Free Markets, Free People
In one of those “make sure you read the whole article” stories in the Washington Post, it begins like this:
The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.
Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.
If you read no further than that, you’d probably think, “thank goodness, a modicum of sanity has returned to the federal government”. It is California’s mess and California, along with the other states, need to learn a hard but necessary fiscal lesson here.
But, while perfectly correct in your assessment, you’d be wrong to think that the present rejection is final. Buried a few paragraphs down is this:
These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.
I’m sure he or she didn’t. This is another Geithner plan based in the premise that California is “too big to fail” – the 8th biggest economy in the world and its failure would slow down the economic recovery of the US.
Given that inclination on the part of Geithner, it would appear that nothing has been learned from the Chrysler and GM bailouts, failure and eventual bankruptcies. Granted, California’s “failure” would be quite a bit larger than those two, but haven’t we yet learned that propping up a unsustainable business or government model just doesn’t work?
While it may be painful for both California and the US, nothing changes in California unless massive cuts and changes are made in that government. And, as has been evident to even the most tuned out of constituents, the California government model has been unsustainable for over a decade.
Naturally, California wants to characterize their plight in the way that will appeal the most to the emotions:
“After June 15th, every day of inaction jeopardizes our state’s solvency and our ability to pay schools and teachers and to keep hospitals and ERs open,” Gov. Arnold Schwarzenegger (R) said Friday.
But the hard fact remains that the solvency of all those institutions are in jeopardy with or without a bailout. We’re simply talking about how long we want to extend the problem not how to solve it. Solutions mean massive cuts in government spending and resultant reductions in government services. Or said another way, California is finally going to have to live within its means or fail.
That’s not a condition the rest of the taxpayers in this country brought about, and it certainly isn’t one they should be on the hook to “bailout”. And that goes for every other state in that condition as well (see the article and its mention of how Treasury is thinking about doing something with auto suppliers in Michigan – is that the job of Treasury).
Although many people don’t want to hear it.
Arnold Schwarzenegger on the situation in California:
“People come up to me all the time, pleading ‘governor, please don’t cut my program,’” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It’s an awful feeling. But we have no choice.
“Our wallet is empty. Our bank is closed. Our credit is dried up.”
Then. Cut. Spending.
For real this time.
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Subject(s): Hurricane Hunters, GM, Cap and Trade, California and the brilliance of pumping up the money supply – again. Lots to talk about.
Is it too big to fail? Megan McArdle believes the possibility certainly exists (I mean was Arnie really in DC yesterday just to see the sights). Says McArdle:
If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.
But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.
Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.
But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.
My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.
Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.
Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.
The expected happened:
California voters soundly rejected a package of ballot measures Tuesday that would have reduced the state’s projected budget deficit of $21.3 billion to something slightly less overwhelming: $15.4 billion.
The defeat of the measures means that Gov. Arnold Schwarzenegger and the state Legislature will have to consider deeper cuts to education, public safety, and health and human services, officials have said.
Propositions 1A through 1E – which would have changed the state’s budgeting system, ensured money to schools in future years and generated billions of dollars of revenue for the state’s general fund – fell well behind in early returns and never recovered.
The only measure that voters approved was Proposition 1F, which will freeze salaries of top state officials, including lawmakers and the governor, during tough budget years.
Schwarzenegger, however, still doesn’t get it:
In a written statement Tuesday night, Schwarzenegger said that he believes Californians are simply frustrated with the state’s dysfunctional budget system.
“Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions,” the governor said.
In reality it has nothing especially to do with the state’s “dysfunctional budget system”, but instead with the state’s profligate spending which has landed it in overwhelming debt. And the most “constructive solutions” would be to – wait for it – cut spending.
Why is it I have a feeling that such a solution will be mostly absent from whatever CA legislators come up with?
We have a special election here in California on Tuesday the 19th. We all have to go to our polling places, and decide whether Propositions 1A-1F–which were put on the ballot by the legislature–will be accepted. Of those propositions, 1F, which denies pay increases for elected officials if the state’s budget is all higgeldy-piggeldy–is the only one worth passing.
The rest of them amount to nothing more than allowing the legislature to loot the revenues from things like the lottery or child health programs, that the current law prevents them from touching. But the legislature wants to loot those programs, so that it can use the money in the general fund, instead. And, the general fund certainly needs something. At this rate, there is an excellent chance that California will be out of money by July. That means no money for teachers. No money for the DMV. Or the CHP, or CDF. The state will be, well, broke.
So, who do we blame for this, California?
Some people, Like Tom McClintock, the former Republican state senator and now Congressman, blame Arnold Schwarzenegger. Indeed, McClintock says that Schwarzenegger lied to the people of California when he ran against Gray Davis in the now-famous recall election. “He promised to stop the crazy deficit spending, cut up the credit cards, live within our means. And he did exactly the opposite. Schwarzenegger increased spending faster than we saw under Gray Davis.” McClintock, of course, was one of the people who ran against Schwarzenegger during that election.
(By the way, a side note to Rep. McClintock: Barring an act of divine providence, the sun will set in a blazing red sky to the east of Casablanca before you ever become governor. You may be a great guy, for all I know, and truly committed to reducing the size and scope of government. You may be popular in little the red-state enclave that makes up your Congressional district. But the electorate at large is not going to send someone with your crazy, helter-skelter eyes to the governor’s mansion.)
But should we blame Arnold for this mess? After all, he promised to reform the budget process, and ensure that California would never, ever be in the position that Gray Davis left us in, with a massive budget shortfall. And yet, he did. In fact, the animating issue of that recall election was Davis’ proposed increase to the car registration fee, which would make the annual regiatration fee average something like $600. Now, Schwarzenegger is supporting pretty much the same thing. So, it’s certain that the Governator has been a failure.
But, you know what? I don’t blame him, California. I blame you. Not every individual one of you, of course. By “you”, I mean the electorate as a whole. We aren’t in this position because Arnold changed his mind about reforming the budget process. He did, in fact, put sweeping changes to the process before you for approval in a series of ballot propositions in a special election.
And you told him to go f*ck himself.
Not only did you kill his reform plans by sizeable majorities, you then proceed to approve nearly every state bond issue that reared its ugly head. More money for schools? No problem. More money for the CDF? Let’s borrow it. More money for a shelter for developmentally challenged kittens? Might as well slap that on the card, too.
You listened when the Service Employees Union, the California Teachers Association, and the AFSCME union for government workers told you that if we attempted to reform the budget, disaster would ensue. We’d have to slash thousands of jobs for teachers, firemen and cops. Those of us who weren’t lucky enough to be murdered in our beds or die shrieking in horrific pain as our bodies were engulfed by flame would be able to look forward only to a life shameful unemployment due to our abject ignorance, cowering under the heel of our new Chinese overlords. You believed them they told you, “education spending is being cut, and our children are suffering,” despite the fact that, while the school age population has been declining, education spending since 2003 has risen from $45 billion to $54 billion. That’s a 20% increase, at a time when school enrollment was falling.
So, when the special interests or politicians asked to spend or borrow more money via ballot propositions, you told them to go right ahead. “Spend away, Sunshine! Let the good times roll!” And that’s exactly what we did. It seems never to have occured to you that the only way the government can spend money is to take it from the economy–that is to say, you.
So, now, the state’s got nothing left to spend. But, by your votes to increase spending, and to reject any reform of the budget process, that’s apparently what you wanted to happen.And since the state has no other way to get money, Sacramento is reaching onto your pocket yet again. So, when you get that $600 bill for vehicle registration renewal, see the prices of goods get higher as the sales tax goes up, and watch your state income tax bill rise, you need to just smile, suck it up, and be a man. After all, that’s exactly what you asked for.
Now you’re getting it.
First we have the “car czar” threatening investors with audits and vilification, and now we have a report that a union was inappropriately involved in matters in which it should not have been included:
Officials in the governor’s office say a politically powerful union may have had inappropriate influence over the Obama administration’s decision to withhold billions of dollars in federal stimulus money from California if the state does not reverse a scheduled wage cut for the labor group’s workers.
The officials say they are particularly troubled that the Service Employees International Union, which lobbied the federal government to step in, was included in a conference call in which state and federal officials reviewed the wage cut and the terms of the stimulus package.
The SEIU is of the opinion the state is “breaking the law” as it concerns the use of “stimulus” funds. The state sees it otherwise. But that doesn’t explain the inclusion of the union on the call. Said state officials:
During the conference call, state officials say, they were asked to defend the $74-million cut scheduled to take effect July 1. The cut lowers the state’s maximum contribution to home health workers’ pay from $12.10 per hour to $10.10.
The California officials on the call, who requested anonymity for fear of antagonizing the Obama administration, said they needed the savings to help balance the state budget.
Most know that California is a budgetary basket case, but they should also know that SEIU members are the one’s effected by the cut. The phrase which is most chilling in the last cite is that which indicates a fear of “antagonizing the Obama administration” among state workers.
Is that really the atmosphere that should exist between the states and the feds? And, given their inclusion in the call, isn’t it fair to claim that the SEIU has had “undue” influence with the administration?
So how is this different than the alleged inappropriate lobbyist influence the left liked to holler about during the Bush years?
In this podcast, Michael, and Dale discuss the resignation of Justice Souter, California’s Ballot Propositions, and the events in Pakistan.
The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
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Subject(s): Pakistan, the economy, California propositions, Souter.
Or so the saying goes – but in this case it may have a ring of truth to it.
Democrats have been quick to dismiss the Tea Parties which were held in hundreds of locations throughout the country as nothing more than a few disgruntled right-wingers who are sore losers. But instead, they may be the most visible part of a much larger movement that is saying “enough is enough”. And nothing may demonstrate that more than the upcoming special election in California.
Voters there are apparently tired of the legislature not doing its job, and see the 6 ballot measures as the legislature trying to pass the buck instead of doing their job. Consequently, we find a broad consensus that crosses party lines, in opposition to most of the ballot measures proposed. The one most likely to pass, interestingly, has to do with refusing legislators a raise if the state’s budget is in a deficit. In California that means whatever they’re making now is likely to be their pay from now on. Of course, I’d love to see the same sort of measure passed for the Congress of the United States.
To demonstrate the point of citizen bi-partisanship on this are a Republican and Democrat speaking about the upcoming vote:
Voter Barbara Dale, a Republican from Red Bluff, said she will be happy to vote in the special election because she is convinced that lawmakers can’t do their job themselves.
“I don’t like a lot of the things that they’re doing,” said Dale, who plans to vote “no” on Proposition 1A, which seeks to impose state spending restrictions but would trigger $16 billion in extended tax hikes.
“They’re just pushing things through,” Dale complained of lawmakers. “They’re spending too much money, they’re raising taxes, and they’re chasing businesses out of California.”
But Dale particularly wants to vote “yes” on Proposition 1F – the measure to deny elected officials pay raises when there is a state general fund deficit.
So does Democrat Vincent Anderson, an American River College student in Sacramento County.
“Why would we pay them more money when it seems that they’re never doing their job?” Anderson asked. “Their job is to run the state.”
Anderson, who opposes most of the budget reform measures, said he is offended the initiatives are even on the ballot.
“They’re just passing the buck,” he said. “California has been in debt for a while. Why is this (special election) so important now?”
In fact, a large majority of voters polled are not at all happy with the direction of their state’s government:
The poll found a greater proportion of Republicans opposed to the measures than Democrats. More than three-fifths of Republicans oppose the fund shifts proposed in Propositions 1D and 1E, even though both ideas originated with GOP members of the Legislature.
But healthy majorities of both parties – 72 percent overall – answered “yes” when pollsters asked if voting down the measures “would send a message to the governor and the state Legislature that voters are tired of more government spending and higher taxes.”
Now anyone that doesn’t understand that it isn’t just “state government” which has embarked on a program of “more government spending and higher taxes” isn’t paying attention. Thus the “Tea Parties”. If what is going on in California is typical of the developing mood around the country, and I think it is, then Democrats waive off the Tea Parties at their own electoral peril. Instead of Tea Parties being gatherings of a “few hundred” disgruntled “right-wingers” who are “sore losers”, they may just be the tip of a gigantic ice berg of discontent which will begin manifesting itself at the polls as it appears it will in California.
As an aside – that doesn’t mean the GOP is the winner in all of this. I think most of the Tea Parties demonstrated that the people who attended are just as fed up with Republicans as they are with Democrats.