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Progressives, liberals and/or Democrats in California may be breathing a sigh of relief, having dodged a bullet on November 2nd, preserving their control over the Sacramento mansion and their representation in the halls of D.C. Almost the entire county got washed clean with the anti-Obama-Reid-Pelosi tea-party backlash, but apparently since even tsunamis can’t travel across continents, so this one evaporated in the deserts to our east before it could reach our shores.
The relief will be short-lived. Yes, they have the power, but it is the illusory power of a Doctor Frankenstein over his monster. The Golden State is still bankrupt to the tune of $500 billion in unfunded pension liabilities and $70 billion in general obligations, hemorrhaging cash and productive citizens, and sporting one of the highest unemployment rates in the nation. The reflexive policy mix of the progressives to resolve these issues – higher taxes, more regulation of politically unfavored entrepreneurs, politically correct environmental programs, larcenous public employee pension benefits – will only make it worse. We are driving toward a day of reckoning that only Greece could envy, and we just dropped a brick on the accelerator.
Economic environments such as states compete for talent, capital and tax revenue the same way commercial businesses compete for customers and sales revenue. Lose your customer base, go bankrupt. Beyond a certain point, the closer any tax rate gets to 100%, the less the activity being taxed continues to be engaged in, resulting in lower overall revenue; that’s the Laffer Curve. Ignore this ‘mere theory’ at your peril.
California is one of the most beautiful, richly naturally endowed places in the world, with an unmatched offering of beaches, mountains, harbors, fertile soil, lakes, and redwood, pine and sequoia forests. Yet increasing numbers of productive people find it more tolerable to live in the barren deserts of Arizona and Nevada than subject themselves to the lordship of Sacramento’s political class.
A generation ago, California boasted the 6th most productive economy in the world, as compared to other nation states; now we’re number 8 and headed lower. Those who think California has some kind of birthright to economic glory that can never end should study Argentina: 100 years ago number 10 in the world but for at least the past 50 years, an unstable basket case.
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