Public Comment

California’s Fiscal Situation: Time to Start Anew

By Damian Bickett
Wednesday January 28, 2009 - 07:25:00 PM

California’s fiscal state frustrates anyone who pays attention. The discontent comes from two angles—either someone is fed up that Republicans insist on not raising taxes, arguing that paying taxes is an important duty of all citizens, or someone is upset that California cannot live within its means as it continues to spend more and more and then cries for help when revenues deviate from expectations.  

Given the tremendous bickering among smart people in Sacramento, I can only assume it must be extremely difficult to cut budgets. The Republicans standing in the way of increased taxes have a valid point—every time California gets into this situation, the solution has been “raise taxes.” This cannot go on forever. On the other side, government provides many public goods, and someone is always asking for more. This increase in scope also cannot go on forever. However, focusing on these differences masks the underlying problem: Politicians never act like we hope they will, and to understand why, we must look at the root of the problem. 

Small details, although blamed, are not the root of the fiscal problem. Spending mandates from voter initiatives aim to fix legislators’ behavior, but Californians are just as frustrated with them as ever. Nor do I consider the inherent variability in the wealthy’s income taxes the problem, where in good times, tax revenues increase sharply but in slower times, they plummet. I also do not believe voter incompetence to be the issue, where some suggest that voters always want more without wanting to pay (do these people really exist?).  

Furthermore, it is too easy to make blanket statements like “governments are inept.” But year after year, we elect smart people and then ridicule them every time. Lest we forget, this has been happening in various forms for many years. In 1872, the Stockton Daily Independent said the following: 

When the Legislature convenes it is usually pronounced a superior body of men, and when it adjourns it is most generally denounced as excelling all of its predecessors in incompetency and corruption. It is to be presumed that the Legislature just adjourned will not be an exception. 

Putting our frustration in historical context, it is easy to further dismiss common scapegoats—the root of the problem is not Prop. 13, prison unions, Three Strikes laws, spending mandates, or a lack of competitive districts. 

The root of the problem lies with the incentives politicians face. Primarily, it is because they are spending someone else’s money and not nearly as careful with it as they would be with their own. This is true of everyone—look at any business traveler dining out on the company’s dime and compare that check to the check when they eat at restaurants and pay themselves. But with politicians, this wastefulness is exacerbated because they spend someone else’s money in hopes of fixing someone else’s problem. How could we possibly expect them to perform efficiently when they lack personal information about the problem as well as the incentives to spend money effectively?  

It is pretty clear that this centuries old problem is inherent in our system—electing new people will not change it. All is not hopeless, however. If we reduce the level of spending, politicians have less to work with, and therefore less to mess up with. Of course this is not easy—unions and other special interests have behaved like parasites, sucking up the waste from politicians’ spending to a point where they are utterly dependent upon government. The whole system is bloated, and simply (painfully) must be cut. To reduce spending, I refer to the late Milton Friedman who said the following: 

I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending…The question is, “How do you hold down government spending?” The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes. 

So, instead of continuing along with our failed legislative system, why not try something that has the chance of alleviating our frustration? Cut, cut, cut—everything—and start anew. Yes it’s painful and difficult in the short run, but the alternative status quo is painful all the time.  


Damian Bickett studies agricultural and resources economy at UC Berkeley.