Despite the fact that California has been forced to issue IOU’s to keep the lights on, it does not appear that certain factions have begun questioning or rethinking their views regarding the role of government and government spending. While California voters said ‘no’ to higher taxes in the special election held in May, these factions continue to pretend that the voters did not mean what they said (despite polls showing that the vast majority of Californians who did not bother to vote agreed with the outcome). While the Democrats have offered some spending cuts, they are still insisting on trying to paper over the underlying problem with tax increases, borrowing, and assorted accounting gimmicks. Meanwhile, Schwarzenegger and the Republicans are holding the line on spending and insisting that the Democrat-dominated legislature actually face-up to reality and do what needs to be done (i.e. balance the budget by cutting spending). The difficulty that Democrats are having engaging in what are effectively common sense fiscal practices is a testament to the dysfunction and fantasy world that some parts of the California political culture have become.

Over the past 40 years that the Democrats have dominated the legislature, California has gone from being a model for the country (with a world class public education system) to a poster child for dysfunction (with decaying infrastructure and one of the worst public education systems in the country). Furthermore, this breakdown has occurred at the same time that California has become one of the most heavily taxed states in the country. The fundamental reason for this seemingly contradictory outcome (heavy tax burden/sub-par public services), is that certain center-left factions do not appear to understand that government spending/activity is not subject to competition and the efficiency-inducing impacts of it. Consequently, an increase in government spending on a specific activity does not necessarily lead to an improved level of public service, as the money can often be diverted into various pet projects or initiatives that don’t really add any value. While some government spending/regulation is necessary, many people forget that these activities play the same role that overhead expenses play for a business. Just as a business needs phone lines, electricity, computing power, etc. to effectively conduct the activities that eventually produce a good or a service, society needs roads, infrastructure, an education system, and a stable legal system to conduct commerce effectively. However, beyond some point, increased overhead spending no longer adds value to a business, and instead acts as a drag on profitability rather than helping the business to function more effectively.

In California, the Democrats have spent the better part of their time in power adding to “overhead expense”. Not only have they taken productive resources that might have been used to expand the economy and diverted them into areas of questionable societal utility (such as allowing some public employees to retire at 55), but they have also allowed state government to effectively become little more than a mechanism whereby the public employee unions and other special interests extract tax dollars from Californians and funnel them into their own bank accounts. The result has been a California public sector that has more labor protections, more job security, better health benefits, and more generous pension benefits than are available in the private sector, while at the same time producing sub-par public services.

Currently, Democrats appear to believe that requiring already highly-taxed Californians to pay more to protect public employees/ special interests from the effects of the current economic downturn is a viable and fair policy prescription. However, such a position can rather be seen as an indication that they have been in power for too long. While a society can always tolerate some unproductive economic activity, there comes a point at which moving additional resources into unproductive activity is no longer a viable choice. California’s public spending has been on an unsustainable path for a long time. California Democrats have yet to fully wake up to this reality.