War On You: Breaking Alternative News

Source: UK Guardian

Many solutions have been proposed to the political and economic crises of our “golden state”, California, with Governor Jerry Brown calling for a June primary to deal with the state budget. But the sheer intractability of the challenges leads to an inevitable conclusion: piecemeal approaches no longer will suffice. California needs bolder interventions.

Here’s one solution for the economy: California should abandon use of the dollar and exit the American monetary union. The arguments for doing so are fairly straightforward, and already have been articulated by Paul Krugman and other economists. Krugman has argued that leaving a monetary union and adopting one’s own currency allows the option of devaluing your new currency. While this has the effect of lowering wages and increasing prices in the short term, it also makes your products less expensive to global consumers, which gives a boost to exports and eventually to job creation. This economic boost becomes the foundation for growth.

OK, Krugman didn’t actually say that about California, but he did say it about Greece, Ireland and Portugal. If it’s good for them, why not California?

Indeed, the arguments for California exiting the dollar zone are stronger than those for Greece and Ireland to exit the euro zone. First, California is doing worse than either Greece or Ireland. While everyone in those countries still has healthcare and access to the many safety nets that European countries provide, in California a recent report found that 25% of Californians do not have any health insurance.

Many communities in the golden state have been hard hit with waves of foreclosures and, due to the collapse in housing prices, in eight California counties 50-60% of all mortgages are “underwater”(meaning mortgage payments are greater than the value of the home). California’s unemployment rate is one of the nation’s highest at 12.5%, about the same as Greece’s and a bit lower than Ireland’s. And the once-prized university system is decaying and becoming unaffordable for the middle class.

But one advantage Krugman sees in the dollar zone is that the US has more of a “transfer union”, by which troubled states can receive a federal bailout if necessary. Yet, one person’s ceiling is another’s floor; when it comes to transfer unions some states give while others take. For California, this transfer union has been a bum deal for a long time. According to the Tax Foundation, California taxpayers have been subsidising most other states for decades. For every dollar in federal taxes California sends to Washington, DC, we only receive back about 78 cents. Where do the other 22 cents go? To other states, which have received billions of relief money from California taxpayers.

California sure could use that money right now. Indeed, California’s dilapidated condition caused Governor Arnold Schwarzenegger to go hat in hand to the federal government in 2009 and ask for a bailout. Despite the state’s decades-long generosity, the Obama administration spurned California’s “Brother, can you spare a dime?” routine, forcing California to issue IOUs to keep from defaulting and becoming a national laughingstock in the process.

Clearly, when it comes to receiving help from this transfer union, California’s congressional delegation has been impotent to help the largest state in the union, which has been called “too big to fail”. That’s because California and its 38 million people are only allowed two US senators, the same as Wyoming and its 500,000 people, to fight for its residents’ priorities. The result is that California punches far below its weight nationally. Consider that its economy is as proportionate to the US economy as Germany’s is to the European economy, yet Germany exercises far more influence in Europe than California does in the US.

Meanwhile, low population states like Alaska, the Dakotas, Alaska, Mississippi and Alabama all hugely benefit from this transfer union, receiving anywhere from $1.50 to $2 for every dollar in federal taxes they send to Washington, DC. Their senators can outvote California’s senators and shovel California taxpayer dollars into their own state coffers. But for California, and other high population states like Illinois and New York that are subsidising them, and are having difficulties at least as bad as the recipient states, this transfer union is all give and no take.

Enough is enough. With its own currency, California would have approximately the eighth largest economy in the world and its fairly low debt-to-GDP ratio (about 3%) – would make it one of the least indebted major industrialised countries. California’s credit rating would almost certainly be AAA.

Who knows, maybe the European Union might try to recruit California as a member state: like free agent LeBron James, we could play the US off the EU to see which one offers the best deal to return California to its golden status.