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January 15, 2009

California - The State Of The State Is Ungovernable

-- by Dave Johnson

This post originally appeared at Speak Out California

"People are asking if California is governable." Governor Schwarzenegger said in the State of the State address today that California faces insolvency within weeks. He said there is more gridlock in Sacramento than on our roads, if that is possible.

The governor gave a very short speech, saying there is no sense talking about education or infrastructure or water or anything else as long as we have this huge $42 billion deficit.

But the fact remains that the state's requirement that 2/3 budget-approval requirement means that the state is, in effect, ungovernable. A few anti-government extremists are able to continue to block the budget, refusing to compromise or even negotiate, demanding that the state lay off tens of thousands of workers, slash medical help for the elderly, slash police protection and firefighting capability, slash funding for courts, raise class sizes to 40 or 50 students, stop repairing roads and levees and everything else the state government does.

David Greenwald writes at California Progress Report wrote, in State of the People is Grim: More Budget Cuts Are Exactly the Wrong Prescription,

"Budget cuts totaling $16 billion over the last three years have already had severe consequences for the people of California. And the Governor's proposed 09-10 budget would further harm California families and our economy with an additional $17 billion in cuts to schools, health care, homecare, and state services."

Leading up to the speech, David Dayen at Calitics wrote, in The State Of The State Is, Well, You Know, "Typically he has done this speech to coincide with the evening news. This year he's trying to hide it."

We at Speak Out California want to invite readers to come up with some solutions for the budget mess. We are working on some ideas for a prize for the best ideas.

Click through to Speak Out California.

Posted by Dave Johnson at January 15, 2009 11:47 AM


Comments

The threatened IOU's strike me as a good idea. Our legislature could pass a law making them legal tender in our state. That way California could just print all of the money it needs. Since there would be some question as to whether or not to consider them income, they just might be nontaxable. California is facing the worst of the deflation and it should be safe for us to print ourselves some money just as long as we don't overdo it.

Deflation is a sure sign that there's too little cash in the economy; as prices fall, the currency becomes more valuable. Inflation is just the opposite. Both conditions can be corrected by manipulating the amount of cash available to consumers. In the case of inflation, taxing it away. In the case of deflation, printing up some more. That's Adam Smith's invisible hand at work. We can be smart about this and at least try to control the amount cash (and its flow) or we can just continue to duck because Smith's hand has made a fist and is beating the crap out of us.

Posted by: WASanford [TypeKey Profile Page] at January 15, 2009 2:14 PM

Dave, What do you think is really going to happen on the budget?

I just listened to Lt Gov Dewhurst, TX. He increased the rainy day fund in 2007, 2 years ago, by $7 B. They had $7B in hand that they did not spend anticipating a slowdown. Every state will have big problems this year but rainy day funds are a good thing.

Posted by: Mace [TypeKey Profile Page] at January 15, 2009 6:52 PM

Hmmmhh...didn't know Paul Krugman was talking about the D word. James Turk writes:

"Given the current 17.5% rate of unemployment, it would appear that I am not far off the mark to suggest that we have entered another Great Depression, and I am not alone in my thinking. Others who are more attuned to the economic situation see it the same way as I do.

For example, the following quote is from an OpEd piece by Nobel Laureate Paul Krugman that was published in The New York Times on January 5th: “The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.”
http://www.kitco.com/ind/Turk/turk_jan152009.html

Turk runs goldmoney so he is not unbiased yet we could be using his gold back web currency if IOUs become popular

Posted by: Mace [TypeKey Profile Page] at January 15, 2009 7:23 PM

Frankly I don't see the underlying fundamentals that were there in the 1930s. We were the manufacturing leader, financial leader and had no debt. And the industrial base was just waiting for something to trigger it into great productivity.

This is very different. We have been running up debt and selling off our manufacturing lead. We have not been investing in infrastructure and letting what we have fall apart from deferred maintenance.

The decades of productivity increases are past us -- except in one potential area. That is green tech. The thing is, whether you believe Exxon's propaganda about CO2 or not if you go green you don't have to pay energy costs anymore. If we retrofit buildings they don't have to pay so much for heating and cooling.

But as we climb out of this, we still have to pay off debt.

I think we have to rethink our economy. I think we are seeing what happens when machines and computers do much of the work. It can't work if only a few benefit. THAT is what we are seeing today. It can only work if we are distributing the gains among all of us.

Posted by: Dave Johnson [TypeKey Profile Page] at January 15, 2009 7:35 PM

Good points and I agree it is different. We have FDIC, banks...lame/stupid banks...are at least available for transactions. Some can get a 4.75% mortgage. We still can buy and sell like crazy globally.

Yeah, it looks like a huge credit contraction.

I like green tech. AUSRA solar power in CA could be a winner. Plug in hybrids make sense. Selling it to beat climate change will flop. Selling it to actually reduce costs and cut off cash flow to foreign governments sounds outstanding.

Posted by: Mace [TypeKey Profile Page] at January 15, 2009 7:59 PM

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