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California: A precursor of bankruptcy or lesson learned?

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By JOHN REINIERS

More Than Words

Published: October 10, 2009

Britain's The Observer (Guardian.co.uk) just published a depressing piece, "Will California become America's first failed state?"
They remind us that the "Hollywood dream factory" that was once the "epitome of the boundless opportunities of America has collapsed." Their unemployment is at 12 percent, and government staff workers are being paid with IOUs. None other than Professor Kevin Starr, University of Southern California, State Librarian Emeritus, one of California's greatest historians, pronounced that "We are on the verge of becoming a failed state because we can't agree on anything."
The California Senate has been in Democratic hands since 1970, and likewise, the Assembly — except for 1995-96. The governorships have gone back and forth with Republican Pete Wilson being the last successful governor; leaving office with a balanced budget. It has been downhill ever since for California, which has always been a bellwether state; so the country was quick to follow. Starr is a brilliant historian, but misguided when he says that 50 years ago politicians "horse traded, they did deals;" that politics is defined by what you can get done, not "I am ideologically opposed to you, and I am going to destroy you."
Now the last deal proposed by the Democrats was to raise taxes by multi-billions of dollars. Republicans insisted on cutting spending by the same multi-billions. Nobody was trying to destroy the other side. They simply disagreed. The reason California may be our first failed state is because the Democratic recipe for success in California is the same as in every other liberal state — more spending —– particularly on social programs and public employee sector benefits, where for example, in California, prison guards can earn more than $100,000 a year. Spending is the public policy that gets Democrats re-elected. (Their state budget went from $56 billion in 1998 to an eye popping $131 billion in 2008.)
This article resonated with me personally, because I recalled being in Sacramento about 25 years ago negotiating a lawsuit, and happened to have dinner with a group of California political types who were arguing the silly idea of a 51st state named Jefferson, comprising northern California and southern Oregon. I thought they were kidding at first — but they were dead serious. I didn't know this Utopian idea had been around for years, and was still alive in the hearts of these guys. They were tired of northern Californians being ignored and paying high taxes because of being outvoted by southern Californians. On this particular evening they were griping about Los Angles stealing all their water through aqueducts going south, that they had to help pay for causing salt water intrusion, among other environmental consequences in northern California. They also felt Democrats were spending California into bankruptcy even back then. So after all these years, these prescient guys have been proven correct. This current crisis is bound to make for a lot of unhappy Californians — judging by those who are emigrating elsewhere. (California has had a population outflow every year since 2005.) I listened to a Californian on C-SPAN today, who predicted riots in the streets of California in 2010. Scary stuff.
We should be concerned about political outcomes in recessionary times. When economies suffer, the left usually wins elections. Greece, suffering from a severe recession, just had an election. The Panhellenic Socialist Movement Party won in a landslide. This mirrored the results in Portugal where socialists also won. Ditto in Venezuela, Bolivia and Ecuador, which have leaders leaning towards a hybrid of socialism/fascism.
We are no different. Our election moved us to the left — call it whatever you want. What is fascinating, and perhaps counterintuitive, is that the large European democratic socialist countries like France, Germany and Sweden, moved to the right of center in their latest elections. Some argue that their governments know which side their bread is buttered on — that capitalism is a necessary evil to fuel their generous social programs. (They need the wealth creation for capital formation for investment in production which results in jobs and taxes — the mother's milk of any successful economy.)
What nobody on the left is willing to admit is that blue states are in meltdown. They are not moving to the right of center as is Europe. They are moving further left. Michigan, New York, New Jersey, Illinois (Obamaland), Pennsylvania, Oregon and, of course, California, are in debtors prison. High levels of taxation, a love affair with regulations — the more the merrier — and the unremitting expansion of public sector employment have made public sector unions a political powerhouse.
The economic recovery of California would be more significant for the U.S. than any other state. The run-up to the June 2010 primaries might give some indication of whether the electorate realizes California is a failed state. The election will probably pit Republican Meg Whitman, former CEO of EBAY, against 71 year-old State Attorney General, former governor, and three-time presidential candidate, Jerry (Governor "Moonbeam") Brown. I'll put my money on Brown, who is a mixture of liberal social values plus fiscal prudence — a strange Democrat — but still a big union supporter in a heavily Democratic state, who nevertheless openly opposed the Clinton machine and supported the flat tax. It will all come down to his position on public sector unions, which have bankrupted the state, and how compelled he feels to continue catering to the Latino vote (42 per cent of the population).
Whitman has said she would cut 40,000 state jobs, and already took a swipe at teacher's unions, so I don't have much hope for her in a state with 31 percent of the voters registered as Republicans. But it's hard to imagine that the debates in the primary elections will not focus on job creation in the private sector, and stemming the tide of businesses and high-income residents fleeing the state. The debates and the resulting media coverage could well shape voter attitudes for the better.
So will California's election be a precursor of continued bad times in the upcoming round of state and federal elections, or will voters send a signal of the need for fiscal sanity? Albert Einstein teaches: "The significant problems we face cannot be solved with the same level of thinking we were at when we created them."
So will California's elections move them right of center as we saw with Europe's large social democracies, or will their fascination for Obama-like left-leaning economic policies remain intact — no jobs, increased spending and bigger government.

John Reiniers, a regular columnist for Hernando Today, lives in Spring Hill.

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