By Victor Davis Hanson
Wednesday, April 03, 2013
It is rare, even in the case of Paul Krugman, to read a
column in which almost everything that is stated is either wrong or
deliberately misleading. But his recent take on California’s renaissance is
pure fantasy. I wish it weren’t.
Krugman starts with the premise that California
conservatives, the most prominent being Ronald Reagan, helped to turn the
formerly moderate Republican party into the “radical right-wing organization we
see today”; California, he believes, did more than the South to spawn the
Religious Right. How absurd! Reagan always governed moderately; he signed into
law a liberal abortion statute and no-fault divorce; government and the state
budget grew during his eight years as governor. Reagan’s record in California
was about the same as that of Pat Brown, his predecessor, in actual terms of
taxes, the size of government, and budget growth. Reagan’s achievement was not
as a radical conservative, but as a pragmatist who for a while slowed, in
Gingrich-Clinton compromise fashion, the trajectory of taxes and spending.
Conservatives have not really “declared the state doomed”
but have instead pointed out that it is in dire jeopardy — and not just because
“the political balance shifted.” After all, a supposed Republican, Arnold
Schwarzenegger, was recently governor for eight years. The real problem is
math, not politics, and it finally caught up with us in terms of massive
deficits and unsustainable aggregate debt. Unfortunately for Krugman, the
timing of his column roughly coincided with breaking news that the city of
Stockton has just been allowed to declare bankruptcy (with many insolvent
California municipalities keenly watching its precedent of shorting bondholders
and contractors to meet staggering pension tabs) and with the McClatchy news
report that the state auditor just declared California’s net worth to be minus
$127.2 billion — mostly, again, as a result of skyrocketing bond and retirement
liabilities, coupled with past sharp dips in revenues and a much higher
unemployment rate than the rest of the country for the last five years.
Krugman then writes of California’s past energy crises,
“But a funny thing happened on the road to collapse: it turned out that the
main culprit in the electricity crisis was deregulation, which opened the door
for ruthless market manipulation. When the market manipulation went away, so
did the blackouts.”
Not quite so funny — given what lies ahead. Although it
is difficult to rate electricity prices state by state, given all the formulas
of comparative computation used, most agree that California’s electricity
prices are about 40 to 60 percent higher than the national average — odd, since
California still has enormous natural-gas reserves and a sophisticated though
now static hydroelectric system, and since it once was one of the pioneers in
nuclear-power production. Our worry for this summer is not over Krugman’s
“blackouts,” but rather over “greenouts” — the present politically correct
bookend to Enron’s past crony price-gouging.
No one believes that in just seven years we will meet the
state mandate to produce a third of our power from “renewables,” given the
emphasis on solar power, which currently produces less than 1 percent of our
aggregate electricity. What will save California, if anything does, is not
thousands of subsidized Solyndras or the hundreds of postmodern solar-panel
projects being undertaken on premodern school campuses whose test scores put
California near to dead last in the nation, but the presence of one of the
largest untapped natural-gas reserves in the world: The Monterey Shale
Formation offers a way to produce clean, plentiful, and cheap electricity far
away from the Bay Area and in the convenient center of the state — so tempting
a revenue source for redistributionist politics that even the greenest members
of the California legislature will probably not resist it.
Incidentally, California’s power pricing is illiberal to
the core. Mandates and regulations favored by the coastal elites have spiked
costs in the hot-in-the-summer/cold-in-the-winter interior, where many of the
residents are poor. Air-conditioning and heating expenses in the Central Valley
vastly exceed those in the Berkeley–to–San Diego corridor, where the ocean
keeps temperatures more moderate. Not turning on your air conditioning when it
is well over 100 degrees outside is a relatively recent Central Valley habit.
Newer homes have wonderfully efficient air conditioners, but temperatures inside
remain uncomfortable in summer, since many middle-class homeowners rely more on
old-style evaporative coolers or even fans to avoid the exorbitant electricity
costs — an apparently politically correct and green way to curb power use.
In his encomium to our recent tax increases (California
now has the highest gasoline taxes, the highest sales taxes, and the highest
rates on top incomes in the nation), Krugman states, “Far from presiding over a
Greek-style crisis, Gov. Jerry Brown is proclaiming a comeback.”
Note the linguistic gymnastics in “is proclaiming” — a
wise hedge on Krugman’s part, because Californians are just now paying their
new, higher 2012 income taxes, retroactively back to January 2012. We do not
yet know the exact reaction of high earners when they discover how much their
state tax bills have shot up — just as their federal tax rates are scheduled to
rise for 2013. No, we don’t have millions of tax refugees leaving the state,
but a few thousand are. That’s worrisome because even before the recent tax
hikes, about 144,000 households (out of a population of 37 million) accounted
for about 50 percent of the aggregate state-income-tax revenue — and personal
income taxes usually account for about 50 to 60 percent of all state revenues.
We are learning that it does not take too many businesses or wealthy households
moving to Austin, Paradise Valley, or Henderson to make a big difference.
Should we laugh or cry when Krugman finally concedes:
“I’m not suggesting everything in California is just fine. Unemployment —
especially long-term unemployment — remains very high. California’s longer-term
economic growth has slowed, too, mainly because the state’s limited supply of
buildable land means high housing prices, bringing an era of rapid population
growth to an end. (Did you know that metropolitan Los Angeles has a higher
population density than metropolitan New York?) Last but not least, decades of
political paralysis have degraded the state’s once-superb public education
system. So there are plenty of problems.”
But why does Krugman think “long-term unemployment . . .
remains very high” — given the stellar universities and world-class companies
the state inherited from past generations, along with a superb climate and
geography? Why don’t its unusually robust regulations and tax rates promote
unusually robust job growth?
The sloppy statement “the state’s limited supply of
buildable land means high housing prices” is laughable. There are millions of
acres in the San Joaquin Valley that lie open; housing prices are very
reasonable from Stockton to Bakersfield. The West Side along I-5 is empty for
hundreds of miles. Even in the pricey coastal strip, there are still millions
of acres of undeveloped land that easily could accommodate moderately priced high-density
apartment buildings. But green zoning restrictions, “not in my backyard”
aristocratic land-use mandates, and building regulations mean that open spaces
like the Freeway 280 corridor between North San Jose and San Francisco, or
millions of acres between Highways 101 and 1 along the coast, simply are not
available for housing. The last thing California’s progressive elites want is
more places like Redwood City or Seaside lapping up to the very shores of their
largely segregated atolls.
Krugman’s statement “that metropolitan Los Angeles has a
higher population density than metropolitan New York” is true not because the
vast L.A. basin ran out of land, or because L.A. is a city of towering
high-rises like Manhattan but unlike the rest of New York City, but rather
because hundreds of thousands of overpriced residences once used by single
families now each house large numbers of extended family members and boarders,
in a way that was not true before Los Angeles became one of the largest cities
of Mexican nationals in the world.
“Political paralysis” does not explain the degradation of
the “state’s once-superb public education system.” Nor does a lack of money
explain why the remediation rate of incoming students in the California State
University system has soared, during both good times and bad times, over the
last 30 years (to over 50 percent of incoming students), or why the country’s
largest state-university system, again during both boom and bust, is graduating
only 50 percent of its students, or even entirely why, in many surveys of
public-school test scores, California has ranked between 47th and 49th (thank
God for Alabama and Mississippi), a far lower ranking than the state’s
expenditure per pupil (around 35th in the nation).
Krugman has completely mischaracterized conservative
concerns. What worries us in our beloved California is that a state with
singular natural gifts (the best agricultural climate and soils in the world,
vast ports facing the rich Pacific Rim, vibrant tourism, huge reserves of gas,
oil, and timber), and a wonderful inheritance from our ancestors (the UC
system, Caltech, Stanford, USC, the origins of the American idea of freeway
transportation, brilliantly engineered hydroelectric and irrigation systems,
and a mostly harmonious, skilled, multiethnic populace), has been so
mismanaged, by both recent Republican and Democratic governors, as to result in
chronic budget crises, terrible public schools, and a third of the nation’s
welfare recipients, with nearly a fourth of the state’s residents ranked below
the poverty level — the highest rate in the nation. Apparently those latter
statistics are symptoms of what Krugman characterizes as the California
“comeback” that can offer lessons to the nation.
Our problems are even not public employees per se
(indeed, we do not have an inordinately high percentage of them for our
population), but the exorbitant salary, medical, and pension costs of an aging,
high-end caste of them — mostly the legacy of the disastrous (Democratic) Gray
Davis administration. Immigration from Mexico and Central America in the past
was manageable, since it was mostly legal, newcomers met a host eager to
assimilate and integrate them, and the limited pools of yearly arrivals
facilitated such confident melting-pot approaches. But in the last 30 years, a
perfect storm of huge increases in illegal immigration, the politicized
abandonment of the assimilationist melting-pot model in favor of the
multicultural salad-bowl approach, the transfers of billions of dollars out of
the state in annual remittances to Latin America, and the dismal economy
resulted in soaring costs in welfare, Medi-Cal, the penal system, and law
enforcement. Ironically, it is the sputtering California economy, not federal-
or state-government enforcement of the law, that has led to a fairly recent
slowdown in illegal immigration.
Krugman concludes by suggesting that California’s current
upswing is a blue-state model for the nation. We hear that often now from
Sacramento, but there are two caveats. Tax-and-spend iconoclast Jerry Brown is
still far more fickle and may still prove to be more pragmatic than is Barack
Obama, Nancy Pelosi, or Harry Reid, as his efforts to address the water crisis
and bring some balance to the controversy over development of the Monterey
Shale Formation may attest. Because Brown, unlike his confreres in Washington,
cannot print money or borrow vast sums to balance the annual budget, he simply
ran out of cash and accordingly made cuts in the budget that, until this year,
marked a historic reduction in state spending. Second, we are currently in the
eye of the hurricane. We don’t know the full effects of the latest hikes in
income, sales, and gasoline taxes, or the longer-term aftershocks from such a
poorly schooled younger generation, or the ripples from looming bankruptcies
among our cities, or the full costs of bailing out pension funds, or whether
the fiscal assumptions of the budget really will result in a balance.
Millions of us will stay, but thousands of Californians
who have enriched the state may not. Sadly, the California legislature operates
on the principle that the climate, hip culture, and beautiful panoramas of
California will always keep enough high-earners from leaving, and that Napa
Valley, Silicon Valley, Central Valley agriculture, the gas-and-oil industry,
our great research universities, and Hollywood will continue to thrive, even
with the high taxes, ever more regulations, the failed public-school system,
soaring outlays in social services, and problems from years of massive illegal
immigration. It is as if the current generation of politicians can extract a
premium for something that they did not create, but have done their best to
destroy.
What a retrograde assumption.
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