We've been following California's fiscal crisis here at TAPPED for a while now, and one policy option frequently discussed is, ugh, a bailout. ("Rescue! Rescue!" come the e-mails from the press flacks). There is a case for it, of course: California is a huge part of the U.S. economy, contains 1 in 8 Americans, and is currently facing a $24 billion deficit that will lead to a lot of budget cuts in the face of a recession, exactly when we don't need such cuts . . .Isn't this exactly when we do need such cuts? California has been mismanaged in a huge way. Basic math dictates that it either generate more revenue or make spending cuts. Californians are already among the highest taxed in the nation, and they just deafeningly rejected propositions to raise taxes further. So what's left? You do the math.
Now it appears that the Obama administration has turned down early requests for federal aid, suggesting that California needs to deal with its problems itself. Indeed, California could reform its crazy budgeting system, property tax regime and referendums-gone-wild, but that's hard work for a semi-dysfunctional political system. The administration is rightly worried about yet another costly bailout, and the precedent setting that might lead other states to come looking for help, but with a July 1st deadline it's hard to imagine $24 billion being cut away from the state's budget without seriously damaging California's -- and the country's -- economy. California officials will be coming back to Washington again, hat in hand. Then the question becomes: Is California too big to fail?I'm glad Obama has, so far, refused to offer assistance. There ought to be consequences for adopting a "crazy budgeting system," "referendums-gone-wild," and a "semi-dysfunctional political system." These problems aren't new. Californians have made poor choices for well over a decade. Finding themselves heading toward a cliff, they've elected (pun intended) to accelerate toward it rather than applying the breaks or reversing course. Putting the rest of the nation on the hook for billions of dollars isn't going to correct the underlying issues. It would simply delay the day of reckoning, reward irresponsible behavior, and deny Californians the reality check that leads to wiser stewardship.
Unfortunately, Obama's already bought into the "too big to fail" mentality in a big way. If Chrysler and GM are "too big to fail," there can be no question that California is "way to big to fail." Obama's given no indication that he's learned anything from his auto industry takeover. Simple logic, then, dictates that he must also "save" California.
And maybe that will be our saving grace. For as bright as Obama is purported to be, it would be a stretch to say that logic has, so far, been a hallmark of his administration.
I'm pessimistic. My guess is that Obama will offer California some type of "bailout lite." He's a liberal, after all, and therefore needs to have the government do something with other people's money. But he'll have to tone it down, since a full-on bailout would be politically unpopular.