California: More than Just Economic Problems (Plus Some Potential Solutions) 42 comments
- Gregor Macdonald's articles on Seeking Alpha
- Visit: Gregor.us
- Gregor's Premium Newsletter
an article to
-
Font Size:
-
Print
- TweetThis
Over the past few months I’ve been tweeting that a journalist could make a whole career in the years ahead, just by concentrating on Mexico. With its suite of problems that start with a crash in oil production, and end with a weakening of the Capitol’s power, I tip Mexico to unleash some fury upon North America (and itself) in the years ahead.
Meanwhile, problem-hunters here in the States should really take a long look at California. California has a host of problems, most of which are currently masked by the budgetary and political headlines coming out of Sacramento. Today’s post attempts to plow past some of this built-up material, which includes immigration, taxes, the failings of such institutions as CALPERS, and of course the impending sense of debt-doom.
As I sit down to address California, which is the project I’ve carved out for myself during May, I am reminded of my
trip to Israel 25 years ago. After a two week tour of the country, with its drive-by review of migrant workers, overhead jets, bus bombs, poverty in the West Bank, Jerusalem funk, and Tel Aviv luxury, I sat down for lunch with the guide who had taken my small group around. A very thoughtful man from Israel’s equivalent of the Dept of the Interior. And here is what he told me:
You’ve seen all the problems now, many of which you could have read about without even coming here. So let me tell you what our greatest long-term challenge may be: Water.
I see California’s problems as spreading out over its three main topographies, the ocean, the coast, and the dry interior. First, the automobile-adoption trajectory which started after World War II has done a ton of damage to the landscape, mostly along the coast, and is simply not sustainable as a growth model. Vast portions of the five counties in the South are now burdened with the map left behind from the Auto Age. Ventura, LA, Orange, San Diego (and also San Bernardino) counties remain hugely leveraged to the price of oil, despite the great successes of the LA Metro and the San Diego Trolley–which are really just starter transport systems.
It’s unclear to me, frankly, how this region can ultimately extract itself from the automobile without a major economic disruption. 10 dollar gasoline will not be kind to those who live between Van Nuys and Carlsbad. The problem of the car of course, also extends into Northern California. And because of California’s climate and thermal configurations, the fumes of its 30 million cars are made all the more pernicious.
On a cultural level, the people of the Central Valley also remain (feel) quite separated from the power and influence that extends to the Capitol, from coastal dwellers. Just last week, a renewed front in this ongoing tension was covered by the Economist of London in a story about an activist who’s suggesting all of California’s coastal counties split off, and form a new state.
Finally, we come to the coast. And by this I mean the Pacific Ocean and the oil which lies offshore. For decades since the (now) seminal and totemic Santa Barbara oil spill, the prospect of renewed offshore oil drilling in California has
been met mostly with horror. While the issue has been cleverly spun so far as “not a solution to our energy problems”, what’s left unsaid is that monetization of this oil is actually a potential solution to California’s debt bomb. But in my view that would be just for starters. Because in California’s offshore oil I see the capital needed to solve at least one of the state's other two problems: the problem of cars.
Throughout the month of May I will tackling these issues one by one, on a more in-depth level. For example, I want to see how much utility grade solar California would need to build in its deserts to carry the state’s present electrical load. I’ll also be looking at offshore oil reserves on a probable basis, and I’ll try to gauge how much capital the state could raise over a 10 year period with a renewed drilling program.
Equally, I am interested in how much pollution the state’s 30 million autos (and another several million other-type vehicles) are pumping out each day into California’s atmosphere. My interest here lies mainly with the status quo thinking and how basically nothing is being done or proposed to solve these problems.
I see a belligerent intractability across the cultural spectrum in California, as hardly anyone is willing to sacrifice their sacred beliefs. The result of course is that no true directional change is imminent. The water wars carry on. You can’t drill for oil. And the freeway stacks continue to multiply.
Photos: various photos of California including the final shot of Robinson Jeffers, somewhere on the coast.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
TraderMark
-
2
David Fry
-
3
Peter Schiff
-
4
Paco Ahlgren
-
5
John Mauldin
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
Top
StockTalkers.-
1
David Fry
-
2
Cliff Wachtel
-
3
Mike Havrilla
-
4
David White
-
5
Hedged In
Top StockTalkers » -
1
Here's the official website (sponsored by the USGS, FEMA, and others) warning of the potential damage from a likely LA-area quake.
shakeout.org/scenario/
Not only are the casualty estimates grim, but the estimate of the likely (not maximum) financial impact of this scenario is $200 billion.
And that's the *official* estimate, so it's almost certainly lowballing it!
With the federal and state budgets in the worst state they've been in history and foreign lenders increasingly unwilling to bail us out, where would California get the money to pay for something like this?
Needless to say, this amount is more than double its already-obscene state budget.
California is sitting on two seismic time bombs and its financial margin of safety has vanished.
In fact, the Red Line has been so successful at giving criminals their much needed access to more victims, that the City of Beverly Hills is fighting AGAINST a station there when the line is expanded.
Think I don't know what I'm talking about? Well, I'm the guy that puts the criminals in jail and comes running when you call 911...
This state is broken from the top down. If I could leave right now without having to start completely over, I would.
Here are some direct quotes ...
> More than $1.5 trillion US dollars in damage would likely result ...
> Since the fault runs through heavily populated areas, more
> than 5 million would be affected directly ...
> The estimated probability of a major earthquake on the
> Hayward within the next thirty years was estimated at nearly 30
> percent
1 in 3 is an incredibly high probability for a disaster of this magnitude.
The financial damage would be more than 15 times California's entire state budget.
Combine that with the probability of an earthquake along any of the OTHER major fault lines in the Bay Area, and the probability of a major Bay Area quake in the next 30 years is around 60%.
en.wikipedia.org/wiki/...
On May 05 09:53 PM Missing_Link wrote:
> Oh, and here's the wikipedia page for the Hayward fault in the East
> Bay.
>
> Here are some direct quotes ...
earthquake.usgs.gov/re.../
This translates roughly into
--GET THE HELL OUT OF CALIFORNIA WHILE YOU STILL CAN--
Really, this guys got it right.
The mediterranean weather is hard to beat though and the depression era unemployment has cut down the traffic considerably. But, for me, it's the weather that keeps me here so the high cost of living is worth it. That might change, but we will see.
On May 05 02:03 PM Buckoux wrote:
> Another of California's problems are pockets of overpopulation. Sections
> of this state that are simply too overpopulated for their own social
> and economic good They are "Malthusian Communities".
Once considered the Golden State, self reliant, home of Reagan, bastion of freedom, low taxes and small government, California has been transformed into a hideous gulag by the democratic bolsheviks in Sacramento. I kid you not, it is against the law to drive on a rainy day with windshield wipers going and not have your headlights on.
California boasts the highest tax rate and the worst credit rating. Yes, our credit rating is even worst than Louisiana's. What a combo! That's quite an accomplishment when you have the largest GDP of any state.
No talk in this article of the police and fire in California retiring at age 50 with the nation's most generous pension benefit. Public safety's 3% at age 50 retirement benefits undermines the stability of California's finances and creates a massive liability for taxpayers. California is the GM of government employers. This little fact must of skipped the author's mind. Understandably he was too busy worrying about the "auto age" whatever that is. By the way, does that mean there is something wrong with me liking the personal freedom my car provides myself and my family?
Business and retirees are moving out enmasse to avoid the crushing confiscation of both income and sales tax which are again the highest in the nation. I guess this will be discussed by the author in part 2 of his series.
California has no water problem. California has a water storage problem. Left wing kooks like the Sierra Club have tied up in court efforts for years efforts to expand our water storage capabilites. With the 20 year surge in population, much of it illegal, not building out our water storage capacity was certain disaster. Now water shortages threaten our world class ag business. I guess this gets discussed in part 3.
No talk in this article of our pathetic school system that forks out $11,000 per k thru 12 student each year (yes, the highest in the nation). I guess the much needed school voucher system will get addressed by the author in part 4 of his series.
Lest we forget the horrors of illegal immigration on our schools, hospitals, jails, prisons, home foreclosures, etc. Michael Lewis writes that an illegal strawberry worker bought a home for $720,000 in Bakersfield, CA with $14,000 in annual income and a wife who didn't work. Maybe this gets discussed in part 5 of this author's articulate and insightful series on California.
Author writes: "Throughout the month of May I will tackling these issues one by one, on a more in-depth level. For example, I want to see how much utility grade solar California would need to build in its deserts to carry the state’s present electrical load."
This provided me the best laugh I have had in a long time: "Utility grade solar"??? I guess the author also believes we would be able run our cars on water if the oil companies hadn't assassinated the guy with the secret formula out in the New Mexico desert. The rational and pragmatic all understand that natural gas and nuclear are the energy sources of our nation's foreseeable future.
Note to Editor: Please spare us from this nonsensical, leftist, global warming, club of rome, sandinista, Che Guevara, communist, green party ramble. Isn't this site rooted in an attempt to embrace our nation's free market heritage and intelligently commit our capital in an effort to make money? . I am sure the author is against that, too. There are plenty of left wing blogs out there for the author to pollute with his silly ideas that end up hurting real people.
The importance of the successful Junior college system in conjunction with the university system cannot be downplayed.
The recent left leaning political atmosphere is the result of those who wish to participate in the golden ideals and successes of the past but do not want to pay the price to keep those ideas alive in the future.
I am afraid entitlements and ideal of a free lunch now prevail.
Every year it's the same, tired scare tactics of: "If we don't raise taxes, we will have to lay off firefighters, police officers, close libraries, etc... Hopefully, the electorate will see through it this time. If we don't stop this soon our flag will have to be changed from "California Republic" to "Peoples Republic." Maybe I shouldn't have sugguested that, I already hear Socialists and Pols in Sac Town, SF, Berzerkly and Santa Monica licking their chops over the idea....
On May 05 10:49 AM Mad Hedge Fund Trader wrote:
> It's got a tough row to hoe. A giant collective sigh of relief could
> be heard across California as the embattled state managed to sell
> $6.85 billion in general obligation tax exempt bonds. The deal is
> the second successful fund raising effort since a similar $6.5 billion
> issue was floated three weeks ago. The spigot has been turned back
> on for over 5,000 construction projects that were halted last December
> as the Golden State’s coffers were about to run dry. Now construction
> crews are mobilizing to add new wings to hospitals, repair decrepit
> school buildings, add car pool lanes to freeways, and start the reconstruction
> of key bridges. California and its 55 electoral votes will also be
> the beneficiary of big government spending in alternative energy
> and stem cell research. The icing on the cake will be a further $97
> million the federal government has committed to spend on 22 national
> park projects at Yosemite, Kings Canyon, and elsewhere. Economists
> expect the money will make a dent in a state unemployment rate that
> has exploded to depression levels of 11.2%, and is probably over
> 16% when discouraged job seekers and expired benefit recipients are
> added in. California is not out of the woods yet. It still has the
> opportunity to commit financial suicide if voters fail to approve
> any one of the six crucial measures in a May 19 statewide election.
>
>
On May 05 10:12 PM Steve0 wrote:
> What a great creative solution to California's budget issues. Don't
> raise taxes, instead lease off shore oil rights. Use the royalties
> from the oil to build the green infrastructure. If the greenies really
> look at this solution how can they go wrong. Once you have the green
> infrastructure built-out shut down the use of oil for transportation
> or tax the hell out of it. Play with devil oil to get eco-nirvana.
>
>
> Really, this guys got it right.
Currently, California Republicans cling to the mantra of no new taxes, feeling that they are the guardians of spending. By fighting against new taxes, their plan is to reduce the capability of state government to spend.
This approach has not worked. The Democratic majority has figured out ways to increase spending without new taxes. In a state that is required by constitution to have a balanced budget, they have learned to hide deficit spending by borrowing.
Republicans should modify their position to making a stand against all new "ongoing" taxes. They should sponsor a bill immediately that puts a surtax of $1000 on each and every California resident and California worker.
This simple approach would solve several problems and create new opportunities for Republicans. The current budget crisis would be solved as $30 to $40 billion flowed in to the state.
Voters would be angry. But that would cause them to think twice about voting again for the party that was in power, the democrats.
Republicans can explain that they are the party of fiscal responsibility. Debts must be paid up. Talk of insolvency is absolutely dangerous and silly. The state has the right to tax its citizens and should when debts must be paid. A one-time emergency surtax would solve the debt crisis, and inflict enough pain on the general population to get their attention in the next election.
If the voter doesn't ever pay the price of state overspending, the voter is being deceived into believing that the spending levels are appropriate.