The California-zation of America

The U.S. economy survived the traumas of 2009, thanks to good policy and good luck. What worries me, looking ahead, is what might be called the “Californiazation” of America — the growing tendency of our political system to make promises in social spending programs that it isn’t prepared to pay for with tax increases…

What many state governments want is a federal bailout, which would free them of the consequences of overspending. It’s a classic case of what economists call “moral hazard” — in that the bailouts would allow the irresponsible behavior to continue, rather than force a halt. One prominent economist argues that if the states were countries, the International Monetary Fund would grant relief only if it came with conditions that imposed fiscal discipline.

So will Washington become like California? Some would argue that has already happened, with the fiscal disaster masked by the federal government’s ability to sell its massive debt cheaply and print money to pay its bills. And you see in Washington the same dysfunctional political process that’s at work at the state level — Democrats who get elected by delivering services and Republicans who get elected by delivering tax cuts.