Great post by Professor Krugman on Cali. First let’s set the stage:
"The states, Justice Brandeis famously pointed out, are the laboratories of democracy. And it’s still true. For example, one reason we knew or should have known that Obamacare was workable was the post-2006 success of Romneycare in Massachusetts. More recently, Kansas went all-in on supply-side economics, slashing taxes on the affluent in the belief that this would spark a huge boom; the boom didn’t happen, but the budget deficit exploded, offering an object lesson to those willing to learn from experience.
And there’s an even bigger if less drastic experiment under way in the opposite direction. California has long suffered from political paralysis, with budget rules that allowed an increasingly extreme Republican minority to hamstring a Democratic majority; when the state’s housing bubble burst, it plunged into fiscal crisis.”
Disclosure: I (PPKFP) live in Cali and can vouch for the veracity of everything Professor Krugman says. The key turning point was electing Governor Brown who succeeded Arnie (who wasn’t that bad) and more importantly finally achieving a supermajority in the Legislature to pass budgets over republican obstruction. The net results was a budget surplus due to a modest (and temporary) wealth tax and increase in the sales tax:
"In 2012, however, Democratic dominance finally became strong enough to overcome the paralysis, and Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.
I guess we’re not in Kansas anymore. (Sorry, I couldn’t help myself.)”
For those of you who don’t live in Cali, which is a wonderfully diverse place to live, what are the take home lessons?
"So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need. Government programs, like Obamacare, can work if the people running them want them to work, and if they aren’t sabotaged from the right. In other words, California’s success is a demonstration that the extremist ideology still dominating much of American politics is nonsense."
Finally, Professor Krugman has a nice discussion of one of the current challenges in California (along with the drought) which is the rising housing costs. That is worth a read. If you currently own a house (i.e. are somewhat wealthy), then you like the restrictive land-use regulations that prop up your inflated house value. Of course the problem is that the majority of people don’t own houses.