As California goes, so goes the nation

California is rightly considered a bellwether for American social and economic trends; just about every important shift in American life, from high technology to cheap food to McMansions to loose lending standards sexual license to the therapeutic view of life, was invented or at least adopted first in the Golden State. Which is one reason to watch California closely as the current economic crisis unfolds.

So far the news isn’t good. Given its current financial obligations, California now needs $42 billion more than it expects to collect in order to make it through the next eighteen months—and its expectations about future revenue are almost surely too optimistic. In order to conserve what little cash it has on hand, the state has begun to delay sending out tax refunds, scholarship checks, and some welfare payments. Most worrisome, it has delayed distribution of tax monies to the counties—and some counties may respond by keeping what tax monies they collect for themselves, rather than forwarding them on to the state.

Meanwhile, the courts have approved the governor’s plan to force state employees to take two unpaid days of leave per month, effectively imposing a 10% pay cut on 238,000 workers, saving the state $1.4 billion. Which gets the state about 3% closer to being able to pay its bills.

One thing that fascinates me about this is how deeply intertwined and unprioritized it shows the countless elements of a state government’s operation to be. You might think that a 10% pay cut to the workers would be a last-ditch effort to fix the problem, rather that an initial, relatively feeble attempt. But apparently the nerve center of the government has so little control over the extremities that there is no way to scale back the overall system intelligently; state worker pay is one of the few elements over which the nerve center has authority it can exercise without encountering a paralyzing resistance.

I’m actually very sympathetic to the idea that once again we will somehow muddle through a crisis. It’s happened before, many times, and I don’t know that in the midst of those crises I would have been any better at detecting the light at the end of the tunnel. So I don’t take this, or anything else, as evidence that we are doomed. But at the same time, “we’ll muddle through somehow” is not a satisfying response for me. I want to know as much as I can about how we will muddle through. For example, I would like to hear the specifics of a scenario where the California economy rights itself without a major social upheaval. So far I haven’t been able to imagine one, and I don’t think it’s because I’m blinded by a desire for it to end in disaster.


3 thoughts on “As California goes, so goes the nation

  1. One of my favorite Mish commenters, Black Swan, weighs in with this:

    The tax revolt of the counties in California is very interesting.

    • What can the State do the those who run the counties? Can it throw them in jail?
    • If the counties get away withholding State tax money, and the State does nothing about it, won’t that set a precedent of non-compliance for other counties to follow?
    • If the taxpayers of California, who are holding tax return IOUs instead of money, follow their county’s and their State’s example, couldn’t they start giving the State their own forms of tax money IOUs next April?
    • The State could also get in the act and no longer comply with unfunded mandates issued by the Federal Government. Goodbye no child left behind.

    The seeds of anarchy were once germinated in tea and saltwater.

  2. We live in California, and my husband works for our county. He was at some meetings yesterday that revealed to me how utterly nonsensical “cutbacks” can be. On top of the furlough idea (which is the PC term for the forced days off each month), there was the idea of eliminating certain classifications of employment. So let’s say there are employees called Class X that all perform similar tasks for all departments within the county. Well, depending on the mission of each department, Class X employees might be more or less expendable. Some departments need Class X employees more than others. Because of the ways unions interfere with cutbacks, if the county was to eliminate Class X employees, or a certain percentage of Class X employees, the commissioners aren’t allowed to actually go through the list of Class X employees and attempt to determine which departments need them more (or even who is doing the best job). The elimination of such employees would have to be based upon seniority within all Class X employees. So if Department A had a Class X employee who was so necessary to the organization that he was overworked and required an assistant, and Department B had a Class X employee who was hired just because they had the budget for it and he doesn’t really perform necessary tasks, but Dep. B’s employee has been employed by the country for two years longer than Dep. A’s, well…Department A is going to lose their necessary employee, while Dep. B can keep their unnecessary one, at least until times get rougher and all Class X employees are cut across the board. Now, this is, of course, all because unions do what they can to make seniority take precedence over actual need and also merit, and not actually the fault of the county itself. However, when you mention the idea of California “righting itself” it is hard to imagine when those in power in a well-run county like ours can’t even make logical decisions due to the overwhelming demands of the union.

    Another example would be that, a number of years ago, the union negotiated 4% annual raises for x-number of years. Even though we are now in dire straights, the county will be required to fulfill the final 4% raise this summer. This will, of course, raise the pay of some while cost the jobs of others.

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