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Monday, May 25, 2009

Paul Krugman: State of Paralysis

Will California be a trend setter once again?:

State of Paralysis, by Paul Krugman, Commentary, NY Times: California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America.

The recession has hit the Golden State hard. The housing bubble was bigger there than almost anywhere else, and the bust has been bigger too. ... What’s really alarming about California, however, is the political system’s inability to rise to the occasion.

Despite the economic slump,... California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is...

The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13... Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.

The result was a tax system that is both inequitable and unstable. ... Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends.

For California, where the Republicans began their transformation from the party of Eisenhower to the party of Reagan, is also the place where they began their next transformation, into the party of Rush Limbaugh. As the political tide has turned against California Republicans, the party’s remaining members have become ever more extreme, ever less interested in the actual business of governing.

And while the party’s growing extremism condemns it to seemingly permanent minority status ... the Republican rump retains enough seats in the Legislature to block any responsible action in the face of the fiscal crisis.

Will the same thing happen to the nation as a whole? ... America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.

But that presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level.

To be blunt: recent events suggest that the Republican Party has been driven mad by lack of power. The few remaining moderates have been defeated, have fled, or are being driven out. What’s left is a party whose national committee has just passed a resolution solemnly declaring that Democrats are “dedicated to restructuring American society along socialist ideals,” and released a video comparing Speaker of the House Nancy Pelosi to Pussy Galore.

And that party still has 40 senators.

So will America follow California into ungovernability? Well, California has some special weaknesses that aren’t shared by the federal government. In particular, tax increases at the federal level don’t require a two-thirds majority, and can in some cases bypass the filibuster. So acting responsibly should be easier in Washington than in Sacramento.

But the California precedent still has me rattled. Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?

On the other hand, the problems that plague California politics apply at the national level too.

Update:

Oops — column notice: Alert readers may notice that the last sentence of today’s column doesn’t seem to make sense in context. That’s because it’s not supposed to be there; it’s a fossil from an earlier draft. My fault — I was filing from a remote location in a very different time zone, and didn’t check properly. Urp.

    Posted by on Monday, May 25, 2009 at 01:07 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (44)

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