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California dreaming

Now that the US mid-term elections are over and the Republicans have scored a decisive victory in the House, and won seats in the Senate, the thought must occur that California, which has stuck to its socialistic politics, is ever closer to going bust. The GOP in Congress is unlikely to tolerate a bailout for a state run by delusional, mostly Democratic, fools. But if California does go bust and defaults on its debt, what happens then? Maybe this would be a good thing in the long run. Several South American states have defaulted in the past, but they did recover, eventually.

I guess one not-so-difficult thing to predict is that businesses and people will continue to flee California. It is so sad: the last time I was there, the place appeared – maybe only on the surface – to be booming.

Rand Simberg has thoughts.

35 comments to California dreaming

  • RAB

    “All the leaves are brown and the sky is grey…”

    Well serve you right for voting for them.

    It was going bust under Arnie mind, and he’s supposed to be a Republican

    Seriously though, two of my best friends live in California, and one is definately thinking of moving to Oregon.

  • cubanbob

    The State of California is sovereign and cannot declare insolvency. It can however default on it’s debts or simply modify or nullify them.The municipalities are subject to bankruptcy proceedings (chapter 9 of the US Bankruptcy Code) and can be forced by a creditors committee into bankruptcy. In a cynical way if California was intelligent it would simultaneously ban local and county governments from taking on any further general obligation bond debt and transferring the current general obligation debt to the sate and then giving the bondholders and other creditors a haircut.

  • llamas

    Why should the bondholders and other creditors be forced to take a haircut? What did they do wrong? They didn’t toss their money at a craps table, they invetsed it at easy rates against a promise to repay.

    If you lend me money because I say I’m going to use it (say) to buy materials for my business, and I promise to pay it back on a given schedule, with agreed interest – but then I fly to Vegas and p*ss it all away on roulette and showgirls – should you take the haircut for my foolishness?

    California voters and California legislators are solely and severally to blame for the mess they got themselves into. Let them take the haircut.

    Screw ‘em. If the voters don’t take the haircut, they’ll just go on doing what they’re doing.

    llater,

    llamas

  • veryretired

    The next big push by the political elites will be to federalize state debts, especially pensions. The purported justification will be to “help the middle class and poor”, who would suffer from a collapse of pensions and state services.

    The actual driving force, of course, will be to protect the pols and public service unions which are locked together in a debt death spiral in several of the more progressive states.

    It is my hope that a congress more influenced by tea party/conservative/small government ideas will be able to resist such pressure, for the most part, but the various political factions involved are ruthless and well funded, and it will be a close run thing, indeed.

    The recent election was only a first step. The extravagent spending programs of the last several decades, and especially the last half century, have finally drained the well, and a period of severe consequences, with political/social disruption as well as economic turmoil, is on the horizon.

    It will require all the consistency, determination, and energy that citizens who oppose statist government can muster to overcome the ferocious attempts to push through ever greater expansions of state power and resource consumption by those who live by and for the accumulation of power over others.

    Many years from now, when our future citizens look back on this phase of the never-ending battle to control the authoritarian impulses that drive so many people in this country, and around the world, I would hope that it will be said that this uprising by the ordinary citizen against the political elites was the beginning of a careful and coherent campaign to reduce the excesses of state power, and fulfill the promise of a free people living freely.

    We hold the future in our hands.

  • I beg to differ with Jonathan’s premises.

    I think California’s Republicans are wrong on drugs and immigration. They need to end the “War on Drugs” and accept that immigrants will come.

    For a descendant of North Europeans to lecture a Latino on the morality of immigration and “fitting in” in such towns as Alhambra, Arroyo Grande, Los Angeles, or San Diego is both insulting and ridiculous. Not a good combination.

    The ballot initiatives showed that the voters are not impossible for Republicans to communicate with. Drug legalisation failed, preventing politicians from raising taxes in secret passed, getting rid of the excuse that they need a two-thirds majority passed, letting Democrats gerrymander the next congressional boundaries failed, reducing the power of politicians to draw district boundaries failed.

    That’s not the sort of outcomes I’d expect from an electorate that is impossible for Republicans to connect with.

    If Cali’s GOP could (and would) pick candidates of the calibre of Marco Rubio (Senator-elect in Florida) instead of two white women one of whom may have hired an illegal immigrant and gone around telling immigrants that they shouldn’t be allowed to work, maybe things would go better. I think Carly Fiorina suffered from association.

  • California contains two great metropolitan areas. The north of these contains the still (by far) most important economic cluster of the global computer industry. The south of these contains the still (by far) most important economic cluster of the global entertainment industry. The robustness of both Silicon Valley and Hollywood rather amazes me.

    I am sure that the politicians bureaucrats will manage to destroy them at some point. This will be a shame, as building their equals anywhere else will not be easy. That said, i remain awed by the ability of the state of California to create both of them in the first place.

  • Alasdair

    Antoine Clarke – while I expect stupidity from LATimes editorials, I seldom see such as is contained in your comment …

    The GOP generally, and the CA GOP in particular, has not been anti-immigrant in the 30+ *YEARS* that I have lived in CA as a legal immigrant … I cannot speak directly to conditions before that – all I can say is that there are *very* few folk in CA that go back generations … most of ‘em (most of us) are recent immigrants or descended from recent immigrants from all over the planet – and it used to be mostly legal immigrants …

    Current (and past) Sacramento legislative policy has served to drive more and more companies to take their business elsewhere … when the Givernator tried to correct his, with Propositions, entrenched Sacramento interests managed to defeat his efforts …

    They got a big scare, this election cycle …

    When Texas and Florida employment recovers in the next two years, now that US Federal legislation is again going to be stable, and California unemployment either gets worse, or barely starts to recover, more Californians will realise what more of the US already realises … the Pelosi/Reid/Obama type of politicians are hazardous to health – whether physical or financial or political or employment …

    Neither of the “two white women “ is anti-immigrant – *both* are anti-illegal-immigrant … notice the difference … if you read this blog regularly, you *have* to be more intelligent than your comment demonstrates …

  • Subotai Bahadur

    California is totally scrod [past, pluperfect, subjunctive]. Yes, they did end the ability to raise taxes in secret, however the budget authority in the legislature to raise spending was moved from 2/3 to 50% +1. In a state where they have an intractable annual deficit of $20-30 billion, that is not a good sign. Now that Jerry Brown is the governor, one bill the unions have been pushing to prevent local governments from going bankrupt unless union contracts are 100% funded in the process, will become California law. There is no way out.

    Expect Prop. 13 to fall as soon as the legislature meets, and that will end all limitations on property taxes. Which will finish off the middle class, as their houses have lost at least half their value, but the annual taxes will soar.

    California has the highest level of taxation on businesses, and multiple levels of conflicting regulations that make doing business a nightmare. Which has something to do with a huge unemployment rate. California has been hemmorhaging businesses for years, and more are going to be fleeing now that the election is over.

    My daughter and son-in-law have a business in the Bay area. It is a specialist niche business that is vital to the operation of a port. Because of all the Federal and state licenses and certifications, it is not an easy business to enter, even if you have the needed skills; which are hard to acquire.

    Their business is eminently portable, consisting of the specialized skills, licenses, tools, and crew of working for them. I would not be surprised to hear soon that they are shifting operations totally out of California to Oregon, Seattle, or Vancouver, BC; where they already have branches.

    Oh, and those economic clusters are in a world of hurt. Venture capitalists have stopped funding start-ups in Silicon Valley, and movie production is moving overseas, because of the taxes. The “Beautiful People” may still live there, but they work around the world.

    I, for one, will be screaming bloody murder if they try to give California annual welfare payments from the Federal Treasury.

  • Laird

    Cubanbob is correct on the legal aspects of sovereign default. Llamas is correct on the morality of it, but that’s not particularly relevant; if California wants to stiff its creditors it will do so. The crucial question, as veryretired noted, is whether the federal government will step in and find a way to “bail out” California. Nationalizing its sovereign debt would be a creative way to do so, and the politicians might even be able to get away with pretending that it’s not the same as actually sending money. I’m not sure how it could be done, but (1) mere legality doesn’t seem to matter much to the current administration [witness the GM takeover as an example], and (2) there is a precedent, of sorts, when the Continental Congress assumed all the state debts after the Revolutionary War. That was highly controversial at the time, and it’s certainly going back a long way for a precedent. (Did anything similar happen after the Civil War? I can’t recall.)

    The best outcome would be to place California into some sort of receivership, with the Receiver having the power to repudiate and/or restructure contractual obligations (such as public pensions). There’s no legal precedent for that, of course, but that should be no barrier.

    We in the US just don’t have a lot of experience with sovereign defaults. It has happened (the last one that I know of was Arkansas in 1933) so this is virgin territory. We in for some interesting times!

  • Neither of the “two white women ” is anti-immigrant – *both* are anti-illegal-immigrant … notice the difference

    There is very little difference. Legal immigrants are approved by contemptible and stupid bureaucrats, that is about all.

    There is all the difference in the world between an immigrant who works to earn an honest living and one who doesn’t, but immigration law seldom understands this.

  • Paul Marks

    There is no excuse whatever for a bailout.

    The Democrats now have the Governorship (if one counts “Arnie” as a Republican he will be gone in January).

    And they have the State Legislature – they have it for decades.

    And now they have the dream of the Economist magazine – they can pass a budget by a simple majority (what they always said they needed).

    So they can tax and tax and tax (Califorina is already one of the highest taxed States in the Union – but the Economist has not noticed, or pretends not to have noticed).

    I am sure this will be a wonderfully successful policy.

  • jeremiadbullfrog

    @michael jennings:

    No one has a problem with hard-working illegal immigrants qua hard-workers. And perhaps because of that we should have a more streamlined immigration policy, as you suggest, so that more of those hard-workers can more easily enter legally.

    But between the legal immigrant who pays taxes for the services he receives and is traceable in the event of a crime, and the illegal immigrant who does not and is not, there is a significant difference made all the more enormous in proportion to the number of illegals in the country for whom we are all paying.

    And it’s not because people don’t want to help immigrants or are racist against Mexicans or some other malarkey; it’s that the number of illegals using up our paid resources continues to increase at a time when our finances can’t even properly pay for all legal recipients. Under some conditions it might be noble for the individual to run himself into the ground giving up all his resources to others, but I find it hard to accept that a country should ever do the same, esp. when such a course would involve coercing large swaths of its population to accommodate such an unwanted policy. That strikes me as similar to the goose that laid the golden egg.

  • 'Nuke' Gray

    Why not sell California to China? they’re both socialist societies, producing soft-to-hard leftwing films. And you’d make heaps of cash. Win-win, I think.

  • But between the legal immigrant who pays taxes for the services he receives…

    I always have a problem when I hear that sort of remark as I have difficulty thinking on much of what I get taxed for as a ‘service’. I prefer the term ‘imposition’ actually… well I suppose the state is indeed ‘servicing’ us in the farming sense of the word…

  • prc

    “The GOP in Congress is unlikely to tolerate a bailout for a state run by delusional, mostly Democratic, fools.”

    hahahahaha

  • PersonFromPorlock

    As far as California’s creditors go, I’m inclined to think that anyone who loans his money to a drunken spendthrift shouldn’t be too surprised if he loses it. And California’s been an obvious drunken spendthrift for a long time.

    One possible solution when California goes TU is for them to agree to revert to being a federal territory in return for the federal government’s taking on their debt. That would provide for creditors and residents in the short term and put the running of the place into (hopefully) more responsible hands.

    At the same time, it would be a sufficiently unattractive step that it wouldn’t tempt other states into fiscal irresponsibility. The former state’s political establishment would lose all power (at least, in a just world) and its residents would lose all voice in national government (no congressional representation and no vote for president).

    Eventually, once it had shown it could act responsibly as a territory, the former state could be readmitted as one or several new states.

  • veryretired

    California is only the front runner, or front collapser, in the race to bankruptcy. New York, Michigan, Illinois, and possibly a few others, are all on the same slope towards insolvency.

    It will be interesting to see of the efforts of the new Governor of New Jersey, who has gone after some of the progressive sacred cows pretty aggressively, will lead to success, and imitators, in the effort to restore some fiscal sanity to the “progressive” states approaching severe economic crises which can no longer be papered over with budgetary tricks.

    I have thought for quite some time that the US was entering a period of major political restructuring. It may reach the level of the 1850′s, with the fundamental issue of individual liberty again at the base of a complex realignment of social and political forces into new configurations.

    And, no, the utterly inconsequential Libertarian Party will have not be a significant player in the new configuation, although some elements of libertarian thought are definitely critical to the tea party and other elements objecting to the growing power of the state.

    This will be a long and complex process. To paraphrase Lincoln’s remarks about the Civil War, it may very well be that each drop of sweat from a collectivist engaged in building this monstrosity over the last century must be matched by a drop of sweat from the efforts of anti-statists to dismantle this frankensteinian construct piece by piece.

    Proponents of liberty must begin in earnest to make their own march through the institutions. Government, political parties, and elections are only parts of the puzzle. There are a multitude of other pieces which must be carefully found and placed in the correct position.

    If I were a young man, I could easily consider this a worthy course for my life’s work. As it is, I can encourage, support, and occasionally attempt to explain the complexities of these issues to those who must undertake the real work of restoring liberty.

    I have never believed that the common people are either stupid or ignorant, only that they are sometimes naive and foolish in their enthusiasms. It would appear that the scales have fallen from quite a few people’s eyes in these last few years, however, and I am more optimistic than I have been in the past about the possibility of further successes in the future.

    I don’t expect any final victory. This is not the kind of war that ever ends. Each new generation must renew the fight for freedom and individual liberties in its own context, dealing with the issues that confront it.

    Via con dios.

  • One possible solution when California goes TU is for them to agree to revert to being a federal territory in return for the federal government’s taking on their debt.

    I think that would constitute a very dangerous precedent.

  • PersonFromPorlock

    I think that would constitute a very dangerous precedent.
    Posted by Alisa at November 5, 2010 07:26 PM

    I’m perfectly willing to be wrong but I need a little more to go on. “Very dangerous,” how?

  • Well, I could be wrong too (duh), but it sounds like this would be the end of the US federal system. A slow end maybe, but end nonetheless.

  • Subotai Bahadur

    Alisa @ 0102 hrs.

    I can see a risk to the Federal system, but then again the Federal system has been under attack for generations and is possibly on its last legs. I suspect the decision will be made by the success or failure of the Patriot Movement [TEA Party + Liberty-minded Independents + the small number of Liberty-Minded Democrats who have not been purged]. What I refer to as the Patriot Movement is faced off against what the pollster Rasmussen calls the Political Class. Think of them as an American Nomenklatura that is comprised of what passes for the “leadership” of both parties and their hangers-on. The issue is very much in doubt, and I suspect it will have more bearing on the fate of a Federal -v- Unitary state than reverting failed states into territories to give them another chance to get it right. Mind you, with the same population, they are likely to screw up again in the same ways. There are no easy answers at all, and there may not be any good ones or outcomes.

    All Empires eventually fall. All dynasties come to an end [usually messy and covered in incompetence and denial of reality], all cultures eventually collapse. Holding a free society together takes work, and we may be out of workers. If we fail, it is our own fault.

    Subotai Bahadur

  • PersonFromPorlock

    We’ve always had federal territories; we still do. And Alaska and Hawaii were territories just fifty years ago. So there’s nothing unique about a ‘territory of California’, and so long as we make the experience onerous enough that the inhabitants will want to regain statehood, I don’t see it doing the federal system much if any harm.

  • Think of them as an American Nomenklatura that is comprised of what passes for the “leadership” of both parties and their hangers-on. The issue is very much in doubt, and I suspect it will have more bearing on the fate of a Federal -v- Unitary state than reverting failed states into territories to give them another chance to get it right.

    Subotai, I think you can safely remove the ‘-v-’ bit there, as such reverting would just give the “leadership” another tool to help them reach the same goal. CA crisis will be deemed too-good to waste, and then similar crises can be created once the precedent is established. But then again, I could well be missing something here.

  • PersonFromPorlock: yes, but the times and the premise are different, are they not?

  • PersonFromPorlock

    PersonFromPorlock: yes, but the times and the premise are different, are they not?

    Posted by Alisa at November 6, 2010 02:33 AM

    Well, they’re always different: I’d say not fatally so in this case. And fortunately, since it’s unlikely that either Mr. Obama or Ms. Palin reads Samizdata, it’s not something we need to settle right now. Cheers!

  • Laird

    I agree with Subotai; in fact, I don’t think he goes far enough. The federal system envisioned by the Framers (a central government of specified and limited powers, and sovereign states having plenary power outside of the federal sphere) has not only been “under attack for generations”, I think it has already been destroyed, and we now honor the concept of “federalism” purely in the breach. The Leviathan in Washington has long ceased being a truly “federal” government and has metastacized into “national” one.

    It seems to me that veryretired’s idea of converting CA into a federal territory is not much different than mine of placing it into some species of receivership. There’s no Constitutional authority for either, but obviously that’s no longer any impediment.

    A question for PersonFromPorlock*: Why do you insist that the conditions of territory status be “onerous enough that the inhabitants will want to regain statehood”? Do we really care if they formally become a state again? The residents of Puerto Rico have long been very happy in a “stateless” status; they keep rejecting the idea of applying for statehood whenever it’s proposed to them, and that certainly has had no effect on the rest of us. In fact, by not being a state CA would have no say in federal legislation, which would be extremely positive for the rest of the country.

    * Two questions, actually: in addition to the one above, do you mind if I refer to you as just “PFP”? Your nom de web is pretty long!

  • PersonFromPorlock

    Laird, “PFP” or “Porlock” is fine.

    California would have to become a state again because its staying a territory after a getting itself together would permanently expand the scope of the federal government beyond the intended limits of our federal system. (I know, I know.) The onerousness is meant to encourage that, and to discourage other states from looking on reversion as an easy solution to their budget problems, and, frankly, to give a little satisfaction to those of us who’ll end up footing California’s bills.

    Puerto Rico we can afford to humor because it’s so small.

  • Laird

    PFP, don’t you get sufficient satisfaction from the fact that as a territory the people of California would be denied a vote on national matters? Wouldn’t eliminating California’s 53 Representatives and 2 Senators from Congress have a significant (positive) effect on the rest of the country? In fact, wouldn’t allowing it back into the Union after the rest of us had bailed them out, on the same terms as all other states as though nothing had happened, provide precisely the wrong incentive? The more I think about it, the more I think that in this scenario it is the restoration of statehood which should carry some onerous conditions (such as halving their Congressional delegation for the next 20 years or something).

  • PersonFromPorlock

    OK, look, basically I’m just gassing off the top of my head on this whole ‘territory’ thing, but -

    There’s something more attractive about being a territory than being a state, or Puerto Rico wouldn’t keep refusing statehood. The fact that most Puerto Ricans don’t have to pay federal income tax may have something to do with it.

    Assuming that the ‘no income tax’ thing is true for all US territories (and I have no idea if it is), residents of the ‘Territory of California’ would, in the short term, make out like bandits, with their debts taken over and taxes substantially lowered. Many of them, I think, would think the temporary loss of representation worth it.

    Certainly a lot of Americans in other states would think they were getting a better deal than they deserved, leading to resistance to the whole idea of reversion: While the citizens of some states would conclude Californians were getting a better deal than they were and want to revert themselves. So I think ‘onerousness’ is needed both to sell the program and keep it from being too attractive.

    As to what that onerousness should be, I’m blowed if I knows; I do think it needs to be something that’ll be felt in the short term because politics is a short-term game. Halving their delegation for twenty years – once they had a delegation again – would be just too far away to be much of a penalty.

  • veryretired

    As a point of information, I didn’t propose the territory alternative for California, and I do not consider it a viable or desirable option.

  • Laird

    My mistake, veryretired. Sorry for the misattribution; it was actually PFP’s idea.

  • Paul Marks

    For the record both Carly F. and Meg Whitman spent millions of Dollars saying how much they opposed such things as the Arizonia law.

    Some of this money was their own (which they can waste in any way they see fit), but a lot of the money (at least for Carley) was not her own – it was national Republican money.

    I do not think the newly elected Governor of New Mexico went around doing this (and New Mexico has a higher percentage of hispanics than California does).

    The only thing that can be said, with justice, is that neither Carly or Meg were hispanic themselves.

    Other than that they ideally fit the bill of the “moderate” candidate. Rich (that tripped up Meg – when it turned out her servant was an illegal, Redneck Republicans do not have servants so at least a Redneck candidate would not have had that problem).

    And comming out with all the correct “moderate” policies (to the despair of Glenn Beck – who went out to California, for a week, some months ago).

    It is the place (California) that is no good.

    About the only thing that could have saved it is the much attacked Prop that forbad illegal immigrants getting government support or useing government services.

    “But that alienated hispanics” – only the wrong sort of hispanics, till the Prop was just accepted by history as evil (including by Meg and Carly – who both said they would not have done this evil thing, whatever it was exactly…….).

    “And it was struck down by the courts” – and that is the key point.

    The Republicans ALLOWED it to be struck down by the courts – they did not run a recall campaign on the judges and run the case again.

    By allowing the courts to rule that there was a “right” to various government services (a right that appears nowhere in the text of the Constitution of California) even for illegals, the Republicans signed their own death warrent.

    They also signed the death warrent of the whole State – for who will finance this “right” (for illegals and everyone else) after California goes bankrupt?

    “The Feds will help”.

    I think the House of Representatives will have other ideas.

  • Sunfish

    The Republicans ALLOWED it to be struck down by the courts – they did not run a recall campaign on the judges and run the case again.

    Possible problem:

    Was Prop. 187 struck down by a Federal judge or a state judge?

    Federal judges can only be removed through the impeachment process. Such a removal does not automagically allow the re-opening of an incompetently-decided case. To overturn it, it would be necessary to convince the Ninth Circus Court of Appeals that the trial court misapplied the law. (Which IMHO they did if they found a fundamental right to government benefits, that being neither here nor there…)

    If it was a state court, then all bets are off. I don’t know as much as I could regarding the California state court system.

    I’ll admit being hazy on the details- I was in high school at the time, in a public high school, and the case was fodder for class discussions. However you know where I grew up and can understand that such a discussion probably shed more heat than light.

    (Immigration discussions in the US are like that: on one side the core argument is “Dirty Mexicans took our jobs!” and on the other “Open borders! No controls! Libertarian purity or bust!” occasionally mixed with some politically-correct multi-culti nonsense. A sensible discussion in an open uncontrolled forum is well-nigh impossible.)

    FWIW, if Prop. 187 were sustained but nothing else changed, IMHO CA would still be screwed. As with alcoholics, recovery is not impossible but they’ll need to hit bottom first before they themselves see the need to pull their heads out. And IMHO, any aid at all to CA before such a crash would be no more than enabling behavior.

  • Laird

    Sunfish, you might enjoy this article in today’s Wall Street Journal (if you can get through the paywall): California: The Lindsay Lohan of States.

  • Sunfish

    Who’s Lindsay Lohan? Wasn’t he in Fleetwood Mac or something?