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May 28, 2009
Exclusive: Here ‘Lies’ Paul Krugman
The only thing Paul Krugman got right in his column of May 25, 2009 (“State of Paralysis”) is that California is the harbinger of things to come for the nation. It is a perfect model for how a vibrant, wealthy state, blessed with natural resources and having the highest taxes in the nation can be brought to bankruptcy by profligate, undisciplined, free spending Democrats.
California is blessed with wonderful weather, a beautiful coastline and an astonishing history of entrepreneurship. Until 50 years ago, it was also blessed with a stable and conservative population that was generally right of center and elected part-time representatives to the state legislature who understood that the state was best served by an energetic private sector business community and an efficient and extensive agricultural industry that could bring California the wealth that would enrich its citizens as it fed the world. The fact that legislators were part time meant that they had to have actual jobs or businesses that forced them back to the communities they represented and provided a perspective on the struggles of those who drive the economy.
Since powerful Democrat Speaker of the Assembly, Jesse “Big Daddy” Unruh, managed to change the law in the early 1960s, making legislating a full-time, paid job, it has all been downhill. From that point forward, California has led the way on government expansion and nonsensical regulation that has forced thousands of businesses to leave the state for more welcoming communities. It has pioneered social programs that have led the state to bankruptcy and, bowing to its union bosses, the legislature has expanded the power of public employee unions so extensively that they effectively control the levers of state government.
But Californians are a rebellious lot and every once in awhile they can be roused from the beaches to fight back with the one weapon left in their arsenal: the public referendum. They recently beat back yet another attempt to get their consent to further expand government and government spending by voting against a legislature sponsored proposition that would have raised taxes and limited the increase in spending. It was based on a compromise hammered out between the governor, ostensibly a Republican but showing few signs that he actually knows what that means, and the left wing legislature that cannot imagine why it should stop spending when there is still money left in private hands.
We have, of course, seen this before. Republican governors make deals with Democrat legislators that require each side to compromise its principles. Then the Republican does what he agrees to and – viola – the Democrats find it impossible to do their part. In this case, Republicans agreed to higher taxes if Democrats would agree to lower spending. What would, of course, have happened, if history is any guide, is that Democrats would have started running commercials of sad-eyed children and scolding teachers talking about how they don’t have music classes any more and aren’t able to get the education that would surely help the economy, if spending is not increased. And Democrats, relieved of any moral obligation to live up to their word, would simply increase spending with a shrug and an “oh well,” untroubled by their plentiful lack of integrity.
But something happened on the way to the breach of contract. Californians said “no” and the legislature and governor are now left with very hard choices. They are not of course, going to come up with the right answers. Democrat legislators, like Assembly Speaker Karen Bass, a raving mediocrity if ever there was one, are already coming up with the remarkable spin that the actual message from voters was not that they want the government to spend less but, rather, that they want the legislature to take care of budget problems rather than asking voters’ opinions. Self delusion is an awful thing.
Having lived here for 40 years, I have become inured to legislative stupidity, but this really is beyond the pale. Not only did voters not vote as they did to send the message that they want the legislature to deal with this issue, they voted to tell legislators they don’t trust them to get it right. They voted to send the message that they think the legislature is spending too much and that the citizens will not agree to greater confiscations of wealth to fund legislative irresponsibility. It is time to cut spending in earnest.
The most encouraging thing about the defeat of the propositions for fiscal suicide was that every single county – including, remarkably, San Francisco – voted against the propositions in huge numbers. (In fairness, San Francisco’s spread was only 53% “No” to 47% “Yes”, but, still…). In most places, the propositions got no more than 33% “Yes” votes.
And then along comes Nobel Prize winning economist Paul Krugman of the New York Times to tell us all that he fears California may be the tide of the future, wringing his hands that Americans, like Californians, might resist tax increases to fund ever expanding government. How can this be in the Era of Obama? How can any right thinking person even begin to doubt that more government and higher taxes is just the cure for all that ails us? Krugman makes his case, reliably, by lying about what is going on in California.
Let’s be clear about something: California is not suffering from a lack of revenue. It is suffering from an excess of spending and an irresponsible, overwhelmingly Democrat legislature that refuses to rein in its squandering ways.
We should start with the fact that there need not be any deficit in California. California’s current “deficit” is not the difference between what California is bringing in and what it spent last year. It is the difference between what California is bringing in and what it wants to spend next year. If it simply spent next year what it spent last year there would be no deficit. There are sufficient revenues to cover a budget in that amount. But that would take budget discipline and that is in short supply out here.
This is the game that is played by every governmental agency in California. The agencies announce a budget that is generally quite a lot higher than the actual expenditures from the year before. Realists point out that it is unlikely that revenues will cover such wished for expenditures. The public agencies solemnly announce, amid much rending of garments, wailing and gnashing of teeth, that they are going to have to “cut the budget” and “tighten their belts” and shut down popular programs unless the public agrees to find a source of revenue to fund them. Then they announce a “budget cut” of some percentage that leads people to believe that they are spending less this year than they did last. But that is not what happens. What actually happens is that they spend more, just not as much as they wanted.
It is important to put California’s “budget crisis” in perspective. The state budget has doubled in the last 10 years, increasing at quadruple the rate of inflation, at the same time as the population has increased only ten percent. A budget based on the expenditures of 1998 increased by the rate of inflation and population growth would find itself in surplus, given actual revenues for the 2007-2008 budget year. There is no budget crisis. There is a spending crisis and it is going to swallow up this state.
But cutting spending is not Paul Krugman’s answer. The real answer according to him is that Californians are cheap and unwilling to contribute the very little more it would take to fund its legislature’s irresponsibility. To prove how misbegotten California taxpayers are, he trots out the favorite liberal canard that Proposition 13 is the source of all of California’s troubles. That proposition, passed overwhelmingly by voters, capped property tax rates as well as the rate of increase of assessed value that can be employed in determining what the tax should be. The left’s argument is that that artificially depresses property taxes since a home cannot be reassessed for property tax purposes unless it is sold. Theoretically, a homeowner can enjoy a tax rate based on 1976 values and the government is deprived of the revenues that would have been generated by the steep acceleration of property values since that time.
What Krugman did not bother to tell his readers is that a home in California is reassessed upon sale at it sale price, thus increasing the taxes payable on it to current values. Given the fact that the average property in California turns over every five years, not one home in the State of California has not recently been reassessed upward to the current market and many are paying taxes based on the inflated value generated by the real estate bubble. Krugman does not factor into his thinking the vast amount Californians are currently overpaying for this reason. And keep in mind that the cost of the average home in California is roughly double that of the national average, so even if the rate is lower, the amount actually paid is more. You would think that would be enough for Democrats. You would be wrong.
Proposition 13 was overwhelmingly passed in this reddest of red states because the compassion of the free spending Democrats of an earlier era simply did not extend to the elderly on fixed incomes who were losing their homes to government foreclosure because they could no longer afford their property taxes. Want to talk about predatory lending? How about predatory taxation?
What Krugman also failed to tell his readers is that property taxes in California go largely to fund local government, not state government. So, even if property taxes were raised, revenues would inure mainly to local agencies rather than the state. Proposition 13 has nothing to do with a reduction of state revenues but it still sticks in leftists’ craw that citizens would revolt so decidedly against government when government is so entitled.
Let’s be clear: Democrats have controlled the California legislature for all but two of the last 60 years and at the same time the budget has exploded well in excess of its population and inflation. Californians already suffer the highest taxes in the nation and the Democrats still want more.
These are the facts Krugman would have told his readers had he a jot of integrity. But he doesn’t, so he continues to slice and dice his facts to fit his ideology, as the last New York Times “Public Editor” worthy of the name pointed out. If you like what Democrats have done to California, fasten your seatbelts. It is coming to a government near you. In the meantime, Paul Krugman is not a reliable source of information on budget crises, or, for that matter, anything else. Nobel Prize Committee, take note.
Family Security Matters Contributing Editor John W. Howard is a lawyer, specializing in corporate and business litigation who also founded a non-profit, public interest law firm specializing in First, Second and Tenth Amendment issues. Feedback: editorialdirector@familysecuritymatters.org.
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