California has been run by Peronists for a while. The government works for the unions and the legislators. There is an effluvium of populism and sloganeering.
However, the budget is bloated. Taxes are soooo high that firms and people are leaving. This demonstrates, almost perfectly, that tax and spend policies are economically disastrous.
It is a perfect experiment: 300 people who can move through 50 states with no restrictions: firms that can also move in a similar manner. The consequence is that Calif. is going to tank. Or be rescued, which will mean that the federal government will have more toxic debt that it can swallow.
I agree with Megan McArdle…
So what about California? A reader asks. Ummm, that’s a tough one. No, wait, it’s not: California is completely, totally, irreparably hosed. And not a little garden hose. More like this. Their outflow is bigger than their inflow. You can blame Republicans who won’t pass a budget, or Democrats who spend every single cent of tax money that comes in during the booms, borrow some more, and then act all surprised when revenues, in a totally unprecedented, inexplicable, and unforeseaable chain of events, fall during a recession. You can blame the initiative process, and the uneducated voters who try to vote themselves rich by picking their own pockets. Whoever is to blame, the state was bound to go broke one day, and hey, today’s that day!
There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.
I am not under the illusion that this will be fun. For starters, the rest of you sitting smugly out there in your snug homes, preparing to enjoy the spectacle, should prepare to enjoy the higher taxes you’re going to pay as a result. Your states and municipalities will pay higher interest on their bonds if California is allowed to default. Also, the default is going to result in a great deal of personal misery, more than a little of which is going to end up on the books of Federal unemployment insurance and other such programs.
Then there are the actual people involved. Whatever you think of, say, children who decided to be born poor, right now they are dependent on government programs, and will be put in danger if those programs are interrupted.
On the other hand, I don’t really see another way out of it. If Uncle Sugar bails out California, California will not fix its problems
But there is one fly in the ointment. The Obamaborg owes Pelosi. Pelosi was infected with Peronism a long, long time ago. This could be the beginning of the USA slide towards being, like Argentina, a banana republic.