I slept in this morning as I fight off a head cold (always on a Holiday weekend) so I had a later start to my day; Paul Krugman’s column Â in today’s NY Times is must reading. Krugman, a Nobel Prize winner in economics and a Princeton professor, offers a far more credible analysis of the big picture than say yesterday’s Mark Landsbaum column in the Register that seems to return to the Reagonomics practice of supply-side economics as the cure to what ills the California economy.
From the Krugman piece:
The seeds of Californiaâ€™s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the stateâ€™s budget in a straitjacket. Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.
The result was a tax system that is both inequitable and unstable. Itâ€™s inequitable because older homeowners often pay far less property tax than their younger neighbors. Itâ€™s unstable because limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions.
Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interactedÂ disastrously with state political trends.”
And Krugman even takes aim at Bill Gross of Pimco in Newport Beach.
“Last week Bill Gross of Pimco, the giant bond fund, warned that the U.S. government may lose its AAA debt rating in a few years, thanks to the trillions itâ€™s spending to rescue the economy and the banks. Is that a real possibility?
Well, in a rational world Mr. Grossâ€™s warning would make no sense. Americaâ€™s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments â€” and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.”
Krugman lays the blame at the feet of California’s elected Republicans, who serve “block any responsible action in the face of the fiscal crisis.”