The decimation of the California economy was a long-term project. It began in earnest in 1978 with the passage of the infamous Proposition 13 (the People’s Initiative to Limit Property Taxation). Like the current Proposition 16 (a proposal that protects private utilities while pretending to uphold the right vote), Prop 13 was perhaps the first use of the most brilliant means of circumventing democracy ever devised.
Embodied in the state constitution that appropriately numbered ballot proposition not only set a limit on property taxes at one percent of value but it also made it virtually impossible for the state to raise sales or income taxes by requiring a two-thirds vote in both legislative houses. Since property taxes were the primary source of funding for education, Prop 13 was the poison pill that sickened and eventually killed the future of education in the state once known as golden.
By crippling the state’s revenue raising mechanism it was only a matter of time before economic events would bring California to its knees. Those events would come at the turn of the millennium when the west coast energy fraud followed in the wake of the great technology bust. The latter was largely the product of Wall Street brokers who oversold high tech stocks on the theory that the rules regarding assets and earnings no longer applied. Fortunes were made by clever investment managers who bet against the very stocks they sold to the public. Investors, including California’s public pension funds, lost and the balance sheet began to turn red.
The west coast energy crisis represented the first returns from bipartisan deregulation in the energy industry. It was that deregulation that enabled companies like Enron to fabricate shortages where none existed and run up prices to absurd levels that state and local authorities paid to prevent blackouts from crippling the economy. An estimated fifty billion dollars was transferred from California to a handful of Texas based oil and energy companies. Enron would eventually pay a price but the rest got away with the cash. It was — and is — a foolproof business model: Steal billions in profits and pay millions in fines.
Politically, Governor Gray Davis paid the price (though he was no more responsible than any other witless politician) and California was treated to the spectacle of a recall election to elevate Hollywood action-hero Arnold Schwarzenegger, to the governor’s palace. As Californians would soon learn, Davis was not the problem and Arnold was not the solution.
Despite its fall from grace and utter collapse, Enron was, in fact, the business model that Wall Street would adopt as the bipartisan march of deregulation moved on unabated. The collapse of the real estate market (an unprecedented economic phenomenon) was not only predictable but inevitable. Opportunity and greed is a deadly combination. Because it could and because no one was home at the sheriff’s office, the world’s largest and most ruthless arbiters of wealth decided to transform the economy into a Ponzi scheme. Economics ceased to be a science and a plaything of the corporate elite. Like the alchemists of old, spinning gold from common nickel, corporate mystics spun value where none existed.
They were playing with our lives. They were tempting fate. They were inviting an epic catastrophe. But all along they knew the game was rigged. In his last act as president, George W. Bush initiated the bailout that would eventually transfer a minimum of a trillion dollars to the very criminals who caused the collapse. They gambled with other people’s money and won. We paid the price.
No one paid a greater price than California. The state is ranked third in home foreclosures with an even more dramatic decline in the value of real estate. In the fourth quarter of 2009 nearly two million California homes were valued less than the outstanding mortgage (Bloomberg.com). A decline in property means a decline in property tax revenues. A twenty billion dollar budget deficit combined with over eighty billion in long-term bond debt means that California is effectively bankrupt without any visible means of recovery.
So now the Republicans step forward with a promise to save California by running it more like a business. They never mention that it was Republican policies (even when embraced by Democrats) that destroyed the economy. They simply promise to run it more like a business. Someone should ask former CEO’s Meg Whitman and Steve Poizner what they would actually do with a business whose revenue-raising potential was frozen at 1978 levels. Ask them what they would do with a company whose income was insufficient to finance its debt. The answer is they would liquidate and that is precisely what they intend.
In the 1970’s and 80’s there was a breed of Wall Street bottom feeders who dealt primarily in junk bonds and made vast fortunes buying up companies whose value was less than the sum of its parts. It was not good policy. The victimized companies were often sound and profitable businesses. Bought and sold on the scrap heap, workers lost good jobs and industries folded or moved out of the country but the brokers and bankers made money.
It was the age of greed and nobody seemed to care who got hurt. Now we have an entire nation in the process of liquidation and California leads the way. They won’t give up until they’ve sold off our parks, our redwoods, our waterways and public buildings.
Unfortunately neither the people nor anyone in a position of power seems to have a clue. Berkley professor George Lakoff wrote a simple proposal at the heart of the matter. It said, “All legislative action on revenue and budget must be determined by a majority vote.” It would have effectively repealed Proposition 13 and rendered Proposition 16 void. It would not have resolved our deepening crisis but it would have been a start.
The Democratic Party killed it with an assist from Attorney General and gubernatorial candidate Jerry Brown on the grounds that it would have been electoral poison.
Respecting Brown’s political moxie there must be some truth in it but the greater truth is that Orwell’s nightmarish vision has come fully into focus. Our perceptions are so dominated by corporate dictates that we can no longer distinguish our interests from corporate interests. If the Democratic Party fears to take a stand in favor of majority rule, then democracy, itself, is imperiled.
So the California Democracy Act will not be on the ballot but Proposition 16 will, and if it passes, it will effectively prohibit localities from starting or expanding their own local electrical services to avoid falling victim to the kind of corporate manipulations that hit them during the west coast energy fraud of 2000-2001.
Whenever we are asked to vote on a proposition we should be skeptical. If the proponents pretend it is about one thing when, in fact, it is about another, we should automatically vote no. When its sponsors include the Chamber of Commerce we should recognize that the Chamber is nothing but a fence for corporate funding. When it requires a two-thirds vote instead of prohibiting what it intends to prohibit we should revolt.
California is in trouble and there is no easy solution in sight. Like the nation as a whole we must somehow rebuild our industrial base. We must invest in quality jobs. We must invest in education, rebuild our infrastructure and lead the world in green technology.
How we get there from here is a mind-numbing proposition. The one thing we should all agree on, however, is that we should not reward the persons and policies that put us in this untenable position.