Even the end of the credit crisis won’t be the end of the credit crisis. Ask Arnold Schwarzenegger, the tin-cup terminator. The governor has quietly sought a $7 billion loan from the U.S. Treasury so the state can keep its doors open. The loan would be temporary, but the troubles of California and other jurisdictions are far from temporary.
A canary in this coalmine is the Northern California city of Vallejo, now in bankruptcy court and trying to rip up labor contracts with police and firefighters. Like the auto and steel industries and Social Security and Medicare, local governments around the country have committed to paying (in present value) $1.7 trillion in retiree benefits beyond the ability of their tax bases to fund them. In California alone, the share of city budgets going to these costs has more than doubled in just the last eight years to 26%. A lawyer for municipal unions laments the shape of things to come: "Other cities are now saying they could just do a Vallejo."
Yup — setting the stage for a generation’s worth of political warfare. There are two choices: Either we can boot-strap our way out or inflate our way out.
You won’t be hearing about any of this from the presidential campaigns, of course. Boot-strap means stripped-down tax and regulatory policies that allow the economy to grow faster — what Barack Obama and Joe Biden continually anathematize as "deregulation." It also means some brutal revoking of promises to workers and retirees — as Vallejo is trying to do. (Can’t happen? Ask airline and steel and auto workers.) What’s the alternative to the boot-strap approach? To pile on taxes even at the cost of economic stagnation, with the Fed increasingly under pressure to run the printing press to create an illusion of rising incomes.
Arnold is a canary himself. His once-promising political career has already vanished down this black hole. His own party leadership just pointedly commended GOP lawmakers for voting against his proposed tax hike and the party’s conservative wing may vote soon on whether to seek his recall. The state prison guards union, whose contract demands played a role in the downfall of his predecessor, is already doing so.
Nobody talks about amending the Constitution so Arnold can run for president anymore. Plenty more political careers will go down these tubes before it’s over.
– Holman Jenkins
October 3rd, 2008 at 12:00 am
Folks…a Socialist believes in endless taxes, higher debt and personal adulation…sound familar?
In reality….think back….when did any politican give you personally anything unless your a bonafide California moocher?
The time of limitations is upon us…no bonds, no debt, no taxes only cut overhead, regulations and services will ever get California productive again….we must get the moochers on the run….forever…to Conn., Vermont, New Jersey, Rhode Island, Mass., New York….the bastions of liberalism.