Is California Greece with better wine? California and Greece both have massive public debts, shrinking economies, and declining bond ratings that have made it difficult for them to continue to borrow.
But California’s budget deficit of $20 billion is only about 1% of the state’s nearly $2 trillion economy. By contrast, the Greek deficit is around $43 billion equal to about 13% of its GDP. So perhaps we can relax in California.
Comparing the size of our relative deficits misses the real point of comparison. The current crisis in Greece was triggered by rising interest rates as a result of falling bond ratings. The same phenomenon is underway in California. Both California and Greece wracked up this enormous indebtedness under conservative governments that refused to raise taxes or cut expenditures. Both economies simply lack the political will to act. The Greeks have a left-wing coalition government threatened with a revolt by the communists and the labor unions. California’s Republican governor is threatened with a revolt by right-wing ideologues in the state legislature. What most commentators describe as an “economic crisis” is in fact a “political crisis” in both California and Greece. And unfortunately for Californians, Governor Schwarzenegger is no George Papandreou.
The E.U. has demonstrated an embarrassing lack of unity in responding to this crisis, even as it spreads to Portugal, Spain, and Italy. The Europeans are unwilling to stand with Greece and provide sufficient credit to keep the Greek economy afloat. The other European governments blame the Greeks for their profligacy — disguising the extent of their debts, evading income taxes, and supporting a bloated state bureaucracy that dominates 40% of the national economy and offers benefits like two extra months of pay for public employees,and retirement pensions for workers in their 50’s.
We are told that California need not worry; that if California was close to defaulting on its massive debt we could surely depend on Congress to rescue it. Really? I’m not so sanguine. It’s hard not to imagine senators filibustering any bill to assume California’s debt.
The responsibility for paying our debts ultimately lies with ourselves. We Californians need to mend our ways. That has to include budget cuts, structural reform, and increased taxes.
Our state legislature is unwilling to consider tax increases. Instead, the legislature has tried to trim little bits of the deficit by slashing public schools and quadrupling tuition at public universities. These school cuts and tuition increases are burdening the state’s future and driving people out of California. The University of California has long been the engine of the state’s economy. Without it California is just Nevada with a coastline. But unfortunately, the same folks who are unwilling to tax income have no trouble voting to tax potential.
Nobody likes to pay taxes, but the reality is that Californians are under-taxed compared to other major industrial economies that provide the kinds of social services and protection that we expect in California. With the governor’s race now on, you won’t be hearing much serious talk about raising taxes from any of three candidates. Perhaps the catastrophe that Greece now faces will persuade some of our leaders that it’s time to make hard choices and take responsibility – and stop passing the burden onto our kids.