This is the underlying theme of Rick Santelli's rant on CNBC and the various Tea Party protests that are springing up all over the country. Allow me to illustrate from a post over at the marvellous Baseline Scenario blog. In the post, Simon Johnson is making the case for a plan to bail out the European banks, which are in worse shape* than the American ones.
Create a European Stability Fund with at least €2tn of credit lines guaranteed by all Eurozone member nations and potentially other European countries with large financial systems such as Switzerland, Sweden and the UK. This fund should provide alternative financing to member countries in case market rates on their government debt become too high. This will prevent a self-fulfilling cycle of rising interest rates.It's another monster bailout of the banks which, in the end, will have to be paid back. It assumes, like Obama's plans all assume and like the California legislature has assumed for years, that productive people will chain themselves to their jobs and keep working as hard as they can for as long as they can. Without that, there won't be any goodies for the best and brightest in Washington DC, Sacramento and Brussels to hand out.
It doesn't work that way, as California has found out (though I'm not sure the Democrats in California understand this yet). Businesses are fleeing the state in favor of other, more profitable places to work. Going back to the European example, think about the situation they're in. The population is rapidly aging, the cost of their social programs is enormous, their banks have just killed themselves in a frenzy of lending to developing countries and on and on. If you were, say, an electrical engineer in France or Germany who spoke passable English (or Chinese), why would you stick around to be the one who had to pay the $2T bill?
What happens when they start to leave?
In all the discussions of unemployment, bailouts and stimuloids, I haven't heard anyone worry about keeping the productive people around. They're all taken for granted as these monstrous bills pile up. Here in the US, other states have been successfully poaching California businesses for a long time. How soon before that happens on a global scale?
It might be nice to give a thought or two to the productive, responsible people out there before it's too late.
* - I blame President Bush for this. I don't know how he did it, but he ruined everything for everyone everywhere. The MSM told me.
"Here in the US, other states have been successfully poaching California businesses for a long time."
ReplyDeleteWell, as someone in the Midwest who has been seeing California poach businesses and agricultural production from the other states for decades (based, as near as I can tell, entirely on the fact that the climate is nicer there, and all those government cheap-water programs let them grow things like lettuce in the freaking desert), I have just one thing to say to this:
It's about bloody time.
KT, I must respectively disagree with your appraisal that California is going to see a flood of economic refugees from its shores. I remember hearing this sort of prediction since we were kids. In fact my Dad thought the San Francisco Bay Area back would see this happen back in the 1960's, but the opposite has happened.
ReplyDeleteCompanies, and people for that matter, stay in California, because they like the climate, the state has/had good public schools and universities which produce skilled workers, the population continues to grow, and because the state is overflowing with venture capital.
I'm sure that there are some companies moving shop, but somehow more than enough manage to stay. If taxes were the big factor, they'd be moving to the seven states that have no state income tax - Alaska, Florida, Nevada, Texas, Tennessee, New Hampshire, South Dakota, Washington, and Wyoming. But they aren't. One reason may be that the majority of these states have corporate taxes that remove any advantage to moving. Another is that California has ridiculously low property taxes compared to te rest of the country.
Its not taxes that will be the greatest threat to California's dominance, but the cost of living and scarcity of power and water.
The big bay area tech companies greatest incentive to look elsewhere came after a summer of blackouts and inflated power costs. It was after that the server farms started moving in mass to states with cheaper power.
And as middle class workers can't afford to live in the communities they work in, more and more of them move elsewhere. My wife and I are a classic example of that. But Colorado with its low taxes (4.63% vs. 10.3% for CA) has many problems directly due to underfunded public services such as police and fire fighters, poor schools and universities, and crumbling infrastructure. While money is no guarantee of good services, lack of money pretty much guarantees there will be problems.
The above poster is correct that a lot of California's advantages come from sweetheart water deals that allow them to develop beyond what can be supported locally. Expect to see that change in the future.
Kelly, too late. They've been leaving for a while.
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ReplyDelete