Saturday, August 21, 2010

California Dreaming.... Well, Not Really

Just how bad are the finances of the State of California and its municipalities?  Bad enough that even Willie Brown is speaking up just as the state has begun issuing IOUs again and furloughing workers.  The dyed-in-the-wool Democrat and notoriously flamboyant 30-year veteran of the California State Assembly, is complaining about overpaid government workers.  From a recent column in the San Francisco Chronicle:
If we as a state want to make a New Year's resolution, I suggest taking a good look at the California we have created. From our out-of-sync tax system to our out-of-control civil service, it's time for politicians to begin an honest dialogue about what we've become.

Take the civil service.

The system was set up so politicians like me couldn't come in and fire the people (relatives) hired by the guy they beat and replace them with their own friends and relatives.

Over the years, however, the civil service system has changed from one that protects jobs to one that runs the show.

The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life.

But we politicians, pushed by our friends in labor, gradually expanded pay and benefits to private-sector levels while keeping the job protections and layering on incredibly generous retirement packages that pay ex-workers almost as much as current workers.

Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs.

Either we do something about it at the ballot box, or a judge will do something about in Bankruptcy Court. And if you think I'm kidding, just look at Vallejo.
Is this one of those Nixon goes to China moments?  Maybe.  It's encouraging to see people like Willie Brown and Barney Frank realizing the error of their ways.  Facts are hard things to deny for forever.  Now we need those who created the mess to fix it instead of just kicking the can down the road.  It's rare to see leadership and character among politicians but now is a time where the country sorely needs it, and it has gone missing for many years.

Unfortunately, this is not just an American problem.  Governments all across the world have been overly generous in their commitments to public employees and the social safety net they've built for their citizens. Don't believe me?  Then take a look at this:

That should be enough to scare the hell out of anybody, and does not bode well for the future economic performance of the major western economies.


  1. We've over promised. We've tried to build an empire. We've been enormously successful building an economy that consumes an inordinate amount of the world's resources and energy.
    We are learning we have to pay for it as we go even if it doesn't align with political incentives. I'm not sure the U.S. would be so fast to send troops all over kingdom come if taxpayers had to pay with increased taxes rather than the debasing of the currency. I'm not sure pensions for local government would be so attractive if they had to be funded in real time.
    Now we are shifting all the way to the other side of the spectrum. Reminds me of Reagan. Overregulated? Fine-do away with regulations. Get rid of Glass-Steagll and all the rest. Let the banks do whatever they want. Let Fannie and Freddie turn themselves into gigantic hedge funds.
    I wonder if we lived to be 150 years old if we wouldn't get bored because it seems to be the same thing over and over-we go from one extreme to another.
    Is Willie Brown related to McNamara?

  2. It's going to be interesting to see if and how we can unwind all of these overcommitments without breaking the bank and the currency. Personally, I have no problem bringing the troops home and being very cautions about foreign entanglements. But that is just the tip of the iceberg when it comes to the spending problem. We can get into a long debate over regulation and whether regulators are effective, but to me the real issue is you can't deregulate and still provide the explicit or implicit guarantee of a government bailout (repeal of Glass-Steagal as I recall was the brainchild of Clinton, Rubin, Greenspan and Gramm). If you deregulate, Chapter 7 or 11 should be the outcome of poor management, not government cash and a big bonus for the top dogs. Fannie and Freddie.... where do you begin with those two..... I think all the Congressional oversight did was turn them into political instruments of social engineering; they are the biggest scandal of all and where the taxpayers are going to lose some serious cash. The federal government has gotten itself entangled in so many areas of the economy that it shouldn't be in.

    Willie Brown may be having a McNamara moment, and I hope he helps lead the charge to get CA on much better financial footing.

  3. Lets tighten the belt a little here. We have to reign in spending. Some kind of cutbacks in the budget, maybe 1% a year for 5 years. We can't be everywhere in the world we we can't pay for it. We spend money like there's no tomorrow. We have the strongest economy in the world, I think it will see us through. I don't think even Obama can kill it. Financial responsibility in government must take priority. Only we don't have leaders that know what that is. I don't even see our leaders as Republican or Democrat anymore. Their differences are blurring. They all stink. We've watched the administration dig us a big hole to to fix. It's partly our fault, we voted in these men. I'd like to see someone like Cristie from New Jersey step up and open the windows and let the stench out. He seems the most fed up with the way things are.

  4. Wise regulations chosen and preferred by the customers are a good thing. Regulations done for political considerations and done to fix last year's crisis... maybe not. It just creates something else to benefit those who can afford a legion of lawyers and harm those who can't, thus widening the gap between the politically connected and everyone else.

    Agree that spending needs to come down, however, so long as there's moral hazard and redistributions of wealth via bailouts, taxes, and inflation... things will always be skewed in one way or another. Kicking the can down the road only ensures the fall will eventually be that much greater.