Tag: California

No Longer California Dreamin’

The reason why I am not a liberal is because liberal means can never achieve liberal ends—and nowhere is that more apparent than in the state of California. For decades, California has been an enclave of liberalism, an experiment in liberal governance and liberal ideology. Even when Arnold Schwartzenegger was elected governor, ostensibly as a Republican, he governed as a center-leftist. The Republican Party in California has become a virtual irrelevancy, and the California Legislature is now subject to Democratic super-majorities in both houses.

And what is the result of California’s full-throated embrace of liberal policy? This article in The Washington Examiner lays the truth bare:

What are Californians getting for all this government spending? According to a new census report released Friday, almost one-quarter, 23.5 percent, of all Californians are in poverty. One-third of all the nation’s welfare recipients live in the state, despite the fact that California has only one-eighth of the country’s population. That’s four times as many as the next-highest welfare population, which is New York. Meanwhile, California eighth-graders finished ahead of only Mississippi and District of Columbia students on reading and math test scores in 2011.

Middle-class families that want actual jobs, not welfare, are fleeing California in droves. According to IRS data compiled by the Manhattan Institute, since 2000, almost 2 million Americans have left California for other states. Their most popular destination: Texas.

It is ironic that the Democratic Party champions itself as guardians of the middle class, when California shows how liberal policies have the effect of hollowing out the middle class. California has become an enclave for the super-wealthy and the super poor—those in the middle take the worst squeeze. California has become a state where income inequality is some of the highest in the country, despite the notion that liberal social and fiscal policies will create a more equitable society. Despite years of liberal policymaking, California has not become a more equitable place to live.

At the same time, California’s tax rates are some of the highest in the nation. While liberals love to argue that Proposition 13, which limited the Legislature’s powers to raise property taxes, are the reason for California’s woes, the truth is far different. California has some of the highest tax rates of any state in the country, and has a highly progressive tax structure with seven brackets. Despite having a tax system that does everything that the left argues should be done, California is a fiscal basket case.

So what is California’s real problem?:

The real cause for California’s fiscal crisis is simple: They spend too much money. Between 1996 and 2012, the state’s population grew by just 15 percent, but spending more than doubled, from $45.4 billion to $92.5 billion (in 2005 constant dollars).

California simply spends far more than it takes in, despite having some of the richest parts of the country, California’s unquestionable prosperity cannot accommodate the needs of an ever-expanding government. And the response of California’s left-wing government has been to further raise taxes, forcing an even-greater exodus of middle-class jobs to states like Arizona and Texas. What we are seeing is a state that is coasting by on past successes, but rapidly reaching the inflection point where California threatens to become a failed state.

If that seems like hyperbole, it is not. We can already see it happening on the municipal level. The city of Stockton, California has become the largest municipality in the country to file Chapter 9 bankruptcy. (Chapter 9 is a rarely-used part of the federal Bankruptcy Code that allows cities and counties to reorganize their debts in the same way that companies may file Chapter 11 bankruptcy.) But Stockton isn’t alone: three other California cities have also filed for bankruptcy protection, an almost unprecedented event.

The root causes of these bankruptcies are overly-generous public-sector pensions that are no longer sustainable, massive public spending, and tax revenues that are shrinking as the middle class flees for more sustainable climates. Yet these trends are not being fixed, they are being exacerbated as Sacramento continues to push for more and more spending and higher and higher taxes.

Indeed, California faces a fiscal time bomb that could swamp the entire state. CalPERS, the public-sector pension system in California is facing a fiscal crisis. It has even resorted to filing lawsuits against bankrupt cities to try and get additional money to remain solvent. As California’s tax base becomes increasingly polarized, the flow of money needed to give public-sector employees lavish benefits decreases. But the powerful public sector unions have a stranglehold over state government, which makes meaningful reform virtually impossible. When CalPERS goes bust, as is inevitable, the economic effects would be dire.

And that doesn’t even get to immigration: California’s lax immigration enforcement and lavish welfare benefits have created a massive Latino underclass. Illegal immigration costs California taxpayers up to $1.6 billion every year, a sizable fraction of California’s overall yearly deficit. Even if those costs are inflated, the very real cost of providing benefits to hundreds of thousands of illegal immigrants is having an effect on California’s already-precarious fiscal situation.

The California Canary in the Fiscal Coal Mine

California’s looming failure is a warning to the rest of us. California is being buoyed by its prior good fortune, it’s abundant natural resources, and its excellent climate and geography. But even these natural advantages cannot hold its decline at bay forever. Should nothing change, California will face fiscal collapse, and it could take the rest of the country down with it. A fiscal crisis in California would have massive ripple effects across the entire United States economy. But the political will for reform is simply not there. With no effective resistance to the liberal orthodoxy in California, there is nothing to slow down the stream of bad policies contributing to this mess.

But what cannot go on forever will not, and sooner or later the results of these bad policies will hit in full force. Sooner or later the unsustainable trajectory that California is on will meet the ground, and when it does, the end result will be messy at best—and that’s the most optimistic way of putting it.

What California show us is that liberalism is rife with internal contradictions. Liberalism teaches that economic inequality is dangerous, yet years of liberal policies have produced shocking inequality in California, The rich Los Angeles suburbs like Beverly Hills, Malibu, or Brentwood exist just miles from some of the most blighted urban landscapes in the country. Liberalism says that the middle class must be defended, yet California’s middle class is fleeing the state, and those that remain are getting squeezed ever tighter by high prices and high taxes. Liberalism says that government should be the solution to our problems, but California’s government is one of the most dysfunctional in the country. California is proof that liberal means can never achieve liberal ends—and each year those contradictions only grow.

What California needs is a complete reorganization. California can succeed, it has all the natural benefits in the world and still enjoys the benefits of being a center for technology, aerospace, biotech, and other fields. Despite California’s brain drain, it still has a substantial part of its educated workforce left. The ingredients for success are all there, but California’s dysfunctional government and left-wing hegemony is keeping it from success.

Restoring California’s Dream

What California needs is to reform its pension system, even if it creates massive political costs. It needs to dramatically cut unnecessary spending, including stopping giving such lavish benefits to illegal immigration. Proposition 13 may have kept California’s property taxes artificially low, but that’s been offset in some areas by insanely high property values in certain areas of the state. Property tax reform may well be necessary, but it should be combined with a simpler, flatter, and less punitive income-tax system and a reduction in both business taxes and unnecessary regulations.

California has benefitted from a highly-educated workforce, but that cannot continue so long as California’s schools are failing, both K-12 and higher education. Instead, California needs to do what the rest of the country must do: reform the educational system from a sinecure for bureaucrats into a result-driven system that teaches the skills needed for the 21st Century workforce. Right now many of the people working for California’s high-tech industries are foreigners on H1B visas—and while those workers add a great deal to the state, it’s not sustainable over the long term. Developing a better educational system will make sure that California can maintain its high-tech economy into the future. If they fail to do that, California will become an also-ran.

California demonstrates the reasons why liberalism doesn’t work: because if you do everything that liberalism says, you don’t get a more equitable or modern economy. The problem is that for many of the stakeholders in California’s broken system, there is no impetus to reform. The public sector unions have every reason to keep sucking at the teat until it runs dry. The educational bureaucracy has no desire to reform and threaten its gravy train. The ultra-rich don’t care what tax rate they pay because they have enough wealth that the difference between losing 10% to taxation and losing 5% ultimately doesn’t impact their standard of wealth. A Hollywood movie star doesn’t care what their tax rate is, they are paid an obscenely large amount of money and their finances are handled by an army of lawyers and accountants. The small business owner who can only afford a part-time bookkeeper is acutely aware of the impact of taxation. Yet the Hollywood celebrity has far more political clout than the small-business owner.

Sadly, the only way that this system will likely be reformed is when there is no other way possible. The liberal welfare state is ultimately unsustainable, but is extremely difficult to reform. California was once a symbol of America’s cultural, technological, and economic might. Yet now it is becoming a warning. If we fail to heed that warning, California dreamin’ will become a national nightmare.

Why Universal Health Care Keeps Failing

The Wall Street Journal has an interesting piece on the failure of California’s attempt at universal health care and what it means for the rest of the nation. It is interesting to see how many of these plans have failed to pass or ended up being scrapped due to cost overruns. If universal health care was such a great thing and so economically compelling, it’s hard to see why so many states would be having such a hard time making it work. The reason why is simple: universal health care doesn’t actually work in the real world:

Like collapses in Illinois, Wisconsin and Pennsylvania, this one crumpled because of the costs, which are always much higher than anticipated. The truth teller was state Senate President Pro Tem Don Perata, who thought to ask about the price tag of a major new entitlement amid what’s already a $14.5 billion budget shortfall.

An independent analysis confirmed the plan would be far more expensive than proponents admitted. Even under the most favorable assumptions, spending would outpace revenue by $354 million after two years, and likely $3.9 billion or more. “A situation that I thought was bad,” Mr. Perata noted, “in fact was worse.”

This reveals that liberal health-care politics is increasingly the art of the impossible: You can’t make coverage “universal” while at the same time keeping costs in check — at least without prohibitive tax increases. Lowering cost and increasing access, in other words, are separate and irreconcilable issues.

Universal health care has a basic and fatal flaw, you can’t simultaneously reduce the cost of a service and increase access to it. If you have universal access, you have to find a way of paying for people to get that access, which raises costs. If you want to keep costs down you can only economize so far before you have to restrict access. Universal health care is a bit like a perpetual motion machine—it would be wonderful in theory, but it can’t actually exist in reality.

What inevitably ends up happening is that governments cut costs first—which requires them to cut off access. This is how Britain’s NHS and the Canadian system work. You end up either waiting in line or having a government bureaucrat deny your request for treatment. That’s why the healthcare systems in those countries are having such trouble managing costs without drastically cutting back on services—and why both are more and more turning to private agencies to provide services they cannot.

The failure of the California plan isn’t a shock—people support universal health care in theory, but when confronted with the fact that there’s no such thing as “free” health care most people balk at the price. A further sign that the support for universal care is theoretical comes from evidence that most Americans are satisfied with their current health care coverage. When confronted with a plan that forces people to change their coverage—and not necessarily for the better—it’s not surprising that the theoretical support for universal coverage ends up losing to the desire not to lose what people already have.

Universal health care is not the only solution, and already there are better solutions out there. In fact, of all the possible solutions, universal health care is almost certainly the least advantageous. Corporations love it because it passes on the costs to the federal government—turning it into a corporate welfare transfer payment. Bureaucrats love it because it gives them more power, as it would with politicians. However, it’s hard to see where the groundswell of demand for universal health care really is. If there was such a groundswell, a liberal state like California wouldn’t be balking at the price.

The failure of California’s initiative demonstrates why universal health care simply doesn’t work. The laws of economics and human behavior go against it, and those factors can’t be legislated away. You can’t square the circle of trying to simultaneously lower costs and increase access without throwing a ton of money at the problem and continuing to throw more and more money at it until the system collapses. If even California legislators can learn that principle, hopefully Congress can as well.