The rainbow is over: California faces its day of reckoning

Below is a powerful article from the AP about California voters’ resounding rejection of more taxes in a state referendum, and the resulting impending major cuts in the state budget that are going to be very painful to constituencies in that state who have become accustomed to suckling on the government teat. But first some general thoughts on this.

I’ve often said that there have been three types of liberalism: classical liberalism, in which equality of rights was provided through limitations on the power of the state; Progressive and New Deal liberalism, in which a basic degree of equality and economic security was provided through the expansion of the power of the state; and modern liberalism, in which equality is provided through state prohibitions on discrimination by group membership. In this analysis, modern liberalism doesn’t have much to do with economic matters, but with group relations, in which any differences in the way various minority groups are treated are to be systematically eliminated, based on the idea that all human selves are of equal value and should be equally free and equally self-realized, with no one being at a disadvantage because of his background or group membership.

However, modern liberalism, just like classical and New Deal liberalism, has a governmental/economic dimension as well as a cultural/moral dimension. Since the principle of modern liberalism is that all human selves are of equal value and are to be equally fulfilled, it follows that the government has an obligation to promote the equal realization of people’s desires. Thus the modern liberal state responds with alacrity to every perceived need. If there’s something that people want, say, the ability to attend a four-year college,, or to take out a home mortgage, or to fund a cultural center, or to carry on scientific research, or to have a sex change operation while incarcerated in federal prison as a criminal alien, the government ought to provide it. Not to do so would be to thwart human flourishing. This modern Provider State has been made possible by the fantastic surplus wealth generated by the economy since the 1960s. We have thus have seen over the last forty years an inconceivable expansion of government funding of every possible human enterprise, need, wish, whim, all in the interest of helping people fulfill themselves.

The California state government thought it could provide for every need of its people, especially the needs of minorities and the disadvantaged. Since these disadvantaged included many millions of illegal aliens, that added mightily to government layouts. But who was to complain, since government exists for the purpose of satisfying people and making a nice life possible for them, and the economy kept generating more than sufficient revenues to fund the humanitarian extravaganza?

But in a story at least as old as Rome, which was perhaps the first state that sought to provide for citizens’ economic needs, the expansion of demand on government services ultimately ran into the lessening ability of the society to produce sufficient wealth to pay for them.

It’s all finally about human greed. Liberals always attack the greed of plutocrats and capitalists. But here it’s been the greed of the “disadvantaged,” who demand more and more, and the spiritual greed of their liberal providers, who keep experiencing an expansion of their own virtue with each new tax and spending program they pass.

And what could have been greedier than the view expressed by President Bush, that society must enable people with limited income and poor credit histories, including immigrants, including illegal aliens, to own their own home, all in the interests of equalizing home ownership by race? Bush said in 2002:

We want everyone in America to own their own home. An ownership society is a compassionate society. Two thirds of all Americans own their homes, yet we have a problem here in America because fewer than half the Hispanics and half the African Americans own their own home. It’s a home ownership gap.

And now it’s all crashing down:

Every kingdom’s got to fall,
Even the Third Reich.
Man can do what he please,
But not for as long as he likes.
—Bob Dylan

Here is the AP article:

California faces its day of reckoning
By JULIET WILLIAMS
May 22, 6:25 PM (ET)

SACRAMENTO, Calif. (AP)—The day of reckoning that California has been warned about for years has arrived. The longest recession in generations and the defeat this week of a package of budget-balancing ballot measures are expected to lead to state spending cuts so deep and so painful that they could rewrite the social contract between California and its citizens. They could also force a fundamental rethinking of the proper role of government in the Golden State.

“The voters are getting what they asked for, but I’m not sure at the end of the day they’re going to like what they asked for,” said Jim Earp, executive director of the California Alliance for Jobs, which represents the hard-hit construction industry. “I think we’ve crossed a threshold in many ways.”

California is looking at a budget deficit projected at more than $24 billion when the new fiscal year starts in July. That is more than one-quarter of the state’s general fund.

This week, voters said they no longer want the Legislature to balance budgets with higher taxes, complicated transfer schemes or borrowing that pushes California’s financial problems off into the distant future. In light of that, Republican Gov. Arnold Schwarzenegger has made it clear he intends to close the gap almost entirely through drastic spending cuts.

The governor’s cutbacks could include ending the state’s main welfare program for the poor, eliminating health coverage for about 1.5 million poor children, halting cash grants for about 77,000 college students, shortening the school year by seven days, laying off thousands of state workers and teachers, slashing money for state parks and releasing thousands of prisoners before their sentences are finished.

“I understand that these cuts are very painful and they affect real lives,” Schwarzenegger said. “This is the harsh reality and the reality that we face. Sacramento is not Washington—we cannot print our own money. We can only spend what we have.”

He also has advocated selling state assets to raise cash, including the Los Angeles Memorial Coliseum and San Quentin State Prison.

The Democrats who control the Legislature do not want major spending cuts, but so far they don’t have a plan for closing the deficit. And if their solution is higher taxes and more borrowing, they will probably not have enough Republican votes to get the two-thirds approval needed for passage.

The crisis is a sort of political comeuppance for Schwarzenegger, who took over a state with a projected $16 billion gap in 2003 and promised to end California’s “crazy deficit spending.”

The gap has two primary causes: The state has been living beyond its means for years by spending generously on all sorts of programs that the voters, the politicians and the special interests wanted. And the recession has hammered California’s economy.

Personal income declined this year for the first time since 1938 and unemployment is 11 percent, one of the highest rates in the nation. Nearly $13 billion in tax increases and $15 billion in cuts enacted earlier this year, as well as billions in federal stimulus money, have not been enough to make up for the drop-off in revenue.

“This is the year everything has fallen apart,” said outgoing Assembly Minority Leader Mike Villines, a Republican from the Central Valley. “We don’t have an alternative. We’re literally at the day of reckoning and have to cut it all out.”

The drastic cuts that appear to lie ahead will, by accident, accomplish the stark reduction in state government that many Republicans have long advocated.

“We should have been limiting the growth of government for years,” Villines said.

The crisis also has prompted talk of a complete overhaul of the way California government operates.

A group of business leaders and good-government groups has begun the process of calling for a convention to rewrite the California Constitution.

A separate commission is expected to release a proposal to rework the state’s tax structure, which is vulnerable to booms and busts in California’s economy because it relies heavily on high-income earners. The state also has few limits on what state government can spend and a small rainy day fund that can easily be raided by the politicians.

Former Assembly Speaker Bob Hertzberg, a Democrat who has joined a group seeking to change the state’s budget system, said too many services that used to be performed by local governments have been taken over by the state because of a landmark 1978 ballot measure that drastically limited property tax revenue. Hertzberg said the programs, and the money, need to be sent back to counties and cities.

“The real problem of California is that we need to bring government closer to the people, so that the role of the state is much narrower. We need to focus on big-picture stuff,” he said.

In the near term, the huge cuts that are about to hit will probably affect nearly every one of the state’s 38 million residents. Schwarzenegger’s latest budget proposal, for example, would eliminate health care coverage for more than 2 million people, about 1.5 million of them children, said Anthony Wright, executive director of Health Access California.

“It would place their families in financial jeopardy for any ailment, injury,” he said. “A child won’t be able to see a dentist if they have a toothache or see a doctor if they don’t have the ability to see the blackboard at school.”

The state also faces a related problem: Every year, California borrows money on the bond market to cover its day-to-day expenses and pays it back when tax receipts flow in. But the tight credit market and questions about California’s ability to repay its obligations could make borrowing difficult or extremely expensive this fall.

Schwarzenegger and some Democratic lawmakers have asked the Obama administration for a federal loan guarantee—or what some are calling a bailout. The move would be virtually unprecedented and would require the approval of a reluctant Congress.

——

Associated Press Writers Judy Lin, Tom Verdin and Samantha Young contributed to this report.

- end of initial entry -

A. Zarkov writes:

As a California resident I’m keenly interested in its fiscal problem. I came here from New York in 1970s, and watched this state deteriorate before my eyes. The contrast to New York when I arrived was stark. The roads were beautiful and free. The median on freeway on my way to work had flowers! The city streets were clean almost everywhere. Rents were much cheaper and apartments came with all kinds of amenities, such as pools and gyms. Within two years I was able to buy a very pleasant house in a great neighborhood in the Oakland hills. I could see both the Golden Gate Bridge and the Bay Bridge from my front yard. Nevertheless as the years passed I began to sense a downward trend in the quality of life. Little by little the roads got worse, the streets dirtier, and real estate increased much faster than my salary. By 1990 I could no longer have afforded to purchase the house I was living in. I knew congestion and population growth was at the heart of the problem, and eventually I realized what was happening.

About the time you wrote “The Path to National Suicide,” I too realized that the virtually unrestricted immigration from Mexico was going to extract a tremendous price. I remember remarking to a friend circa 1994 that within 50 years I expected my house to be part of a vast Latino slum. It seemed to me that one day California would become a de facto province of Mexico. It would appear on the maps as part of the USA, but in almost every other way living here would be equivalent to living in Mexico. That day is arriving even more quickly than I expected. In 2007 Mexican President President Felipe Calderon publicly said, “… Mexico does not stop at its border, that wherever there is a Mexican, there is Mexico, …” That statement seemed like a direct challenge to the sovereignty of the US; one that would demand an immediate rebuke from an American government. But George Bush and his government remained absolutely silent. Moreover, from time to time I hear Mexicans say that they have every intention of reclaiming the land “stolen” from them by defiantly taking up residence in California, and out breeding white people. I find this a credible threat because the Total Fertility Rate (number of children per woman) for white people is 1.87, which implies a population shrinking at a rate of almost a half percent per year. On the other hand, Mexicans in California have a rate of almost 4, which implies a population that’s growing at a rate of 1.2%. Curiously Hispanic fertility in California exceeds that in Mexico. According to the CIA Factbook Mexican fertility is 58% of the Mexicans resident in California. Evidently free medical care, free education, food stamps, and a plethora of other income transfer programs serve to increase Mexican fertility. In effect whites in California are subsidizing and promoting their own demographic demise. But the train to the rainbow may have come off its tracks. The growth in government spending was unsustainable even in the absence of an economic downturn as I will show below.

According to “Chart B” from the California Department of Finance (see pdf), the fiscal year (FY) 2000 California State budget total (excluding federal funds) was $96.381 billion or $2,845 per person using official census population numbers. In FY 2007 the budget total jumped to $3,756 per person or 32% increase. According to the Bureau of Labor Statistics, the CPI increased 20% from 2000 to 2007. Thus, at least according to official statistics, California’s budget has increased much faster than than both population and prices before the economic downturn in 2008. Had California maintained the same real spending per person its budget total would be about $125 billion—not enough to close the deficit. But if it had maintained the 1990 level of spending, then it would come in at $104 billion, more than enough to close the fiscal deficit. Thus we see that California’s basic fiscal problem is excessive expenditures. Even without an economic downturn California’s budget was increasing faster than it could increase revenues. We simply hit the wall sooner than expected because the real estate market collapse and the subsequent recession.

Where does California go from here? I suspect the federal government will relent and provide some kind of economic aid to California. The media will bombard us with an a series of sob stories about the how much the poor are suffering, about broken promises, and the end of the American dream for immigrants. But even a new aid package will prove insufficient just as the February 2009 tax increases failed to solve the problem. One way or the another the rainbow is over.

Virginia Abernethy writes:

California was the richest State, given to the greatest excesses in luxury, public services, housing booms and eccentricities. So no wonder that California is the first State to hit a budget wall. But only the first. So goes California, so goes the nation.

Ken Hechtman writes:

There’s one problem that’s very specific to California and it’s mentioned in the article. The California Legislature can pass a spending increase with a simple majority like any other state. But it needs a two-thirds majority to increase taxes to pay for it. Whatever the proper scope and mandate of a state government should be, that discrepancy is a recipe for disaster.

Posted by Lawrence Auster at May 23, 2009 11:07 AM | Send