.

And the shame is this: because California is such a large part of the US it’s cutbacks are likely to make our recession harder to throw off. Those extreme moves the state is taking are Hooverite – they are exactly opposite to what is needed. The federal stimulus will be blunted by the idiocy at the state level.

So: should we just nationalize the place, write a check to balance its budget, and then enforce management and constitutional changes to make sure it doesn’t screw up again? That’s what we did to GM. Why not California?

Addendum, Tuesday, 10:45 p.m.:

Here’s the New York Times on the California debacle. The end of the California dream? Perhaps. Most of the so-called sun states live an illusion. They are full of people who want services for low cost. It is the state equivalent of a ponzi scheme: the only way they get away with it is constant growth to generate extra revenues, not from setting the taxes high enough to pay for things, but by getting more people in. Of course, like all ponzi schemes, when the music stops something has to give. All the sun states will have to confront this issue sometime: the need for infrastructure clashes with the population’s ‘dream’ of something for nothing. Then reality sets in and disillusionment follows.

Addendum 2:

This review in Washington Monthly of a book by Kevin Starr captures the sense of decline well. No one can eliminate the possibility that California can recover. It will. But the scars will also be deep and that fizz that made the state so compelling for thirty to forty years has clearly gone. Now it’s more like a brooding adolescent: petulant, confused, and totally lacking innocence. Too bad, but they all grow up sometime.