Let Us Fail

California’s in a world of hurt, exacerbated by the fact that we didn’t offer to give the state a whole bunch more money during our ballot propositions yesterday. There are a lot of reasons for our pain, but it really comes down to a state that never quite understood TANSTAAFL. They’ve been sold the lie that government can do everything they desire, and all of it “with NO MONEY DOWN!!!” Now the bill is due, and there’s going to be some trouble.

But the question is where we go from here. And I can tell you that there is going to be a cry to go to Washington DC, because the government of California is “too big to fail”. I’m not going to be one of the voices calling for this, but as Megan McArdle points out, there are quite a few who will:

There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.

If Uncle Sugar bails out California, California will not fix its problems. Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors. But Obama is not in a good position to do this. California Democrats are a huge part of his governing coalition. All Obama can do is shovel money into the bottomless pit of California’s political system.

If California is bailed out by Washington, it will simply be another way to prop up a system that is fundamentally broken. California has spent decades building up the unsustainable and crushing tax & spending burden we now have. Income taxes are high (9.55% for most people above $40K), sales taxes are high, fees and regulations are high. About the only thing we have that isn’t high is property tax, and Sacramento keeps trying to change that.

Fundamentally, we need to be taught a lesson. We need to finally understand that you simply cannot live in perpetual deficit. Arnold Schwarzeneggar recently explained why:

“This is the harsh reality of the crisis we face. Sacramento is not Washington [DC]… We cannot print money.”

Maybe, just maybe, if we fail it will teach us a lesson. It will teach us that money doesn’t grow on trees, and that there is an economic limit to your ability to act in constant deficit. It will teach us that the abnormal — not the normal — scenario is one of constantly printing your way out of problems. Maybe, just maybe, it will restore some semblance of welcome economic sanity to California.

But I doubt it. Obama will find a way to paper over the problems, we’ll play kick the can because Sacramento is “too big to fail”, and wait until this becomes a problem so large that only a national collapse of our entire monetary system will teach us a lesson.

I need to start taking my piles of spare change to CoinStar — paper money will heat my house a lot better than coinage.