California: [Insert Pun Here]

A little more than a week ago, The Economist ran a piece on California. It opened:

ON MAY 19th Californians will go to the polls to vote on six ballot measures that are as important as they are confusing. If these measures fail, America’s biggest state will enter a full-blown financial crisis that will require excruciating cuts in public services. If the measures succeed, the crisis will be only a little less acute. Recent polls suggest that voters are planning to vote most of them down.

The occasion has thus become an ugly summary of all that is wrong with California’s governance, and that list is long. This special election, the sixth in 36 years, came about because the state’s elected politicians once again—for the system virtually assures as much—could not agree on a budget in time and had to cobble together a compromise in February to fill a $42 billion gap between revenue and spending. But that compromise required extending some temporary taxes, shifting spending around and borrowing against future lottery profits. These are among the steps that voters must now approve, thanks to California’s brand of direct democracy, which is unique in extent, complexity and misuse.

They continue (after a helpful aside about the Progressive origins of our system of propositions):

The broken budget mechanism and the twin failures in California’s representative and direct democracy are enough to guarantee dysfunction. The sheer complexity of the state exacerbates it. Peter Schrag, the author of “California: America’s High-Stakes Experiment”, has counted about 7,000 overlapping jurisdictions, from counties and cities to school and water districts, fire and park commissions, utility and mosquito-abatement boards, many with their own elected officials. The surprise is that anything works at all.

As a result, there is now a consensus among the political elite that California’s governance is “fundamentally broken” and that the state is “ungovernable, unless we make tough choices”, as Antonio Villaraigosa, the mayor of Los Angeles and a likely candidate for governor next year, puts it [likely only if you don't count Villaraigosa's Twitter followers, Kevin Roderick says].

Their latest article about California breaks down the post-election scenario:

As a result of California’s election, the state now faces a $21.3 billion gap between revenues and spending. Life, which has been no picnic for many in this state since the recession began, is about to get a lot worse. There have already been two rounds of budget cuts since last autumn. A third, savage, round must now follow.

Mr Schwarzenegger has already hinted at the cuts he will propose to the legislature. The easy part is to release prisoners. California’s 33 prisons, with about 168,000 inmates, many of them locked up because of inflexible sentencing laws passed by voters, are scandalously overcrowded. Mr Schwarzenegger is thinking about freeing 38,000 people. Half of them are undocumented immigrants whom he would transfer to federal custody.

But “the real money is where the pain is”, says Jean Ross of the California Budget Project, a research firm in Sacramento. In health care, for instance. Just as Mr Obama is trying to give more people access to medical care, California will be taking it away: by cutting funding for Medi-Cal, the state’s programme for the poor, and changing eligibility rules for another programme so that 225,000 children are likely to lose coverage. And this at a time when many of their parents are losing their jobs and their employer-sponsored insurance.

Again, slight mistake on the part of The Economist: It's not just the election that led to this budget shortfall. We might rattle off any number of reasons (I don't know, try Prop. 13) that have contributed to the current impasse, but still. $21.3 billion. With Google's rough estimate that the state is home to 37,756,666 people, that averages out to a little more than $564 per person. Not the worst thing in the world, but neither is it chump change.

The day after the election, Timothy Egan tried to strike an optimistic note, but the effect was a bit like the pot trying to tell the kettle it wasn't quite as black:

California’s problem is its democracy. The legislators, term-limited yet complacent, long ago threw in the towel. Now the citizens have had enough, expressing a pox-on-both-houses rejection Tuesday of every major ballot measure except the one that limited pay raises for politicians.

Think of Italy — which reminds me of California in so many ways — and its chronic inability to form a government. That’s California, with even better food and no parliamentary system.

l can’t blame the special interests: teachers, prison guards, the asphalt lobby. They’re only doing what special interests always do.

But I do blame the voters. They’re part-time citizens, and not very good at it. They shackled the tax system back in 1978 with Proposition 13, limiting how much government could take from a homeowner. It was a reasonable middle class revolt.

All of this is a long preamble to Paul Krugman's op-ed today (and judging by the number of comments, it's touched a nerve). He begins:

The recession has hit the Golden State hard. The housing bubble was bigger there than almost anywhere else, and the bust has been bigger too. California’s unemployment rate, at 11 percent, is the fifth-highest in the nation. And the state’s revenues have suffered accordingly.

What’s really alarming about California, however, is the political system’s inability to rise to the occasion.

Despite the economic slump, despite irresponsible policies that have doubled the state’s debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is — and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.

His worry, I think, is one that a lot of people share: That California is a kind of barometer for the nation, a test lab for the future (the freeway, the mall, In-n-Out, Trader Joe's, Hollywood, Californians tend to wax effusive about how great we are); and since California is a kind of barometer, we need to look seriously about what's going on here. Krugman continues:

So will America follow California into ungovernability? Well, California has some special weaknesses that aren’t shared by the federal government. In particular, tax increases at the federal level don’t require a two-thirds majority, and can in some cases bypass the filibuster. So acting responsibly should be easier in Washington than in Sacramento.

But the California precedent still has me rattled. Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?

On the other hand, the problems that plague California politics apply at the national level too.

The gist of Krugman's argument, insofar as I understand it, is that the tax structure that California has set up has hamstrung the state. Prop. 13, which limited the rate at which property taxes could be assessed, has forced the state to rely on income taxes to cover most of its expenses. So long as the state has been in a boom cycle (propped up all the while by cheap credit), it's been easy enough to collect taxes from incomes that skyrocketed on the margin. Now that we've all come back to earth (some of us never being all that high to begin with), California finds itself unable to square accounts.

Even worse, the state has found itself unable to sell bonds to finance its short-term needs. When it has been able to sell bonds, it's found itself saddled with higher interest rates, increasing its debt obligation in successive years. Krugman's larger concern is that if it can happen in California, it can happen at a national level. In other words, his fear is that the government, trying to finance its deficit-spending through the issuing of new bonds, is avoiding the hard political decision about raising taxes to maintain basic services. Of course, the Obama Administration can't very well abandon its deficit spending (so says the conventional economic wisdom: abandoning the stimulus now will worsen the recession, just like it did for FDR during the Great Depression), so Krugman is trying to keep both feet in the present with his eyes firmly on the horizon.

The implicit debate in all of this? What's the role of government? And what is to be its relationship to business? I found it interesting that the most popular article on nytimes.com at the moment is one about the death of high-school shop class - I guess it speaks to a kind of zeitgeist, a larger movement to get back to what is supposedly more "real". And I think you can link Krugman's work, even Egan's, to that kind of debate. The Economist, in its way, represents a way of thinking about the relationship between business and the government. None of this is to suggest that I have any answers (or even any clear questions), but I think it's important to begin asking these questions.

Besides, it makes for more productive conversation than wondering whether California is more like Italy (Egan) or a banana republic (Krugman).