California Thievin'

It appears the citizens of California have decided to go in to the short term money-lending game. Their only customer will be the State of California itself.

Did I say decided? I meant it was decided for them. McArdle:

California has come up with a novel way to close this year's budget gaps: it's increasing withholding from the paychecks of its citizens. No, the government didn't actually increase taxes; it just raised the withholding.

The only reason this is not literally a violation of criminal law is that the government is the perpetrator. As such, the citizens have almost no immediate way to respond.

Don Boudreaux of George Mason University had this to say about the enhanced withholding:

It’s fashionable today to accuse private businesses of being greedy, duplicitous, and larcenous. But no business could get away with such audacious seizures of other people’s property – seizures that governments, such as California’s, are escalating to a dreadful new level.

Resorting to such a scheme to paper over the continuing fiscal disaster that is the California budget is sad and frightening.

Waking up after the California dream

Well, it appears Colin Powell was wrong. The rejection of California's ballot measures on spending caps and tax hikes went down to defeat. Strong evidence, I would argue, that voters do not want to pay taxes for services and that what they are looking for is more free government services in their life.

California's recent history is the nation's in microcosm (a really big microcosm). Spending has simply outpaced revenues. As long as credit was easy and relatively cheap, borrowing was far more attractive than either cutting spending or raising taxes. This approach to fiscal matters has taken a beating recently. The recession has meant falling revenues and the collapse in the credit markets has made borrowing much more costly.

CBS News reports:

Between the 2004 and 2008 fiscal years, total state spending increased by around 44 percent, far outstripping tax revenues. Debt has tripled in six years. All this is true even though Californians enjoy one of the heaviest income tax burdens in the nation.

So now what? McArdle argues for cutting California loose and letting them go bankrupt, even though she doesn't think this is likely. It is possible that we could see a bailout of California by the federal government.

California's particular brand of fiscal insanity combined self-imposed spending mandates with self-imposed restrictions on raising revenues. It would be exceedingly difficult to argue that Californians were deserving of a bailout. Perhaps the only argument that could sway many is the claim that California's failure would be detrimental to the health of the nation as a whole. That may be true, but it is also the case that, in the long term, it is not clear which would be worse, bailout or bankruptcy.