This week, the governor of California, Jerry Brown, announced his intent to advance major austerity measures. Nothing here is terribly surprising. Some 12.5B dollars must be cut, in addition to (hopefully) raising taxes in order to raise another $12B. State employees are looking at an 8-10% pay cut, with several units taking 3-day-per-month furloughs. State health care and welfare-to-work stand to lose $1.5B each. Deep cuts for the mentally retarded and autistic are a sure thing. This is to say nothing of public education, which has already seen savage cuts.
I say phooey. Under present conditions, CA cannot meet its obligations. We need a bailout, and we should threaten default to get it.
California bonds are currently wavering between the lowest and second lowest possible status. A dubious distinction, shared by only Illinois, our bonds are considered "junk", and our rate of borrowing is extremely high, even compared to 5 years ago. At the same time, we are hugely important. We are the eighth largest economy in the world. But the thing that all the other entities on the top 10 list have in common is that they are countries. They can borrow in bad times. CA, because of our constitution, must have a balanced budget. Moreover, as a state without our own currency, we cannot intelligently devalue our money or provide deficit spending as stimulus.
We can and should pull the same deal Goldman-Sachs did. Bail us out, or we're taking the economy down with us.
As intransigent as the current legislative bodies are now, in no possible universe would they allow CA to default. If Goldman was "too big too fail", then California is "unimaginably humongously too big to fail."
CA also deserves a bailout. We receive 78 cents back for every dollar we send to the federal government, lower than all but 6 states. Our economy was one of the hardest hit by the housing crisis, with the fourth highest foreclosure rate. We have the second highest unemployment rate in the country, at 12.4% (only Nevada is higher). Most importantly, we have 2.2 million illegal immigrants, twice our nearest competitor (Texas has a mere 1.1 million). The strain on our schools, public services, utilities, medical facilities, and job market is too high.
Before we decide to take a Mike-Tyson punch to the chin, maybe we should ask America how much this state means to them. As Ezra Klein noted recently, total employment numbers are currently being dragged down by the constant shedding of public sector jobs (10,000 lost in December alone). Keeping our people employed helps everyone: unemployment numbers will improve, our 5 million impoverished citizens will have money to spend.
So, come on, say it Jerry. "Fork over the cash, or the country gets it."