California’s Financial Mess

You have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.

–Paul Krugman, “State of Paralysis“; The New York Times (5/25/09)

Just in case you’ve been enjoying a blissfully off-line Memorial Day weekend, the big story percolating on the leading op-ed pages and blogs at the moment is California’s financial predicament. As in, it’s out of money. Very soon.

Apparently, its three options are: 1) federal bailout; 2) bankruptcy; or 3) a dramatic cut in services coupled with tax increases. Or all three.

As Krugman notes, if it’s true that, as California goes, so goes the country . . . we’re in trouble.

Unfortunately, while there is only one Freddie Mac and Fannie Mae, and a handful of too-big-to-fail banks, auto makers, and insurers — there are 49 other states, hundreds of big cities, thousands of counties, etc.

Bad Precedent

There really is no philosophical reason to extend aid to California and not to Colorado, or New Mexico, or . . . you get the idea.

So, what inexorably bubbles back up to the top of the agenda: the need for structural reform.

As cited in this blog and many others, the good news is, there’s surprising consensus about the appropriate package of economic and political prescriptions (address the phenomenon of “regulatory capture,” wield the nation’s foreclosure laws as they were intended, open up the nation’s sclerotic, two-party political system, etc.).

The bad news is, it’s far from clear that doing any of the above — on any realistic kind of timetable — is politically viable.

Krugman again: “What’s really alarming about California, however, is the political system’s inability to rise to the occasion.”

Is California “us??”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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