Feb 182010

Stephen Hill at CiF posits some kind of equivalency between Greece’s budget catastrophe, and the ensuing debate about whether the solvent EU countries should bail it out, and California’s budget catastrophe, and the debate about whether the solvent US states should bail it out.

Apparently Greece isn’t that large a proportion of the EU economy, so no big deal – but California represented a whopping 14% of the US economy before it went bust.

California’s situation in some ways is more worrisome than Greece’s. Having a state that is one-seventh of the national economy in dire straits is a threat to the nation’s economic recovery. It is analogous to having Germany struggling instead of Greece, striking at the heart of Europe. California has been shaken by widespread layoffs and furloughs – the city of Los Angeles just laid off 1,000 more workers – and core social programmes have been slashed. Millions of low income children have lost access to meal programmes, and community clinics have been closed. Almost 3 million low income adults have lost important benefits such as dental care, psychological services and mammograms.

In addition, while both California and Greece are in major belt tightening mode, at least in Greece all families and individuals still have access to healthcare and a long menu of other social supports that Europe is known for. In California, even before the crisis millions had no healthcare, and now more have lost their jobs and their health insurance. Unemployment compensation is miserly, as is the overall safety net, which impacts consumer spending and further weakens the economy.

In this case, then, it was terribly mean of the Obama administration to deny California a federal bail-out paid for by the taxes of the other 49 states. That’s, like, super unfair, because:

But ironically California’s current plight may serve as a warning to Germany and France. Over the last several decades, California’s once thriving economy served as a kind of backstop for other American states. California has subsidised low population (and often conservative) states by only receiving back about $.80 for every federal tax dollar it sends to Washington DC. Californians have sent tens of billions of dollars to conservative states such as Mississippi, Alaska and North Dakota, which receive about $1.75 for every dollar sent to Washington.

Yet when Governor Schwarzenegger asked the federal government for a return on that long-term support, the White House shut the door and the Republican states long subsidised by California were unsympathetic. Memories are short, as is gratitude.

Leaving aside the question of optimal single-currency zones – which Hill never addresses – let’s look at this central point about the unfairness of leaving California to its fate.

For years, Hill says, California was the wealthiest state in the country, and the federal taxes its wealthy citizens paid subsidised the poorer, less populous states of the union. Now California has farked itself, allowing and encouraging its legislature to spend the state into massive debt – and wealthy California wants the poorer states to subsidise it!

Surely this is exactly what Guardian writers (and readers) loathe, the idea of the poor subsidising the wealthy? They certainly profess to hate incidences of it in the UK and cry that the transfer of money from poor to rich is a massive injustice (that will, no doubt, be further perpetrated by the Tories if they win the next election). California’s budget crash has not made the poor states it used to subsidise any wealthier; in fact, it’s probably made them poorer. So why in the world should the poor states make themselves even poorer because the people of California were happy to elect legislatures that spend like drunken sailors?

Somebody please explain to me why, suddenly, the Guardian is in favour of the poor subsidising the rich.

  6 Responses to “Greece and California”

  1. Why should any state subsidize any other state? In fact, the subsidy comes from other states through Congress, which allocates money not for the purpose of “helping,” but for the purpose of political engineering. If Americans had refused to send income tax money to a bloated federal government that wastes it on programs that, for the most part, are outside its constitutional authority, and instead paid modest taxes to their state governments, perhaps California and other states in similar financial straits would not have been so profligate with the peoples’ money, and would not be sticking their collective hands out to Congress for bailouts. As it is, Californians got themselves into this mess, and they should look to themselves to get out of it, as should all states, and forego dependency on the national government, which, by its example, engendered in the state legislatures the spend-without-limits mentality.

    If the states ignore federal unfunded mandates and get their financial houses in order, and Americans stop funding the national government’s out-of-control spending by refusing to pay income tax, then they can reign in the dangerous and unconstitutional accumulation of power in a central government that is on the verge of no longer having the consent of the governed. Jefferson said it best: “Whensoever the General Government assumes undelegated powers, its acts are unauthoritative, void, and of no force.” Well, “whensoever” is now.

    • Well, quite. But it’s funny to watch the redistributionists moan about ‘getting something back’ when we all know redistribution from rich to poor is a moral good, not an insurance policy. The Californians should have been happy that their wealth was going to poorer people! How selfish of them to ask for it back! Etc etc blah blibbity blah. Hypocrites.

  2. Ha! You caught them on this one. As Aristotle would say, there are no contradictions; check your premises. The Guardian should give logic a try.

  3. But this isn’t really about rich and poor, its about Democrats lording it over Republicans. Those wonderfully liberal democrats of California have been subsidising the nasty right wing neo con (and any other pejorative term for Republican you can think of) Republican states and making the most of it when times were good.

    This wasn’t, in the jargon, progressive taxation and redistribution from relative rich to relative poor, it was a chance for liberals to play Righteous. Now that the still relative rich are feeling a bit poorer they don’t feel like being Righteous and giving to the relative poor and want their money back.

    PS I use the term liberal in its USA sense ie left wing socialist not in the libertarian sense.

    • Yeah, I too suspected that was Hill’s real attitude: ‘Our lovely left-wing friends in California need some help! Those cold-hearted neo-con bastards won’t give it to them!’ Only such a fool as he could look at the Californian spectacle and not decide that their high-tax-and-spend experiment failed.

  4. Damn – beaten to it by the Great Simpleton. That’s exactly what this is all about.

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