The meaning of the California earthquake

May 21, 2009

I’ve talked to loads of investors, pro and amateur, who think the game is up.  They think the American economy is doomed to downshift into a permanent slow-growth mode. Massive budget deficits, more regulation, more taxes.  My standard reply points out that global current, debt and equity investors would punish, sooner rather than later, any nation that follows such a course. The financial vigilantes would prevail in the end.

Oh, and the voters might have a say, too — as they did in California, giving a thumping to tax-hiking referendums.  I mean, the common wisdom here in DC is that Americans need to pay higher taxes. And for awhile, many here believed that Americans would accept this perceived reality, despite the fact that President Obama was elected as an (overall) tax cutter. Some polls showed the same thing.

But actual voters sent a different message. It’s the same message that is also cutting the knees out of the Obamacrats’ plans for a cap-and trade system. Americans, facing reduced net worth and a terrifying job market, don’t want government imposing higher costs whether through taxes or regulations. (Especially when the don’t think that government is particually well run or efficient.) And higher taxes for healthcare, too? Plus, if those Obama middle-class tax cuts aren’t extended, many folks will be getting a tax hike in 2011. There seems to be a complete disconnect here between the political class and the rest of the country.

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As a California voter, I found it strange that the politicians voted these measures in with an overwhelming majority, while the voters rejected them with an overwhelming majority. That shows the disconnect between the voters and the politicians in the sunny golden state. To correct the problem with the measures at hand, we voted to punish the politicians for having poor performance in governance.

The essence of the election was the people saying (1) stop making up for your mistakes by raising my taxes and (2) how about acting like you know what the heck you’re doing for a change. Over the long haul, this simply reflects that we need a smaller and more efficient government with personnel that are reasonably paid, not overpaid. The politicians will not touch some of these hot buttons at the risk of losing the favor of their constituents. For example, too much funding goes to the Child Protective Services. Because of this, they take on too many cases, rather than limiting the cases to the ones that actually have a problem. I know of one family that has had their children taken away. In that family, there has not been a crime committed, neither is there any danger to the children. However, the cost to the state of California for the charade has run into the tens of thousands of dollars over absolutely nothing. Do you think for a minute that the politicians will reduce funding to CPS? Heck no. They want to raise more taxes on your back and mine. CPS, like any other government agency, knows that if they don’t use their funding this year they will possibly lose some of it next year. That is the essence of how government grows. Once it gets a little larger, it thinks the new size is set in concrete. Only during times like these will government cut back. They have no choice, because the populace is broke. Raising taxes will only extend the recession longer, thereby delaying higher tax revenues.

The meaning of the California earthquake is that all across the nation, the people will get the size of government reduced (a Republican platform) due to lack of tax revenues. We should have kept government smaller all along.

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