Monday, June 23, 2008
Uber Alles Redux
California, California, California. Why does everyone bring up one State of 50 whenever they want to make a point? If sub-prime was the tip of the iceberg for housing problems then housing is the tip of the iceberg for California. The government doesn't realize it but the productive class is in near revolt. Highest gas prices in the nation on the lowest energy content fuel in the nation with among the highest taxes. High taxes? Federal plus 9.3% State and ~8% sales tax on near everything. Overegulation and infrastructure deficits that rival the GDP of major nations. Social programs that would never withstand a popular vote and but a few shreds of populism left protecting the now captive middle classes and business sectors from outright socialism. With the prospect of a single party veto proof Legislature in a few months there exists a very real possibility of economic meddling that will make Smoot-Hawley look benign. Housing soared because it was a rare niche beyond the grasp of politicians. The Golden State in subsequent decades has taxed and confiscated and charged everyone and everything in sight and still is not satisfied. The prospect of 15% budget reduction directly from the housing bust and another 10% in ripple effects to tax receipts after a decade of taking on excessive debt and compounded deficit spending is an event that could collapse the economy. That's a big statement but the Federal courts have already taken over the state prison medical care program and are spending $7 billion of unbudgeted additional money to fix the problem. Add that to a structural deficit of $17b and a deferred spending gimmick of $6b and a likelihood of $8b less revenue next year and there's a perfect storm here now.
That's why people always talk about California. Sometimes it takes time away to see just how screwed up things have gotten. Boiled frog syndrome.