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California: America's Greece

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There is no state in our union suffering a bigger fiscal fiasco than California, with its structural budget deficit, $500 billion unfunded pension liability, and double-digit unemployment rate.

Yet, while most of the country gave Republicans a resounding victory in last Tuesday’s congressional elections, Californians voted for still more liberal Democratic policies.

As Steven Greenhut pointed out in a recent City Journal article, California voters resurrected the career of their 1970-era governor Jerry Brown; Senator Barbara Boxer won reelection; and San Francisco Mayor Gavin Newsom won overwhelmingly in his race for lieutenant governor.

They supported Proposition 25, which lowers the state’s two-thirds vote requirement for passing budgets. This will push Republicans in the legislature further to the margins. They rejected Proposition 23, which would have suspended the state’s global-warming law until unemployment fell. They also voted down Proposition B, which would have imposed modest reforms on San Francisco’s pension and health-care systems for retired employees.

All this leaves economists concerned about the Golden State’s future.

“The Left Coast is working on becoming America’s Greece,” writes Dr. Ed Yardeni of Yardeni Research, adding, “This state is among the most likely to experience a financial crisis over the next couple of years, and now is even more likely to wind up in a fiscal ditch.”

For their part, California’s politicians honestly don’t understand all the fuss. Lt. Governor-elect Newsom, for instance, had this to say after winning the race:

"We're nothing but a mirror of our consistent thoughts. You tend to manifest what you focus on. If you look around for what's wrong, you'll find it. But as all we know up here in San Francisco, when you focus on what's right, you see it all around you. . . . There is absolutely nothing wrong with California that can't be fixed by what's right with California. . . . If you're from another state, you'd love to have the problems of California."

Barbara Boxer – that’s Senator Boxer to you! – chimed in on election night that it's her "eleventh straight election victory, and what a sweet one it is . . . [since] everything was thrown at us, including the kitchen sink, and the stove and the oven and everything, millions of dollars of negative ads from known and unknown opponents, millions and millions of dollars."

Maybe some of these lawmakers assume that their friends and neighbors in more fiscally responsible states will just ride to the rescue, if need be. Don’t count on it, says Allysia Finley, a lapsed Californian and current assistant editor of, in an editorial this morning:

“We've tried to help you, California. Some spent millions on campaigns to entice you to change your reckless behavior. And you told them to kick rocks. So here's our final warning: When you inevitably crash and burn, don't count on us to bail you out."
POSITION:  No positions in stocks mentioned.