James Pethokoukis

The best bits of the best stuff I have read today:
Larry Kudlow, CNBC, on the European bailout:

And in addition to Western Europe’s failure to enforce real welfare-state reductions, there really is no flat-tax reform — such as adopted in Eastern Europe — to promote growth. Ironically, the countries of Western Europe, including the southern tier of Greece, Spain, Portugal, and Italy, have a lower corporate tax rate than the United States. That is good. But they could build on that with real flat-tax reform, rather than jacking up value-added taxes.

So there are no enforced spending cuts, there is no flat tax, and there is plenty of political upheaval. (Angela Merkel just lost an important regional election.) So right now, on the day after a big relief rally in stock and bond markets, a sober assessment of the so-called rescue package doesn’t look so great. Actually, the real winner looks to be gold, which is up $20 this morning and is almost at its all-time high of $1,226. That’s a sign of no confidence in the European story. The euro currency has been compromised and the European welfare state continues. Not good.

Josh Barro, RealClearMarkets, on California debt problems:

California’s permanent budget crisis stems from institutional failures. Ballot measures have made it nearly impossible to raise taxes or cut spending, and have cemented the idea in voters’ minds that they can get government services without paying for them. The state has repeatedly failed to reform its inefficient tax code (which relies too much on highly volatile taxes on high-income people, and not enough on property taxes) or to tackle the problem of runaway public employee compensation. … The trouble with California is that it has a Mediterranean budget to match its Mediterranean climate. April’s numbers show that rosy tax receipts aren’t likely to improve matters any time soon. Like any Mediterranean EU member, California desperately needs an aggressive fiscal adjustment if it is to remain solvent.

Veronique de Rugy, Reason, on inflation:

The Federal Reserve is unwilling to take the inflationary route today. But investors know that other central banks have done so in the past and that the scenario could happen again. … If these growing deficits aren’t addressed by immediately and dramatically slashing spending—and there’s zero indication that such a shift will happen anytime soon—we are about to embark on the most massive transfer of wealth from younger taxpayers to older ones in American history. It will be not just unprecedented but unfair: Our children will have to pay for the decisions we make today.

Eileen Norcross, NY Post, on Chris Christie and NJ:

The governor is also directly challenging the monopoly hold of the NJEA. He backs a bipartisan bill to create a voucher program for students in the worst-school districts, and he supports the expansion of charter schools. Each reform would expose the teachers unions to competition, bringing down the cost of public schools while releasing students from some of New Jersey’s highest-spending and worst-performing schools. Christie inherited an unenviable budgetary framework, strangled with court-ordered school-spending formulas. He’s responding to voter anger over property taxes, but he knows that capping one source of revenue without capping total state spending only shifts the bill. Most important, he understands that New Jersey doesn’t have a revenue problem — it has a spending problem.

Wow (from the Boston Globe):

Iraq is now considered a safer bet than Argentina, Venezuela, Pakistan, and Dubai — and is nearly on par with the State of California, according to Bloomberg statistics on credit default swaps, which are considered a raw indicator of default risk.

“Compared to California, I’d rather bet on Iraq,’’ Daher said. “Iraq is a country where there are still bombs going off and people getting murdered, but they are less indebted than the United States. California is likely to have more demands on its resources, and there is no miracle where California is going to have more revenue coming out of the sky. Iraq has prospects for tremendously higher revenues, if they can manage to get their act halfway together, which they seem to be doing.’’

A great, great piece by Joel Kotkin on what went wrong with the Golden State (via Instapundit):

The media and political pundits refuse to see this gap between the state’s budget and its ability to pay as an essential issue. It is. (This is not to say structural reform is not needed. I would support, for example, reforming some of the unintended ill-effects of Proposition 13 that weakened local government and left control of the budget to Sacramento.)

But the fundamental problem remains. California’s economy–once wondrously diverse with aerospace, high-tech, agriculture and international trade–has run aground. Burdened by taxes and ever-growing regulation, the state is routinely rated by executives as having among the worst business climates in the nation. No surprise, then, that California’s jobs engine has sputtered, and it may be heading toward 15% unemployment.

Moody’s is threatening California with a “multi-notch” downgrade of its credit rating. The state is in a deep fix, but necessity is the mother of policy invention. It will be interesting to see what Arnold and legislature do, assuming no rescue from Uncle Sam. The governor’s call for a flat tax might just be the beginning.

That is the tongue-in-cheek idea from Ed Morrissey:

Perhaps Congress should set the rules so that any state applying for a federal bailout will get treated like the District of Columbia. Since they seem keen on surrendering their sovereign status, they can have non-voting delegations to the House and Senate until they repay whatever federal dollars they take to cover their shortfall.  Considering the vast majority of California’s elected representatives on Capitol Hiill, that would be in practical terms a net plus for Congress, although an egregious violation of the Constitution.  (Yes, I’m being glib.)