California fact of the day

Chug sends a good link to me, on default estimates, here is the bottom line:

The six with rankings more worrisome than California are Venezuela (the worst), followed by Argentina, Pakistan, Greece, Ukraine and the Emirate of Dubai. California ranks ahead of the Republic of Latvia, the Region of Sicily and Iraq.

As sovereign debt crises unfold, you will see increasingly innovative attempts to avoid uttering the simple words: "The government spent too much money here."

See also here for a list of "sovereign tighteners" and "sovereign wideners."


"As sovereign debt crises unfold, you will see increasingly innovative attempts to avoid uttering the simple words: "The government spent too much money here.""

In that light, I'd be interested to see what you think of this interview:

It *seems* completely insane to me, but I'm no psychiatrist.

How many times can Argentina find new lenders?

Well if there’s one characteristic of the moment it’s that change is happening very fast, and that it’s difficult for mere mortals to maintain required levels of synthesis... The FT article cited in this post was April 3rd. Currently (*today*) the FT is reporting that Venezuela is furiously inflating and nationalizing its way out of debt. This of course is the characteristic Latin American response, a skill acquired in the previous century. Another characteristic response is coming from Argentina. She is playing the wise old grandmother who has seen it all, always been right, and always been wronged by the IMF. She is savouring the delicious taste of saying that the Greek bail-out will fail (and you know the fault will not be Greece’s).

I was struck by a comment a day ago at MR by Doc Merlin whose opinion I respect (if for no other reason than he’s an economist and I’m not). Inflation will erode our cash savings, he said, once the central banks need bailing out. Lo, today FT reports that Spain is starting to deflate, dark foreboding that this is just the beginning of more of that.

The final contra-something-rather (today's FT again) is that Estonia and Latvia demonstrate orthodox capitalist belt-tightening goes hand-in-hand with proper euro dynamics. The euro is still the way to go. The Latin south and the Franco-Germanic north have sown seeds of euro disaster. Hail the rising east. Those tough nuts will put it to rights. [Typed at speed of light in spirit of the moment]

california's problem isn't necessarily spending too much money; it is the ability to raise taxes. out of the countries on the list, I the only one like California is Argentina.

Venuzelua is wasting money like no tomorrow, and destroying their revenue streams through nationalization.

duabi, is well, dubai.

Greece is mostly black market economy + too much government ownership.

Ukraine and Pakistan I don't know. Pakistan is a basket case, essentially a county that doesn't produce anything except terrorists - which we then turn around and fund them. I think the US military is probably pumping $10-15 billion a year into that economy.

Argentina is a semi-wealthy country that, again, pays it civil servants too much and gets little in return.

according to jamie galbraith there's no such thing as a government spending too much money; at least as long as it has a sovereign currency. i can explain intuitively why i don't buy that argument, but can anyone point me in the direction of a more technical takedown?

To readers that have commented earlier and referred to Argentina: as an Argentine very familiar with the economic and political history of my country in the past 60 years, please don't look at what is going on today, try to understand what has happened over a long period of time. The interesting lessons from Argentina are about the dynamics of public finances in a wealthy, federal country.

Markets don't really care what information JKG wants from them.

That said, he says about healthcare what I said 6 months ago.

"JG: No, it's not reasonable. Share of health-care cost would rise as part of total GDP and the inflation would rise to be nearer to what the rate of health-care inflation is. And if health care does get that expensive, and we're paying 30 percent of GDP while everyone else is paying 12 percent, we could buy Paris and all the doctors and just move our elderly there."

Yes, an equally fair formulation would be "the government didn't tax enough". That would be a more sensible formulation in Cali, given the obstacles proposition voters have thrown in the way of the government ever raising any money.

@E Barandiaran:

So, what is the source of Argentina's problems? What's your theory?

Talks about just about everything:"bleak"-former-imf-chief-economist-says-486167.html?

Greg, Most states finance local education from local property taxes, but when, with Prop 13, you cap taxes, what do you expect. States assume the responsibility, but then you limit their taxing capacity.

People get what they pay for and what they deserve.

Let me state this louder -- the list provided by CMA and referenced in the post is THE WRONG MEASURE. It is a measure of sovereign debt volatility, not default risk.

Randall Forsyth has a good column in Barron's today on the subject:

Simply put, the debt-to-GDP ratios of the US states are nowhere close to that of the PIIGS.

chris is the perfect example of progressive sleazy dodging. Higher tax rates increase tax avoidance activity. Greek tax rates are insanely high already. What exactly do you propose to do about it? Maybe accept that the Laffer Curve exists? (granting that Conservative hyperventilating about it in the US is stupid).
Maybe accept that 25% of the workforce working for the government and retiring at 55 is a terrible idea? Get your act together before blaming right-wingers on this one. The welfare state's crisis is at hand.

Bill, your comment hints at a potential solution to California's mess. Perhaps the California electorate could be enticed to support limited Prop 13 reform (like exempting commercial property or gradually reducing residential coverage according to income), in return for the devolution of power from Sacramento. Perhaps the most destructive of the unintended results of Prop 13 has been the financial emasculation of county governments. Compromise would empower conservative localities in the Central Valley and southern California to keep commercial and/or high-income residential property taxes low, if they wish.

Obviously, this compromise is premised on the assumption that California conservatives will support potentially higher property taxes as long as they feel they have a reasonably direct say in the decision to levy these taxes, and in how the ensuing revenues will be spent. This is far easier to do at the local level than in Sacramento.

Greg, If California chooses to rely on income and sales taxes, and less on property taxes, that is their choice. Quit whining. The rest of the world pays taxes. And, no, you are not the highest taxed state when you consider personal income, local and state taxes, and sales taxes. And California does seem to have enough money to subsidize businesses, so you can lighten up on that too before whining.

I also did some Google search on this and suggest that you do as well, since belief often doesn't match reality.

And, you will continue to pay more, my friend, if you keep choosing to run deficits and opting to rollover debt to coninue increasing your interest payments.

Game over. Ultimately, you bear the costs of your foolish tax system.

Again, California ranks about 20 on taxes per capita. However, some of those above don't count (Alaska, Hawaii, etc.) At ~6.3% of personal income, exactly how high could taxes go for Californians? I don't know, but it's not like the tax revolts just happen one day for no reason at all.

But, it's really about the spending. They can just as easily back down the rankings of expenditures per person. If the people want more than the revenues can pay for, then the politicians should say no. But, I'd bet that the thought never crossed the politicians' mind. I'd bet that the people are not really demanding all the things to the extent the politicians would have us believe.

The Feds need to be working on speed bankruptcy policy for states like they didn't work on it for 'systemically important' businesses.

California is not Greece, it is Portugal.

Enjoyed reading a piece yesterday about Portugese rent control and how it hampered job mobility. It was criticized as fostering new construction, because renters at old rates were unwilling to move. Some economist railed at how this was inefficient, and he was right.

And, then I thought of California--the Golden State, where I have a wealthy lawyer friend of mine with a $2million house who only pays something like $4999 in property taxes because of Prop 13 and is reluctant to move.

But, no economist rights about this. Maybe it has to do with political philosophy and not economics.

>>Prison guards and firemen make more than university instructors -- and 40% more than people in the private sector.<< ^^This. Yeah, this is very true. As a young man and recent college graduate in California, a product of the UC system no less, I was extremely dismayed to find out that I could have just gone into the prison system right out of high school and started pulling in 90k a year STARTING. There are advertisements on the UC job boards that state this. There was a story a few years ago about how one on four made 100+ and there was one that made 180k. Keep in mind that this is "unskilled" labor paid for by the state. Re-donk-ulous.

What you are referring to on the high side is stupid assignment of overtime to senior people, resulting in $100k salaries with overtime.

Clearly they need to raise taxes to fix that problem.

IIRC, California's constitution puts payments on general obligation bonds second in the priority list, after a minimal level of spending on K-12 education. OTOH, California spends something over $35B per year on Medicaid, payments authorized only in statute, and clearly enough to meet the bond payments.

In order to believe that California will default on its general obligation debt requires that you believe that (1) the State Controller will violate his constitutional obligations on the order in which he uses the available cash to pay the bills and (2) the state Supreme Court will allow him to do so.

Participation in Medicaid is not mandatory. Probably an interesting cascade across neighboring states, and perhaps the country, if California were to elect to shut down Medi-Cal.

@a: I meant to say you are even better off than a renter under rent control: the value of your asset increased, whereas the renter does not own the underlying asset.

See, you are even better off.

But, not your new neighbor, who is bearing the full cost of government services.

About the correctional officer pay:

Yeah, I just looked again: it's not 90k starting like I said, but it's boasting 70k and "a retirement package you just can't find in the private industry." Yeeeeah, and tax rates are totally our biggest problem. Tax more (and raise overtime benefits) for a bettar societeh.

I agree that misleading referendums (much like the current PG&E funded scam making its way up right now) result in a messy tax code. However, the bigger problem is the idiots in Sacramento that spend money like it's going out of style.

Prison guards and firemen make more than university instructors -- and 40% more than people in the private sector.

Uh, what's the problem? Apparently Cali. voters like to lock people up, so don't move there if you don't like it (hint: "free country").

But I wonder why Alabama, Louisiana, Mississippi aren't the states with the economic leadership since they do things more correctly than California.

G - e - o - g - r - a - p - h - y and c- l - i - m - a - t - e.

Tyler said,

As sovereign debt crises unfold, you will see increasingly innovative attempts to avoid uttering the simple words: "The government spent too much money here."

And exactly as Tyler predicted we have several commenters saying the problem is california can't tax enough and proposition 13 is responsible for the lack of tax revenues.

The number of people who believe california's fiscal disaster is caused by too few taxes not too much spending is a problem. Until people recognize that california's problem is overspending the states fiscal situation will never be fixed.

Don’t Blame Proposition 13

Profligate spending, not property-tax reform, has put California in a hole.

Property-tax revenues in the state have increased from $4.9 billion to $47 billion in the 30 years since Proposition 13. Adjust those figures for inflation and population growth, and

property-tax revenues in California were 87 percent higher in 2009 than they were in 1979, chiefly because of rising property values.


The obvious fact that california's problem is overspending not undertaxing needs to be repeated frequently.

Because far to many people want to ignore that fact, and california's fiscal problems won't be fixed until it stops overspending

If Only California Could Just Raise Taxes

The California budget "emergency" isn't a tax problem, it's a spending problem.

State spending in the past two decades, as this Reason Foundation report [PDF] spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent.

If the budget growth rate had been limited to the population-inflation growth rate, the state would be sitting on a $15 billion surplus right now. Surely enough to dip into during a real emergency.

What's more, despite this alleged tax straightjacket, Californians manage to still pay 21.9 percent in state and local taxes, compared to 14.5 percent for Texas.

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