Thursday, May 15, 2008

The Stupidity Bubble

We have heard much in the past few months about the 'housing bubble'. The prices for homes here in California kept growing and growing, until finally the market collapsed under its own weight. Many people were hit hard when the housing bubble burst and more than a few lost their homes. I feel for those people, I do, but you cannot use your home as an ATM forever, planning on it's value to increase each year. Eventually, the economic cycle will catch up with you, that is why is it called a cycle.

We are heading towards the end of another bubble, one that will effect every Californian, and every American. I am calling it, The Stupidity Bubble. Let me explain.

In the past decade it seems the only thing that has grown as rapidly as our home values is the unquenchable desire to spend more of our tax dollars. Now before you write letters telling me the reason we are in a budget mess in Sacramento is the fact that our economy is in terrible shape, let me say this. Horse manure.

The reason we are in a budget mess is the democratically controlled state legislature and our 'moderate' republican Governor don't seem to have the courage to tell us that the party is over and someone has to pay the bill. We were asked years ago by the Governor to borrow billions of dollars to get out of this 'one time' financial crisis and from that time forward, he would hold down spending. He hasn't. Sure, you can point to a few battles where he and minority party stuck together and won a few concessions from Democrats, but in the past few years the Governor has spent money like a drunken Seaman on his first shore leave.

Let's take a look at how much money we spend as a State.

For the budget year 2004-2005, Governor Schwarzenegger's first full year in office, the State of California spent in its general fund 79,804,000,000 dollars, think about that, that is Seventy Nine Billion, Eight Hundred and four Million dollars and change.

For the current year, the Governor's budget for the general fund is 103, 000,000,000.
To make this easy to get your mind around, the legislature and the Governor have increased spending to the tune of 24,000,000,000. Twenty four Billion dollars in four years. What did we spend all this new money on? Everything under the sun, office buildings, new computers, more government employees, more of everything. Why? Because you said it was ok.

Yes, you. You sent this same pack of thieves back to Sacramento because you didn't pay attention, and because you believed them when they said the teachers need more money for classroom supplies and prison guards needed better retirement benefits and we need to do something about this program or that type of financial aid. To be honest folks, you believed the politicians when they said they would make things better through more and bigger government.
If we have learned anything, and it pains me to say we have not, an ever expanding government becomes less and less efficient, and less and less accountable to those who pay for it.

Now it looks like the Governor wants to kick this can down the road one last time. If he can convince you to borrow against future State lottery revenues, another 'one time' fix, the State can make a few narrow cuts and the politicians will spend next year praying the housing market comes back strong and more tax revenue will flow in. If that doesn't happen, we will be in worse shape next year, with no more 'one time' fixes left on the shelf. It is just plain stupidity.

When you are going broke, getting another credit card is not the answer. After you sit down at the kitchen table with your spouse, you can crunch numbers all you want, but at the end of the day you are spending more than you are earning.

The next bit of bad news is the Governor proposes a 1% sales tax increase if the voters don't go for the Lottery deal. That is stupidity at its finest, if we can't borrow more money, we will raise your taxes.

If we just went back to spending rates we had two years ago, that would almost eliminate the budget deficit for next year. Why won't anyone cut spending? No one want to go up against the public labor unions, no one. If you dare to take away anything you promised them when the state was flush with cash, you will hear a hue and cry from Alturas to San Diego. The amount of money the unions would spend against any politician from either party who would dare roll back spending for their members would be incredible. The television screens would be filled with menacing music and pictures of falling down, overcrowded classrooms and fire fighters explaining how your home will surely burn to ground with you in it if you don't vote for their candidate. And you know what, you would probably believe them again.

Eventually, as the City of Vallejo is finding out, stupidity combined arrogance will only last so long. The bill has to be paid someday, that someday is coming, and its coming soon.

Do you just hear a popping noise?

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