Random Thoughts About International Finance and the Global Economy
Wednesday, July 22, 2009
No More California Dreamin
I grew up in California, and was a beneficiary of the great services the state provided. I went to UCLA and UC Berkeley, and got a great education. But today, the California dream is waning, as this article in the NY Times points out.
California's new budget deal is not going to help. The fundamental fiscal problems that plague the state are not addressed. California needs two things: eliminate referenda and eliminate proposition 13, that limits property taxation. The former creates spending, the latter limits the ability to pay for it. Without property taxation California relies on taxing high incomes, which are both mobile, and highly procyclical. The referenda support extra spending without considering where the funds are to come from. The system is obviously totally broken.
I am a Professor of Economics at the Pennsylvania State University and a Non-Resident Senior Fellow at the Brookings Institution. I am also a founder and Member of the Board of Directors of the New Economic School