David Moss: It's in our hands

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As we approach the 2012 general election, I think it is important to pay attention to what is happening in California and Greece. Both have severe budget problems that will continue to play out in the near future. This process has implications for the U.S. as a whole and the decisions that voters will face this fall. We can see our future in these two governments.

At the root, all budget crises are the same — more spending than income. California and Greece face similar problems with an unaffordable large public workforce and the promise of an unsustainable pension system when these workers retire. Further, California has a welfare safety net that supports not only citizens of the U.S. but also large numbers of noncitizens who overwhelm that system.

The budget crisis in California grows larger and more difficult each year. The previous governor (a Republican) proposed tax increases to help with the budget. These were firmly rejected by the voters. The current governor (a Democrat) recently said the budget crisis in California was the result of longstanding deficit spending that California and the federal government have engaged in for many years. This seems to be justifying bad behavior based on other bad behavior. Anyway, California’s day of reckoning is approaching rapidly, and our national time is probably not far behind.

The proposal to raise taxes in California is worth further consideration. Even if it had been accepted, it would have been a short-term solution. Currently, California is experiencing an exodus of individuals and businesses for more tax-friendly, functional states. As Greece has learned, at some point, higher taxes generate more avoidance than revenue.

President Barack Obama campaigned on a balanced budget by the end of his first term. He appointed a deficit commission (Simpson/Bowles) and then took no action on its recommendations. He does not take our deficit problems seriously.

We need to stop the partisan bickering and elect candidates who understand the dire straits the country is in with a $16 trillion debt and an annual deficit of $1.3 trillion. These candidates should be leaders committed to getting control on the unsustainable spending and reforming the tax code so it is simple and fair and so all Americans have some skin in the game and are paying taxes. We need leaders who will achieve a balanced budget within a short time, not 10 or 20 years from now. We need to hold them accountable if they don’t. The direction of the country is in the hands of the voters this fall. Do we want to follow California and Greece or get our budget under control?

David Moss

Clark

Comments

Dan Hill 2 years, 5 months ago

If taking real action to address our budget problems was what people really wanted from their politicians, Ron Paul would be the Republican nominee. Both sides are continuing to tell the American people they can have their cake and eat it too because right now that is what people want to be told. Unfortunately it's going to have to get a whole lot worse before the people will finally face reality.

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rhys jones 2 years, 5 months ago

We're only too happy to borrow hundreds of billions at a chunk from the Chinese to wage our perpetual wars, extend unemployment benefits, bail out banks, and pay huge executive bonuses. We deserve what we've got coming. Soon gold will be quoted in yuans. Question: When China goes into receivership, will we get full exchange rate for our now-defunct dollars? They will have averted any war by just buying us out.

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Scott Wedel 2 years, 5 months ago

Well, sort of comparing apples and oranges because California is not allowed to run a deficit and does not have a large state debt. The current governor, Jerry Brown, has not approved major budget tricks and the state will have a balanced budget by the end of the year. The people will be given a choice in November to increase taxes to pay for the services provided by state government or the services will be greatly reduced. California is about to make the hard choice.

Greece is a completely different situation where they have approved generous government benefits and have an extremely inefficient tax collection system. And need money from basically Germany to continue to operate. But now they don't want to implement the terms of the agreement under which Germany gave the money.

California has a state GDP of $1.9 Trillion with per capita income of $51,000. Greece has a national GDP of $312 Billion with a per capita income of $27,900.

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Sandra Sharp 2 years, 5 months ago

Thanks, Scott for pointing out one of the facts that break down any validity in this letter. Another obvious point is that the troubles in California began in the 70’s with Prop 13 – which cut property tax. Assumptions made in this letter are reckless and dangerous. Yes, we can learn from California, but not if we make shallow and selective observations .

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Fred Duckels 2 years, 5 months ago

The problem in Calif. and Greece is spending beyond their means Scott, and their differing set of smoke and mirrors are irrelevant. With California's attitude and politics they will never recover short of Fed intervention. Their entitlements are beyond their ability to cope and they will never accept tough love.

Sandra and Scott, I am covering all bets concerning California's chances of any fiscal responsibility, short of a massive bailout.

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Sandra Sharp 2 years, 5 months ago

Fred, the situation in California is more complicated than having a balnced budget. In fact, based on this letter the argument can be made that the one thing we can learn from California is that a balanced budget ALONE (which they have every year) does NOT lead to a healthy economy...and that tax cuts (prop 13) do not lead to a healthy economy. If you want to argue that it is the "California attitude" that has brought California to it's knees, I would like to see some actual support. I spoke with some friends yesterday, we all have several friends in Colorado that are having a difficult time finding employment or are under employed. We then paused, and thought about our California friends. They are all employed and they are thriving. The dot-com industry has made a come back in the valley. Yet, California is still in great danger....along with the rest of the United States. I am not yet arguing one side or the other, I am looking for a well defended argument. So many people are making such weak arguments to support their political desires. I long for a well thought out, well established and intelligent argument.

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Fred Duckels 2 years, 5 months ago

Sandra,

The sad part is that we seem willing to follow California's lead. My intellect may be lacking and I don't understand the workings of such progressive minds, but every year we will see a new set of gimmicks trotted out by Sacramento and victory is declared, just as it is in all countries only too willing to take the path of least resistance. The unions own the state and they seem to have no reservations when it comes to killing the golden goose. Your optimism indicates that maybe you have had too much medication. My offer still stands.

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Sandra Sharp 2 years, 5 months ago

Fred, why I continue to have a discussion with someone that would post such a vile statement about my optimism is only an indication that, for the moment, I am trying to fill time. Give an example of one of those gimmicks trotted out by Sacramento. Our country is dealing with issues states never face - such as war. That alone is reason enough to limit comparision between state and federal government. I recommend to Colorado businesses to look at these California companies that are thriving despite our national economy and their state economy.

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Sandra Sharp 2 years, 5 months ago

Rob....no one is arguing that the exonmy is not suffering in California. What is of debate is what this means to the national economy and what we should learn from the situation in California. And, also of interest is that inspite of the bad economic environment in California so many businesses and individuals are still thriving.

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Scott Wedel 2 years, 5 months ago

The condition of California's economy very much depends where you are. High tech area of Santa Clara (aka Silicon Valley) county, San Mateo County (Zynga, Adobe) to SF (Salesforce.com) have unemployment rates of 8.2%, 5.9% and 8.1%. While inland Fresno has a 16.2% rate, inland Kern County 14.8%.

The inland areas had the worst of the real estate boom since there is the available land to build. So they boomed, added population to build that also bought homes, and now it is very depressed with unsold properties and no work so people left in a self reinforcing cycle.

Meanwhile, the coastal cities are far less reliant upon construction and so recovered far more quickly.

If California is so bad then why are so many leading US companies located there? Google, Intel, AMD, Facebook, SpaceX, Oracle, Apple, HP, Genetech. The answer is that California is the place to go to find high tech workers, startup knowledgeable management and venture financing.

California is not healthy now and has a huge PROJECTED state deficit. But the projected deficit is going to be greatly reduced either via severe spending cuts or tax increases and modest spending cuts. That will be decided in the November election.

California is like Greece the same way Colorado is like Norway. Ie, not really.

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Sandra Sharp 2 years, 5 months ago

Scott....since California's budget needs to be balanced this August....isn't that when spending cut decisions will be made? And since the California budget is balanced every year....a balanced budget doesn't appear to be the answer to their economic situation, right???

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Fred Duckels 2 years, 5 months ago

Sandra,

California's retirement and lifetime medical costs are off the charts. The unions elect the politicians and the politicos return the favor with lavish unpaid for benefits, and this is all coming due. They have a house of cards and are still choosing the path of least resistance. They are denying the inevitable and it makes leaving the state vey attractive.

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Scott Wedel 2 years, 5 months ago

Sandra, I do not claim to be an expert on the California budget process.

California is supposed to pass a budget by end of June. But that is the budget going forward. The tax increases are on November's ballot. So they will have to deal with two potential situations. I think any deficit one year can be passed on to the next year's budget as an expense item and so they don't have to constantly tweak the budget based upon each month's projections. But the budget they pass in June is supposed to be balanced while paying off any previous year's deficit.

A balanced budget is not the solution to their economic problems. In the short term it will make things worse by cutting jobs and maybe raising taxes, but over the longer term it will help that the state has a balanced budget. The item that has grown rapidly and is really killing the budget is prisons which Republicans tend to like as being tough on crime and Democrats like the support of the correctional workers union.

California has economic strength from the various tech companies that are growing rapidly. The inland cities which lack the skilled workforce will probably continue to see people leave.and a chunk of their work will be via long commutes to the coastal areas for construction and so on jobs.

California has continued to be the center of tech world even as detractors say it is all over. At one time it was Japan that was going to dominate the chip industry, but it was just their moment and they quickly fell to the wayside. At one time it was Texas with Dell, Compaq and TI signalling the end. But it was Dell's low cost model requiring engineering from their suppliers (ie ASUS) that taught their suppliers how to make better cheaper computers. TI also failed to invest and was crushed by Intel among others. Compaq was gobbled up by HP to sell more printers.

Craigslist started as a cute little listing service, took off and became huge. It started in SF and there they found the people to scale it from running off of one computer to a top 20 website by views. Meanwhile, Facebook started in Harvard and when they experienced explosive growth then they came to SF Peninsula to find the people to scale it up. That Facebook has gone from 250K to 900M users without encountering huge service issues is the greatest advertisement for California.

Much of California's budget problem is that unemployed receive benefits while workers pay taxes. So a drop in unemployment makes a huge difference to the state's budget. When things are good then state has money. Which is how they got in such trouble because they could afford this and that when things were good.

Companies know how to play tax games to avoid paying the worst of taxes. Microsoft and Apple both claim their software is owned by subsidiaries in Nevada to avoid paying Washington St or California taxes.

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Sandra Sharp 2 years, 5 months ago

All this talk has made me homesick…..I just booked a weekend at Redondo beach! The one thing about Cali….Californians are resilient….they do not just sit back and wait for the recession and hard times to pass…they keep pushing forward. And the amazing universities, in Cali, keep producing great minds. They have had issues balancing that budget for the past 20 years….yes….things are more complex now...but I have confidence that not just California will pull, so will our country. The question is, with how much dignity? Unemployment has played a major role for every state, not just California, the same with retirement and healthcare costs. I question, Scott,that "much" of California's budget problems are unemployment costs, as their budget crisis started years before the recession hit the rest of us. The answer to their issues are much deeper, and multi-factorial.

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Fred Duckels 2 years, 5 months ago

Much to the chagrin of the faithful this experimental candy store has not proven sustainable. Now the refugees want to move to Colo. and redo the same experiment hoping for a different outcome.

Mother Nature has the only game in town known to work everytime, but California has been working on the other end of the spectrum.

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Scott Wedel 2 years, 5 months ago

California is on the other end of the spectrum from Mother Nature because it has a state budget deficit? Or were you suggesting that corporate taxes are against Mother Nature? Environmental regulations? Is high tech using effects resulting from Quantum Mechanics which are certainly counter intuitive what you consider to be against Mother Nature?

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Neil O'Keeffe 2 years, 5 months ago

A very interesting discussion thanks to the rational thinking of Scott and Sandra. I read something today that is certainly an issue in Cali. as well as most other states. When it comes to reducing defecits most state governments are in the business of Medication, Education and Incarceration. Sad but true and not too difficult to see where the cuts take place. IMHO our 2-4 year election cycles along with our plutocratic emphasis on profits above all else only reinforces our political myopia.

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mark hartless 2 years, 5 months ago

I'm glad rokboat found Scott and Sandra's comments useful.

It looks like english but I couldn't understand a word Sandra wrote. Being critical of "shallow and selective observations" while pinpointing a property tax cut in the 1970"s as the cause for California's woes 40 yerars later? Whaaaaaat? "...in spite of bad economic environment in California, many businesses and individuals are still thriving." Whaaaaaaat?

I think Scott was just up to his usual devils advocacy and hair-splitting.

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John Weibel 2 years, 5 months ago

A balanced budget does not mean a state without debt, California's being 360 billion. Historically there is a need to purge this debt and excess. The Kondrietiev (sp?) cycle occurs almost every 70 years and even though the governments of the world try to counter the cycle but really probably just delay the need to live well below ones means to save and purge the debts accumulated previously.

The tax protests in Ireland make me think of Robin hood. While we have been conditioned to believe that Robin Hood robbed from the rich and gave to the poor... really he robbed from the government tax collectors who took too much from the people and gave it back to the people.

One recent paper determined that the fall of the roman empire was caused by the pension system there. The debts that countries have on book are nothing compared to the off book liabilities that stem from pensions, social security, medical coverage.

Government is broken today and the best example is how unemployment is funded. We tax employers based upon payroll to fund those out of work. Yet computers, robots, china, tractors, india, etc put people out of work.

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Scott Wedel 2 years, 5 months ago

I think there is a direct link between the popular perception of the sin of the current times and books claiming that was the reason for the fall of the Roman Empire.

When overpopulation was a popular concern then it was said the Roman Empire fell because of overfarming ruining their agriculture.

When governments started the drug war then it was drug use that led to the collapse of the Roman empire.

Rampant sex, homosexuals, too many wars, private armies, too much power held by too few rich people, unchecked corruption, and just about anything else has been blamed for the fall of the Roman Empire depending upon what lesson someone wants us to apply to current political situation.

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John Weibel 2 years, 5 months ago

Scott,

Do you think that the 50 Trillion in unfunded liabilities that the US has is a problem? That does not include underfunded state and local government pensions.

The government has promised the moon to workers after they retire. Pay them a fair wage while they work and expect them to take care of themselves in their golden years.

Governments malfunctions include giving a tax break to have a mortgage and then a tax break to have a retirement account. First and foremost people should pay off the debts (Mort - death Gage - grip in Latin). The bankers or money changers from the time of Christ have been taking advantage of those they think they are superior to for a long time.

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rhys jones 2 years, 5 months ago

Funny, we were taught in school that the Roman Empire overextended itself, taking over most of Europe clear to Great Britain, and allowing the Huns to crash in through the back door. Not that there are any modern-day lessons to be learned from that...

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