Gloomy and defeated sentiment spreading in Europe with possible default on soverign debts looming over PIIGS (portugal, italy, Greece, and Spain) nations poured cold water over all-is-well-now spirit of Wall Street. Many economists are expecting the worst from the Euro fall out, but what would happen to the world economy due to debilitating Euro seem insignificant when you consider the state of California.
California: Land of governance gimmicks
Governance Gimmicks
by Charles Wheelan
Tuesday, June 8, 2010
California scares me.
To make the point, let me start with a joke that I heard recently in Latin America (which has had its share of self-imposed financial catastrophes in recent decades). According to the joke, one day God is passing out natural endowments to different parts of the world. To Chile, he gives copper. To Saudi Arabia, he gives oil. To the American Midwest, he gives fertile soil. And so on.
Eventually he gets to Argentina. "To Argentina," God says, "I give fertile soil, and access to the sea, and stunning physical beauty, and assorted valuable minerals …" and on and on.
The representatives of the other countries complain. Why should Argentina get so much potential richness? God replies, "Because that is where I'm going to put the Argentines."
The implication (which left a table of Chileans chortling) was that the Argentines could mess up almost anything.
I've never been to Argentina. I apologize for any offense. (Take it up with the Chileans telling the joke.) But the joke reminded me an awful lot of California. The "Golden State" is one of the best endowed places on the planet. Think of the natural assets: a stunning coastline, near perfect climate, fertile soil that supports everything from tomatoes to Chardonnay grapes, access to the Pacific and Asia, and so on.
Then there are the manmade assets created by generations past: Silicon Valley, Hollywood, the best public university system in the world, a cluster of high-tech defense contractors, etc.
And the Californians are messing it up. The state is broke and heavily indebted. California is sometimes mentioned in the same breath as Greece. The state government is dysfunctional. To me, this raises two questions: 1) How did this happen? And 2) Should we (outside of California) care?
Addressing the Problem
The answer to the second question is yes. If California were to miss some bond payments, the resulting financial tsunami would make Greece's problems look like a temperate breeze. California would ask for, and likely receive, some kind of federal help. So you should care about California's problems, even if you live in Rhode Island or rural Oklahoma.
That takes us back to the first question: How does one of the most economically privileged places on the planet run itself into the ground? The answer is not the housing collapse. That has forced bigger problems to the surface, but it is not the underlying illness.
California's fundamental challenge is easy to diagnose but hard to address. The state is a big, diverse place. There are more than 30 million people, whose ideological views stretch from Orange County Republicans to Berkeley hyper-liberals. Californians are every bit as international as the United Nations. In fact, many have fled there from conflict areas around the world. The socioeconomic diversity stretches from indigent farm workers to Internet billionaires.
When it comes to something like the state budget, Californians have to agree on some common course of action -- because there can only be one state budget. If you've ever dithered in a video rental shop with three friends, unable to agree on what movie to watch, then you should be able to extrapolate and appreciate how hard it is for 36 million people to agree on big state issues, like a budget. But they have to. That's what governance is.
For a state like California to work (or an even more diverse nation like the U.S.), the ideologues on the right and left need to suck it up and compromise. Remember the Constitutional Convention? Because the failure to compromise can be a total disaster.
As a theme song, I propose "You Can't Always Get What You Want" by the Rolling Stones.
Trouble With Process
But rather than muddling through, California has adopted a bunch of "governance gimmicks," all of which reflect the erroneous view that it's the political process, rather than the underlying differences of opinion, that is to blame. Here are the worst that I'm aware of:
1. Requiring a two-thirds majority to pass a budget, a tax increase and assorted other things. This sounds like a recipe for fiscal rectitude. Instead, it creates a tyranny of the minority. Roughly a third of the legislators can foil a budget supported by the majority. In a democracy, why should 1/3 of the people run the state?
2. Proposition 13. This was a 1978 amendment to the state constitution, passed by referendum, that capped local property taxes, meaning that local communities are prohibited by law from voting to raise their own taxes beyond a specified level. This sounds great, since no one particularly likes property taxes. In practice, it's idiocy, for two reasons. First, it violates the core tenet of federalism: local issues are best decided at the local level. Why shouldn't Berkeley be able to tax itself more to fund a community project? Nobody in Orange County has to pay for it. (To get your mind around the federalism issue, imagine that the state passed a law precluding local communities from cutting their property taxes -- that wouldn't make the "local government knows best" crowd real happy.)
Second, it means that communities with a higher taste for public goods (such as spending more on education) have to lobby for that increased spending at the state level (thereby imposing it on communities that would prefer to spend less). One of the reasons Californians are squabbling so viciously at the state level is that Proposition 13 precludes more diverse policies at the local level. In order to get the community project, the folks in Berkeley have to get the state to fund it, and Orange County will have none of that.
3. Ballot initiatives. Many governance decisions in California are made directly by the people. In theory, this is pure democracy. In practice, it's a circus. The referenda are confusing, expensive and contentious. Complex issues must be reduced to a yes/no vote. Would you want all Americans voting on our foreign policy toward Iran, or whether or not to approve funding for the joint strike fighter? That's why we have a representative democracy. We elect people to study an issue and then make an informed decision. Some big issues should be put to referendum; most shouldn't.
4. Term limits. California has a lifetime limit of six years in the General Assembly and eight years in the Senate. The governor gets a maximum of two terms. How is that working out? Governing California is a stunningly complex undertaking. Those who have the most experience doing it are shown to the door -- forever. Could you imagine a major U.S. corporation limiting employees to maximum lifetime tenure of eight years? (I'm sorry Steve Jobs, but your time here at Apple is done.)
The California budget is "due" at the end of June. We'll see what happens. In the meantime, there are lessons for the rest of us. First, gimmicks don't work. The reason we have "gridlock" is that we have fundamental underlying disagreements about how we ought to be governed. There is no easy fix for that, other than pragmatism and compromise.
Second, grow up. If you live with 30 million other people in California, or 300 million people in the U.S., you're not going to get your way on everything. Successful societies forge a common path from disparate and strongly held points of view. California can't do that right now. It should be a warning for all of us.
For those of you who read my last column on the $25 bag check lawsuit against United, here is the update. Shortly after my column appeared, United found the bag (a striking coincidence given that it had been missing more than a month at that point). They also refunded my $25 and paid the court costs for the small claims suit, which I subsequently dismissed. Thank you for the many e-mails documenting assorted air travel catastrophes.
California: Land of governance gimmicks
Governance Gimmicks
by Charles Wheelan
Tuesday, June 8, 2010
California scares me.
To make the point, let me start with a joke that I heard recently in Latin America (which has had its share of self-imposed financial catastrophes in recent decades). According to the joke, one day God is passing out natural endowments to different parts of the world. To Chile, he gives copper. To Saudi Arabia, he gives oil. To the American Midwest, he gives fertile soil. And so on.
Eventually he gets to Argentina. "To Argentina," God says, "I give fertile soil, and access to the sea, and stunning physical beauty, and assorted valuable minerals …" and on and on.
The representatives of the other countries complain. Why should Argentina get so much potential richness? God replies, "Because that is where I'm going to put the Argentines."
The implication (which left a table of Chileans chortling) was that the Argentines could mess up almost anything.
I've never been to Argentina. I apologize for any offense. (Take it up with the Chileans telling the joke.) But the joke reminded me an awful lot of California. The "Golden State" is one of the best endowed places on the planet. Think of the natural assets: a stunning coastline, near perfect climate, fertile soil that supports everything from tomatoes to Chardonnay grapes, access to the Pacific and Asia, and so on.
Then there are the manmade assets created by generations past: Silicon Valley, Hollywood, the best public university system in the world, a cluster of high-tech defense contractors, etc.
And the Californians are messing it up. The state is broke and heavily indebted. California is sometimes mentioned in the same breath as Greece. The state government is dysfunctional. To me, this raises two questions: 1) How did this happen? And 2) Should we (outside of California) care?
Addressing the Problem
The answer to the second question is yes. If California were to miss some bond payments, the resulting financial tsunami would make Greece's problems look like a temperate breeze. California would ask for, and likely receive, some kind of federal help. So you should care about California's problems, even if you live in Rhode Island or rural Oklahoma.
That takes us back to the first question: How does one of the most economically privileged places on the planet run itself into the ground? The answer is not the housing collapse. That has forced bigger problems to the surface, but it is not the underlying illness.
California's fundamental challenge is easy to diagnose but hard to address. The state is a big, diverse place. There are more than 30 million people, whose ideological views stretch from Orange County Republicans to Berkeley hyper-liberals. Californians are every bit as international as the United Nations. In fact, many have fled there from conflict areas around the world. The socioeconomic diversity stretches from indigent farm workers to Internet billionaires.
When it comes to something like the state budget, Californians have to agree on some common course of action -- because there can only be one state budget. If you've ever dithered in a video rental shop with three friends, unable to agree on what movie to watch, then you should be able to extrapolate and appreciate how hard it is for 36 million people to agree on big state issues, like a budget. But they have to. That's what governance is.
For a state like California to work (or an even more diverse nation like the U.S.), the ideologues on the right and left need to suck it up and compromise. Remember the Constitutional Convention? Because the failure to compromise can be a total disaster.
As a theme song, I propose "You Can't Always Get What You Want" by the Rolling Stones.
Trouble With Process
But rather than muddling through, California has adopted a bunch of "governance gimmicks," all of which reflect the erroneous view that it's the political process, rather than the underlying differences of opinion, that is to blame. Here are the worst that I'm aware of:
1. Requiring a two-thirds majority to pass a budget, a tax increase and assorted other things. This sounds like a recipe for fiscal rectitude. Instead, it creates a tyranny of the minority. Roughly a third of the legislators can foil a budget supported by the majority. In a democracy, why should 1/3 of the people run the state?
2. Proposition 13. This was a 1978 amendment to the state constitution, passed by referendum, that capped local property taxes, meaning that local communities are prohibited by law from voting to raise their own taxes beyond a specified level. This sounds great, since no one particularly likes property taxes. In practice, it's idiocy, for two reasons. First, it violates the core tenet of federalism: local issues are best decided at the local level. Why shouldn't Berkeley be able to tax itself more to fund a community project? Nobody in Orange County has to pay for it. (To get your mind around the federalism issue, imagine that the state passed a law precluding local communities from cutting their property taxes -- that wouldn't make the "local government knows best" crowd real happy.)
Second, it means that communities with a higher taste for public goods (such as spending more on education) have to lobby for that increased spending at the state level (thereby imposing it on communities that would prefer to spend less). One of the reasons Californians are squabbling so viciously at the state level is that Proposition 13 precludes more diverse policies at the local level. In order to get the community project, the folks in Berkeley have to get the state to fund it, and Orange County will have none of that.
3. Ballot initiatives. Many governance decisions in California are made directly by the people. In theory, this is pure democracy. In practice, it's a circus. The referenda are confusing, expensive and contentious. Complex issues must be reduced to a yes/no vote. Would you want all Americans voting on our foreign policy toward Iran, or whether or not to approve funding for the joint strike fighter? That's why we have a representative democracy. We elect people to study an issue and then make an informed decision. Some big issues should be put to referendum; most shouldn't.
4. Term limits. California has a lifetime limit of six years in the General Assembly and eight years in the Senate. The governor gets a maximum of two terms. How is that working out? Governing California is a stunningly complex undertaking. Those who have the most experience doing it are shown to the door -- forever. Could you imagine a major U.S. corporation limiting employees to maximum lifetime tenure of eight years? (I'm sorry Steve Jobs, but your time here at Apple is done.)
The California budget is "due" at the end of June. We'll see what happens. In the meantime, there are lessons for the rest of us. First, gimmicks don't work. The reason we have "gridlock" is that we have fundamental underlying disagreements about how we ought to be governed. There is no easy fix for that, other than pragmatism and compromise.
Second, grow up. If you live with 30 million other people in California, or 300 million people in the U.S., you're not going to get your way on everything. Successful societies forge a common path from disparate and strongly held points of view. California can't do that right now. It should be a warning for all of us.
For those of you who read my last column on the $25 bag check lawsuit against United, here is the update. Shortly after my column appeared, United found the bag (a striking coincidence given that it had been missing more than a month at that point). They also refunded my $25 and paid the court costs for the small claims suit, which I subsequently dismissed. Thank you for the many e-mails documenting assorted air travel catastrophes.
