The Economic Advisor

State Financial Crises and Why America Should Take Heed

California’s problems continue to fester. And America as a whole better be taking notes. Being the largest economy in the US, as California goes, so goes the country–in more ways than one. And the fundamental causes of the California crisis, although more exaggerated there, are not uncommon across the rest of the nation. For all these reasons, the US as a whole must pay attention to what the not-so-golden state is going through.

We know the causes of the financial debacle in California: the shortsighted penchant for extensive and un-financed public spending, the triumph of ideology over good governmental management, and the pernicious influence of special interests and the inevitable corruption that comes with them. In addition to the Golden State, these are all too common in the American political system, at the state level (some more than others) and at the national level. Of course, complimenting the spendthriftiness is a seemingly endless thirst on the part of the people (we do live in a democracy, after all) for higher spending and lower taxes. In few places is this popular tendency typified so well as in California itself.

Thus we see the financial crisis in California, which on the surface is straightforward enough (outlays greater than receipts), and theoretically easy enough to solve (cut spending), in actuality has roots reaching deep into the structure of a political system and the character of a people. A temporary fix might be cobbled together in Sacramento. The powerful public sector unions might be slapped around. But unless the deeper structural, political and cultural issues are confronted, the same problems will arise again. And, ultimately, the same goes for the country.

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