There may be states with poorer economic conditions than California, but perhaps none with more self-inflicted fiscal wounds. The state legislature, controlled by one party for decades, keeps spending record amounts of money, in boom times and bust. Its electorate uses a free-wheeling referendum system to continually approve bond issues for pet projects while maintaining flinty opposition to the taxes required to repay them. They kicked out one governor for bad management of the state's finances – and Gray Davis may be the happiest man in California these days for it. Unemployment has passed 11% on its way to 13% or more by the end of the year, according to analysts.
This week, though, the Golden State has reached its nadir. The legislature, facing an unprecedented $24 billion shortfall and a cash crisis, boldly did … nothing at all. A bid to cut the budget by less than 15% of the shortfall died in partisan bickering, forcing the state into a de facto default. Governor Arnold Schwarzenegger will start preparing to pay the state's bills with IOUs, and the bond rating agencies will likely reduce the state's bonds to junk status shortly afterwards.
All of this has been widely known, thoroughly reported, and understood by most of the nation – indeed, most of the world. Everyone comprehends the lesson of California's free-spending, interventionist governance – except, apparently, the White House. In hailing the cap-and-trade bill passed by the House late last week, President Barack Obama demanded quick action from the Senate, and told them to look at the economic powerhouse of California to see how the nation can lower its energy demand while succeeding at providing jobs and an expanding economy.
“In the late 1970s, the state of California enacted tougher energy-efficiency policies. Over the next three decades, those policies helped create almost 1.5 million jobs. And today, Californians consume 40 percent less energy per person than the national average -- which, over time, has prevented the need to build at least 24 new power plants. Think about that. California -- producing jobs, their economy keeping pace with the rest of the country, and yet they have been able to maintain their energy usage at a much lower level than the rest of the country.”
Does anyone at the White House ever brief the President on the economic crisis? California's unemployment has been higher than the national average for years, thanks to a flight of capital from the state's onerous taxes and workers-comp regulations. This year, though, the problem has been particularly bad. The state has had double-digit unemployment since the beginning of the year, which means less energy needed for economic production, and the economy of the state teeters on depression.
As for its energy usage, the Washington Examiner explains how the state has reduced its need, and it wasn't through smart planning. California has lost 21% of its manufacturing base since 2000, which produced a sharp drop in energy usage – as well as a big drop in revenues for the state and higher unemployment. Energy costs in California are much higher than in the rest of the nation, as much as 50% higher for residential rates than the average. That amounts to a big tax on California residents, which is one reason more people are fleeing California than entering it.
This brings us back to the cap-and-trade bill that just passed the House. Eventually, the costs of such a system will place the same kind of tax on everyone in the nation for energy consumption, and not just on electricity. The cost of refining gasoline will increase as refiners have to buy carbon credits. The same will happen to heating oil in parts of the country.
Worse, the costs will compound to consumers of every good and service in the nation. Energy cost increases kick off an inflationary cycle that we last saw in the gas-price hikes of 2008. Manufacturing will cost more, as will transporting goods to market, and the overhead for retailers will increase as well. Each of these will add the higher costs to the price of the goods and services all along the distribution chain.
Who pays for the all of these increases? All of us do. The effect will go far beyond our utility bills, just as it did when gas prices shot out of sight last year. Everything we buy will cost more money.
At least we finally see what Barack Obama's fiscal and energy policies will lead us. Obama wants to create the same disastrous results across the entire nation that have ruined the economy and government of California. And when he does, we will have nowhere to run.
Edward Morrissey's Bio
Ed Morrissey writes for Hot Air, where he also has a daily political talk show. Ed has written for the Washington Post, the New York Post, the New York Sun, and has made numerous television and radio appearances. He lives in Minnesota with his wife, son, and two granddaughters.
Posted
07-02-2009 9:25 AM
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