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Ed Driscoll

Around the World in 80 Basis Points

April 29th, 2012 - 1:22 pm

It’s behind their subscriber firewall at the moment, but the latest issue of National Review has a devastating article on Detroit’s woes by Kevin Williamson, titled, “Let Detroit Fail.” And this is one Epic Fail, as the kids say on the Interwebs these days:

At some point, Governor Snyder and the people of Michigan will have to deal with reality: Detroit’s political leadership is a parasite that has outgrown its host. People are leaving Detroit as quickly as they can: Well more than 200,000 have left the city since 2000, and more than 1.5 million since 1960. Which is to say, Detroit’s refugees since 2000 could form a city bigger than Providence, Salt Lake City, or Des Moines. Those who have fled since the city’s peak could form a municipality bigger than any U.S. city except New York, Los Angeles, Chicago, Houston, or Philadelphia. But government spending in absolute terms long continued to rise; in per capita terms, it rises still, and the city spends far more per capita than the U.S. average. Detroit’s public sector has responded to every fiscal crisis by raising tax rates and by instituting new taxes, as often as not enabled by Republicans in Lansing. But new taxes and higher rates cannot offset the effects of the city’s rapid and steady depopulation — in fact, surveys suggest that they have hastened it — with the result that revenues declined by more than $100 million between 2007 and 2011. Income-tax revenue dropped by 18 percent, utility-tax revenue by 17 percent, property-tax revenue by 2.3 percent. Seeking a quick fix to its revenue problems, Detroit chartered several casino-gambling operations, only to see taxes from them begin to decline (by 1.5 percent last year) after a period of early growth. Detroit, once the wealthiest city in the United States by per capita income, is today the second-poorest major U.S. city.

Like many cities, Detroit has promised very generous pensions to its public-sector workers but set aside very little money to fund them, meaning that in 2011 the city had to put more than $70 million into the pension fund to keep making payments. Government is Detroit’s largest single employer, and spending on government remains very high. What Detroit is getting for all that spending is unclear: It has some of the worst schools, roads, sidewalks, and local services of any city in the country. [QED -- Ed] Last year, its murder rate was up 10 percent. Very few people with options are going to stick around to endure both the highest tax rate in the state and one of the highest murder rates in the country — let alone highly skilled, highly productive workers, investors, and entrepreneurs. Detroit is driving away the people it needs to survive. Who is left?

Who is left, Williamson goes on to write, are those who have caused the city’s collapse, its Ruling Government Class. In the state of California, a similar trend is occurring.

In the 1990s and 2000s, Sacramento looked upon the EU as a role model. In 2003, Californians ousted the hapless Gray Davis and replaced him with the soon to be equally hapless Arnold Schwarzenegger in order to change that model. In retrospect, Arnold cowering like a girly-man in the midst of threats from teachers unions and SEIU did little to change the perception in Sacramento that the voters worked for the government, rather than the other way around. And by the beginning of 2009, Shannon Love of the libertarian Chicago Boyz econo-blog wrote that in a sense, they did:

I think a threshold or tipping point exists in the ratio between the political power of those who pay taxes and those who consume taxes directly. After that tipping point is reached, those who pay taxes become the economic slaves of those who consume taxes.

I think California has passed that point. [h/t Instapundit] Tax consumers now control the state government and can vote themselves almost any level of personal income and benefits they wish while taxpayers cannot muster the political capital to defend themselves.

As Steven Greenhut writes in the Orange County Register this weekend, that’s yet another unsustainable top-down economic model. Or as Greenhut puts it, “California to middle class: drop dead,” with a similar demographic and economic train wreck brewing as in Europe and Japan:

The new USC study pointing to a much-slower rate of population growth in California has been greeted by demographers and urban planners as good news, in that it supposedly gives our state’s leaders a little breathing room to better plan for the future. The rate of growth has slowed to about 1 percent a year, the result of fewer immigrants coming here and many Californians heading to other states. “The cooling pace means the state, city and county governments and other entities will have more time to prepare for a bigger population than they did in years past, allowing for more effective planning,” according to the Los Angeles Times, paraphrasing the study’s authors. “That could ensure that new roads and parks, for example, are put in areas where they are most needed and where growth is likely to be sustained,” they said.

That’s an absurdly optimistic spin. California’s elected officials have been doing as little planning as possible, unless one counts planning to spend tens of billions of dollars the state doesn’t have on a high-speed rail line that will partially replicate what the airlines already do. Our leaders are battling new water-storage facilities and punishing farmers with absurd water-use restrictions. They impose roadblocks to building new highway systems, and land-use regulations make it nearly impossible to build the homes and businesses necessary to meet the needs of a growing population. You can hardly call that planning.

The state is still growing, but this decline in the rate of growth is a symbolic turning point: The California Dream is over. People don’t want to come here even though this is, with little question, the most beautiful state in the union. Americans – even those who like to mock our state – ought to think about what this means for our nation.

And that’s the topic Joel Kotkin explores this weekend at the Daily Beast, writing that “As California Collapses, Obama Follows Its Lead:”

Obama’s push to nationalize many of California’s economy-stifling green policies has been slowed down, first by the Republican resurgence in 2010 and then by his reelection considerations. But California’s politicians, living in what’s become essentially a one-party state, have doubled down on green orthodoxy. As the president at least tries to cover his flank by claiming to support an “all-in” energy policy, California has simply refused to exploit much of its massive oil and gas resources.

Does this matter? Well, Texas has created 200,000 oil and gas jobs over the past decade; California has barely added 20,000. The state’s remaining energy producers have been slowing down as the regulatory environment becomes ever more hostile even as producers elsewhere, including in rustbelt states like Ohio and Pennsylvania, ramp up. The oil and gas jobs the Golden State political class shuns pay around $100,000 a year on average.

Instead, California has forged ahead with ever-more extreme renewable energy mandates that have resulted in energy costs roughly 50 percent above the national average and expected to rise substantially from there. This tends to drive out manufacturing and other largely blue-collar energy users.

Finally, how are things doing in Obama’s adopted home state? “Illinois is running out of time and money,” George Will writes in the Washington Post:

To prepare for Illinois’ probable plunge into insolvency, read “Freedom to Fail: The Keystone of American Federalism” by Paul E. Peterson and Daniel Nadler in the University of Chicago Law Review. They note that only 25 of the world’s 193 nations have federal systems, and in most of the 25 the freedom of the lower tiers of government is more circumscribed by the central government than American state governments are by the federal government. American states’ greater freedom — autonomy under America’s system of dual sovereignty — from the central government’s supervision requires that they be disciplined instead by the market for government bonds, and by the real possibility of default.

Peterson, a professor of government at Harvard, and Nadler, a doctoral candidate also at Harvard, say that collective bargaining rights for government employees pose “a dramatically new challenge to the viability” of American federalism. They cite studies demonstrating that investors’ perceptions of risk of default are correlated with the rate of unionization among government employees. Higher percentages of government employees who are unionized, and larger Democratic shares of state legislative seats, correlate with increases in state borrowing costs.

At least 12 percent of Americans change their residences each year, often moving to more hospitable economic environments. In a system of competitive federalism, Peterson and Nadler write, “If states and localities attempt in a serious way to tax the rich and give to the poor, the rich will depart while the poor will be attracted.” And government revenues and expenditures vary inversely.

Mr. Obama may well win reelection in November, but as all of the above articles highlight, his vision of a sclerotic Galbraithian economic model is ultimately unsustainable, and his profligate spending of the American taxpayers’ money has only made things worse:

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Van Jones, Obama’s disgraced former “Green” “Czar,” unwittingly provided the perfect metaphor in 2010 for the president and his fin de siècle “progressive” worldview:

“I can’t stand it,” [Van Jones, speaking at Comic-Con Netroots Nation convention Friday] said of criticism of Obama from the Left. “President Obama volunteered to be the captain of the Titanic after it hit the iceberg.”

And proceeded to ensure that the ship would sink as fast as possible, with as few survivors as possible. While the handwriting is on the wall — even Palace Guard comedian Jimmy Kimmel quipped yesterday at the White House Correspondents Dinner that “‘There’s a term for guys like President Obama,’ Kimmel said with a pause. ‘Probably not two terms.’” — perhaps it would be fitting for America’s most profligate spender to be at the controls while the Blue State ship sinks to the depths of history.

Hopefully permanently this time around.

Update: “England: It was Fun While It Lasted,” Kyle Smith writes today on the PJM homepage.

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