Wednesday, October 5, 2011

Why California is the Greece of the U.S.

The brilliant Michael Lewis writes in Vanity Fair about the terrible budget problems of California.  He makes three main points.

First, California is set up to destroy itself financially because the politicians have rigged the electoral process so that they only run in highly partisan districts.  They have done this through the politically corrupt practice of gerrymandering the districts to make them safe seats for one party or the other.  In addition, California has a referendum process designed so that the ideologues of either side can bypass the legislation altogether and craft ballots to get their way.  

That means that the Democrats get to add services and the Republicans get to block spending increases, with the inevitable result that the state spends more than it takes in.  Greece, here we come!

His second point is more general.  The human brain was designed to survive in the wilderness, a place of scarcity, or at least a place that required a lot of energy to tame, manage, and survive. But the human race has now entered a time of enormous abundance, and it is no accident that we are living in times of internet bubbles, housing bubbles, drug addiction, and rampant obesity.  The parts of our brains that say "grab all that you can while you can" was not designed for times where all the food, drugs, and credit that you want is just there for the taking.  So, we have been taking, and taking, and taking without much in the way of restraint, and the result is the average Californian has debts of $78,000 against an income of $43,000. The levels of addictions have become epidemic - shopping, drugs, sex, overeating, etc.  Whatever we want is available, especially if you have a nice collection of credit cards to buy now and not think about until, well...maybe never think about it at all, just keep shopping, consuming, eating.

He made a very interesting point in the article that is a corollary to why we are prone to overspending.  Many of us live next to rich people.  Or we see rich people in the media.  And we think we are rich too, or at least we think we should be entitled to the same things that the rich people can afford, but we can't, and we buy it anyway...on credit.  

The state of California is a reflection of the people of California: we are spending more than we can pay for.  

His final point is that we are all like a fat pheasant who finds itself with no other competition for food and eats itself to a point where it is too fat to fly, and finally is eaten by a fox.  That is, the environment provides the restraint that responsible action and self discipline fails to provide.  

The message is pretty clear from his article.  He ends up quite hopeful that Americans will figure this out and become responsible and adopt the kinds of personal character and restraint needed to keep from becoming the pheasants too fat to fly that get eaten by the foxes.