Global Warming since the Start of the Twentieth Century
links for 2009-07-25

Christopher Caldwell on a Failure of Direct Democracy

This is his take on what has gone wrong with California's government:

California’s fiscal charade: California’s problems are those of “direct democracy”.... In voting on “propositions”, which sometimes touch on detailed budgetary matters, citizens of the Golden State have stood up consistently for two principles: the state should provide vastly more services to its citizens, and citizens should pay vastly less to the state. In 1978, Proposition 13 halved government’s take from property taxes; a decade later, Proposition 98 required the state to spend 40 per cent of its “general fund” on schools. Adding to the problem is the requirement of supermajorities for raising taxes.

The present impasse reflects a problem of long standing, even if its severity is unprecedented. Ronald Reagan won the state’s governorship in 1966 by promising to do something about the budget deficit, which had by then risen to a calamitous $194m. Today, the state not only has a $26.3bn (£16bn, €19bn) budget gap but is constrained by all sorts of powerful institutions and laws from closing it....

[M]uch of the budget plan hammered out on Monday consists of accounting tricks. Unable to go to the banks to borrow, the state is borrowing billions from local counties and communities by simply not disbursing the money it is supposed to. If cities really want their programmes funded, they can try the credit markets themselves. A payday that was supposed to come next June has been pushed back into July, so that it will fall in the following fiscal year. Another trick is the accelerated withholding of state income tax. Instead of deducting 25 per cent of taxes per quarter, the state will deduct 70 per cent in the first six months of 2010, so that 20 per cent of revenues from the next fiscal year will be brought forward into this one. This is not a solution. This is changing your phone number so you can get some rest from the bill collectors who are dunning you....

It is an enduring mystery why US pundits should see a difference between the philosophy of Democrats (who stand for spending more than you raise) and the Republicans (who stand for raising less than you spend). Typical was a Chronicle editorial blasting Republicans for their insistence that the budget crisis be resolved in a way that did not involve tax hikes.... A stronger case can be made that tax revenues are too unpredictable. Here Proposition 13 is blamed for moving the burden from property to income taxes, which are more sensitive to economic fluctuations. In a boom economy, there is plenty of money to pay for the unemployment benefits that no one needs. When you have 12 per cent unemployment, as California does now, the state is too strapped to do anything. This accusation is true enough....

California’s fiscal difficulties are like a lot of things in life. Everyone warns you that there are certain hard and fast rules – like not confusing wishes with entitlements – that you break at your peril. You begin to break them and what happens? Nothing! Nothing at all, and for the longest time. You are like a ship that has lost its anchor. You can drift very pleasantly, day after day, believing you do not need an anchor at all, before one day you realise, quite suddenly, that you do.

There are three things wrong with Caldwell's piece:

  • His denunciation of the media for seeing a difference between California's Democrats--who want to solve the fiscal crisis by a combination of spending cuts, tax hikes, and accounting gimmicks--and California's Republicans--who want to solve the fiscal crisis by a combination of spending cuts and accounting gimmicks.
  • A pointless nd unfair slam at Venezuela.
  • A strange claim that Iceland "levied too much of its taxes on property" when actually it levied taxes on transactions: transactions taxes are not property taxes--they are turnover taxes.

But all in all, he says some smart things. Alexander Hamilton thought that by the 1780s "the science of politics... has received great improvement" since the age of classical Athens and Rome. Alexnder Hamilton would weep at California today:

Federalist No. 9: It is impossible to read the history of the petty republics of Greece and Italy without feeling sensations of horror and disgust at the distractions with which they were continually agitated... perpetual vibration between the extremes of tyranny and anarchy. If they exhibit occasional calms, these only serve as short-lived contrast to the furious storms that are to succeed. If now and then intervals of felicity open to view, we behold them with a mixture of regret, arising from the reflection that the pleasing scenes before us are soon to be overwhelmed by the tempestuous waves of sedition and party rage. If momentary rays of glory break forth from the gloom, while they dazzle us with a transient and fleeting brilliancy, they at the same time admonish us to lament that the vices of government should pervert the direction and tarnish the lustre of those bright talents and exalted endowments for which the favored soils that produced them have been so justly celebrated.... [I]t not to be denied that the portraits they have sketched of republican government were too just copies of the originals from which they were taken. If it had been found impracticable to have devised models of a more perfect structure, the enlightened friends to liberty would have been obliged to abandon the cause of that species of government as indefensible. The science of politics, however, like most other sciences, has received great improvement. The efficacy of various principles is now well understood, which were either not known at all, or imperfectly known to the ancients...