Saturday, December 18, 2010


An article by an author from Central California, musing on the "two Californias" he saw on a bike ride through his home, caught my attention. It is well worth reading.

Other writers have given a great deal of attention to California, from General Sherman to John Steinbeck to The Grateful Dead. It is safe to say that none of them focused on California's fiscal future circa 2010. Given the astonishing wealth of the land, there seemed no point in such musings.

California owes $8.8 billion in short-term loans that have to be paid off by June [2010], and over $120 billion in outstanding bonds and interest that will be paid over decades. The state’s pension fund, CalPers, has $16.3 billion more in liabilities than assets, plus California also faces a $51.8 billion expense for the health and dental benefits of state retirees and future retirees. Read more here.

Well, here we are.

Right now the sobering fact is that our richest, most populous state is in the end stages of social disintegration. It is like watching the prom queen become a bag lady.

Prom Queen?
Photo Credit

The government can't govern. The wealthy and their jobs are leaving. The middle class are following. The state does not or cannot control illegal immigration. The state is insolvent. It cannot pay its bills, except by borrowing about $28 billion this year alone.

California is the canary in the coal mine for the rest of America. And right now, California is expiring. The fumes killing it are emanating from the welfare state assumptions under which it has been run for many years. Matters not if the government was Republican or Democratic, the underlying engines of the social welfare state were purring along.

Canary and Coal Miner.

My guess is that California will have to completely break before there will be change. When it does, it may help the rest of us sober up and realize that however noble an ideology, if it spends more money than it takes in, it breaks. And when a state breaks, the average Joe winds up hurting.

I'm not going to fuss about the correct balance of taxes versus spending. I think there is a great deal of flexibility on that subject. I happen to be on the "southern" end of that debate - I think we should err on the side of low taxes and low government spending, as a general matter, with certain limited exceptions.

Mostly I am there because it seems much easier for people in government to justify increases in spending, rather than decreases. As a general rule it seems wise to keep as far from the icebergs of overspending as possible, adjusting for the fundamental human bias toward overspending. It is much easier to pump up spending quickly, if the need arises, than it is to cut back on spending in a hurry. Just a practical observation.

But two things are for sure: there is an upper limit to how much money a government can suck from its people in taxes before the people stop cooperating, and there is an upper limit to how much a government can borrow before lenders stop cooperating. Liberal ideology over the last 50-100 year has essentially ignored both upper limits in the (now more clearly) mistaken belief that those limits were far, far away, if they existed at all.

They may have been, at one time. But now, like all long journeys, this one is coming to an end. Now we feel silly for assuming the trip would never stop.

End Of The World As We Know It?
In California, Greece, and Ireland, and in other locations around the globe (cast your eyes on New York) we are now seeing practical illustrations of the limits on government spending, taxation and borrowing.

The next year or two will be very interesting. I hope for the sake of the regular people in California that the government is able to step back from the cliff somehow. I don't see that happening, however. I predict the Wiley Coyote conclusion to this mess, the one where he speeds off the cliff while chasing the roadrunner, realizes where he is for just a second, then plummets to the canyon floor a thousand feet below.

Wiley E. California Just Before the Fall.

We will see what emerges. It may be that the rest of the U.S. votes for California to secede, kind of the reverse of 1861. Can they do that? It will be full employment for lawyers, that's for sure.

I don't think that will happen, but people in less crazy-ass states might get irked when Cali comes looking for a federal bailout. I guess it depends on the Cali attitude at the time, but nothing about California politics in the last few years tells me that reasonableness will be the keynote to that discussion.


  1. The whole scenario is like the book that reveals the death of the victim in the first chapter and the suspense revolves around how it finally comes about. Sad for the people who can't leave.

  2. So true, so true. "Who Killed California??"