California Dreaming of a Stable Economy

It would be quite an achievement to take an ugly photo of this little slice of the world. From the blue skies overhead, the bottle green water lapping at the shores, to the bronzed bodies thronging the white, sandy beaches, Southern California presents an astonishing vista. Cosmetically, at least, the place is a nip n tucker’s dream come true.

Your temporarily homeless editor is spending a few quiet days in the paradisiacal Laguna Beach before embarking on a month-long, coast-to-coast road trip. We want to get a first-hand look at how the real America is dealing with what Bill calls “The Great Correction.” Our trip begins this weekend and will see us arrive in Miami, Florida, sometime in early September. Call it our “Coast-to-Coast Correction Tour.” We’ll visit farms and factories, talk to locals and bring you our thoughts from the road. We may even have the chance to catch up with some Fellow Reckoners along the way. More on our little jaunt in the weekend edition, but first…

Having spent the past month or so wandering around the Far East, the first thing we notice about the West, Southern California in particular, is the pace of activity here…or, more precisely, the lack of it. Compared to the frenetic bustle in China’s megatropolises, where hawkers and hustlers jostle for position in an increasingly chaotic marketplace, the atmosphere here in the West is positively somnambulistic. People walk and talk almost with their eyes shut, never in a hurry to get from A to B, nary a care in the world. They lounge on deckchairs, soaking in the mid-afternoon sun. Locals stop and chat along the boardwalk. People call each other by their first name…or “man”…or “dude.” They indulge in concepts that have no literal translation back in the East; concepts like “free time” or “disposable income.”

Yesterday we saw a shuttle bus with a sign on the side: “Free Ride to Work Program.” According to the program’s website, “People who are employed within the City limits of Laguna Beach, resident or non-resident, are eligible for free transport to and from work.” Similar initiatives are in operation up and down the state. Unfortunately, however, many people seem to interpret the slogan as an either/or option. Unsurprisingly, an increasing number of the potential workforce opts for the “Free Ride” component over the decidedly less-attractive “Work” option.

At 12.7% unemployment, only Michigan and Nevada outperform California in the non-work ranks. This shrinking tax revenue base, combined with a slew of union-won benefits, bogus entitlements, one of the nation’s highest minimum wages ($8) and a meddlesome, spendthrift state government, has resulted in California’s crippling $19 billion budget gap.

One might suppose that such a distressing situation would inspire some budget tightening. Incredibly, however, California does not even HAVE a budget. Since the fiscal year ended a month ago, lawmakers have been squabbling over details of what can and can’t be cut from the state’s onerous structural expenses. In the meantime, Gov. Schwarzenegger has declared a “state of fiscal emergency,” and ordered government workers to stay at home for three unpaid days per month as part of a “worker furlough” act. Only 3 days? A pay cut equivalent to only 14% hardly seems enough to inspire public employees to seek work in the private sector, where they might actually contribute to the productivity of the state rather than detract from it.

Of course, there are plenty of exceptions to the rule. Fellow Reckoners can already guess who was spared from the budget knife. The AP provides the details:

The new order exempts employees who work for departments that collect revenue, such as the Franchise Tax Board, and public safety agencies, including the California Highway Patrol… It also exempts about 37,000 workers in six unions that recently reached tentative labor agreements with the administration.

The sun is shining here in California, and the people are relaxed and easy going. If you’re looking for a place to spend your next vacation, the Golden State is a prime destination. Just don’t forget your wallet; the government needs the cash.

Joel Bowman
for The Daily Reckoning