PrintJanuary 18, 2010
California: An Obituary
Only raw and unrestrained liberalism could have destroyed the world's 8th-largest economy. Boasting unparalleled assets in agriculture, high technology, entertainment, and tourism, and blessed with ample energy resources, deep-water ports and ideal weather, California has nonetheless managed to turn itself into a perfect dystopia.
California's governor offered this in his last State of the State message: "We need to work with the feds so that we can fix the flawed formula that demands that states spend money they do not have." Certainly that's a good start from Schwarzenegger, who only recently, as part of a degrading suck-up routine, graded Obama's performance as president with an A. But pointing to the federal government's brazen overreach doesn't address California's true malady: a self-inflicted, endless orgy of failed leftist policies and programs enacted under one-party legislative rule.
The litany of problems is well-known and oft-cited. We Californians are overtaxed, our state workers are too numerous and coddled, our businesses are overregulated, and our environmentalists are too radical and powerful.
And the list goes on. We tolerate nearly three million illegal residents draining us of $10 billion annually -- enough to pay down half of our deficit through this and the next fiscal year. The educational system is dysfunctional and expensive, while our infrastructure is adequate for the third world -- not 40 million modern consumers growing to 50 million by mid-century. Our energies are diluted by frequent and incomprehensible voter propositions that often focus on divisive social agendas (gay marriage) or are driven by well-funded special interests (stem-cell research).
California is in an exciting race to the bottom with other liberal bastions like New York and New Jersey to see who can best tax its citizens and businesses into oblivion. But California's stunning fall to mediocrity is alarming because it had to do so much wrong for so long to neuter so much of its enormous potential.
Highly regarded for its nonpartisan analysis of government tax policy and its effect on the business climate, the Tax Foundation publishes an extensive yearly review that ranks state competitiveness across the nation. Its most recent output shows California to be a very hostile place to do business, ranking at number 48 (just behind New York and New Jersey) in overall competitiveness. With a crushing 10.3% top marginal income tax rate (third-highest in the country) and a state sales tax of 8.25% (the country's highest), should any other outcome be expected?
Late last year, the Nummi plant in the Bay Area, a joint partnership between GM and Toyota, announced that it was closing shop. It was the last operating car plant in California. Northrop Grumman in Los Angeles proclaimed "Happy New Year, 2010" with the announcement that Nummi was moving its headquarters to the Washington, D.C. area in 2011, a continuation of the hollowing out of southern California's once-vibrant defense industry.
California's unemployment rate is now over 12%, well above the national average, placing it in the pathetic company of other man-made disasters like Michigan and Rhode Island. First-tier commercial vacancy rates are so high in Silicon Valley that some real estate analysts have labeled the situation a "bloodbath."
In his lame duck address, Schwarzenegger noted that the cost of state employee pensions is up 2,000% in the last ten years, while state revenues have increased only 24%. In addition to this alarming figure, government itself is one of the few growth industries in the state. The private economy has to deal with high unemployment and small business bankruptcy rates that grew 81% from 2008 to 2009, but fat and happy state workers were able to add 1% to their ranks.
Despite ample evidence to the contrary, Schwarzenegger and the environmental cultists that hold him as a consenting prisoner believe that turning everything green is the solution to all of California's economic woes. State residents are already burdened with some of the highest gasoline prices in the country thanks to a boutique blend that the rest of the country shuns and only California refineries can make. California has proposed its own carbon tax, while the use of slant drilling techniques that could efficiently extract new offshore oil supplies (and new taxes) from existing platforms has been prohibited.
Though Norwegians and Brazilians -- with as interesting and beautiful coastlines as Santa Barbara's -- have no problem drilling madly to exploit their offshore reserves, our irrational environmentalists believe that we Californians are too pure to be touched.
California, on the brink of a violent demise, must choose among three fates: rescue, restructure, or failure. Of these, a rescue by the rest of the country would be the most disastrous. If U.S. taxpayers from the other 49 states were forced to save California -- using the same broken logic that "saved" Citigroup, Goldman Sachs, and AIG, because they too were too big to fail -- the very notion of a republic with sovereign states would dissolve before our eyes. California would suffer few painful consequences from its liberal mismanagement, while every other state would calculate how large its own rewards could be for mismanaging its own economy. And the fifty states would devolve into nothing but geographical boundaries, like counties within a state.
The kinds of policies that could save California are easy to formulate: Reduce the state government by 30% by permanently eliminating (not furloughing) state workers; eliminate the personal income tax; provide any new business that stays in the state for ten years with a corporate tax moratorium; abandon threats of a carbon tax and open the state to aggressive (not unregulated) offshore and onshore drilling; cut welfare rolls to reflect the 16% share of the U.S. population residing in the state; establish a constitutional amendment limiting increases in state spending to population growth plus inflation; eliminate all benefits to illegals.
But if we Californians refuse to establish a rational economic order, then let us fail, whatever that might mean for our bond rating or reputation. And learn from our mistakes by not following our irresponsible descent into fiscal hell.
Claude can be reached at csandroff@gmail.com.
