CALIFORNIA’S “LAUGHER” CURVE PROVES SOCIALISM ISN’T FUNNY

As we careen head long into the leftist high holiday (April 15th) let us consider the use of our taxes and those who always justify “asking,” and by “asking” I mean demanding at the threat of harm, more from those who ultimately pay the bill.

Let’s use California for example (Kaleeforneeuh if you are an Austrian Socialist posing as a conservative) to see what many warned of, and has now come, to America at the federal level.

 

FAR OUT DUDE

As many now have heard the People’s Republic of California has an economy so large it would be the sixth largest economy in the world if it were autonomous. However Taxifornia as many residents call it, a State blessed with both incredible natural resources and beautiful weather, conditions that coupled with sound economic policy should virtually assure success, cannot balance a budget any more than a drunk can balance his steps while in the throes of a binge. And speaking of politicians, bingeing at the trough of the taxpayer’s wallets and future income, the financial debauchery in Sacramento has become so bad in the last 2 decades that California is riding a wave of debt Cowabunga! to the rocky shores of reality as the largest bankruptcy in U.S. history looms in the near future if austerity measures are not enacted, or America’s Sugar Daddy does not rescue his socialists-in-arms. Think this doesn’t affect you? Read on dude.

Without a long history lesson recent history is most sufficient to learn what not to do with an economy. In 1991 then CA Governor Pete Wilson (R) in cooperation with a Democrat controlled state legislature imposed the largest tax increase in U.S. state history at the time ($7B) and instead of seeing the expected revenue, and by “expected” I mean expected only by those who think playing the lottery is a sound retirement program,  the Sacramento socialists saw a disappointingly small first year temporary (REMEMBER THIS POINT FOR LATER) rise in revenues, followed by a precipitous plunge in economic activity and subsequent State revenues, all while the rest of the nation was experiencing relative success. Gov. Wilson saw the light, and with a short lived Republican House did a 180, and California reaped the benefits.

THE LEFT NEVER LEARNS

Despite glaring evidence for the social benefits of fiscal conservatism, demonstrated in the microcosm of a single goober-notorious term, Californians returned to the asylum and elected Gray Davis (D) as Governor in 1998, a big spending administration followed, and coupled with a reassembled socialist left legislature was so catastrophic in financial leadership, including another $7B increase in taxes, that even left coast liberals agreed in 2003 to a Davis recall in favor of the aspiring politician Arnold “I’ll be Back” Schwarzenegger. Ironically, had Schwarzenegger listened to many in the Republican party and backed then State Senator Tom McClintock, known for his fiscal conservatism, not only would California now likely not be in its current pit, it likely would be well on the way to balanced budgets, and it’s business climate would be inviting to job creators rather than driving them to other states, states such as Texas which prompted Chief Executive Magazine to conclude “California, once a business friendly state, continues to conduct a war on its own economy,” and “Sacramento seems to take perverse delight in job-killing legislation,” placing the state last among the 50 for seven consecutive years, leaving some to now call California the “Venezuela of North America.” Texas, by contrast, ranked first for the same seven years.

Had the progressive pick pockets paid attention in the 1980’s and learned the wisdom of the Laffer Curve (see Dan Mitchell of the CATO Institute explain the Laffer Curve) demonstrated during the Reagan presidency they would have known they were already taxing Californians too much to achieve positive results with an additional hike. Instead, in 2009 the Democrat heavy legislature and the Massachusetts minded liberal governor Arnold Schwarzenegger, newly elected on promises of fiscal conservatism, decided to double down on confiscatory taxation focused supposedly on the rich by imposing a new U.S. State tax increase record of $13B (sense a trend?)

PROPHET OF DOOM

In response, on March 3rd, 2009 Freshman U.S. Congressman Tom McClintock (R-CA), with utter confidence in the sound principle of the Laffer Curve took to the floor of the U.S. House and prophetically mocked Schwarzenegger by suggesting the federal government

“watch California’s experience in the days ahead as it will be a harbinger of what we can expect under President Obama’s proposed tax increases.”

He went on to further warn

“If California’s experience with the Wilson tax increases is any indication, the impact of the Schwarzenegger tax hike is likely to be immediate and devastating.”

Congressman McClintock could not have been more right and Schwarzenegger and the left could not have been more wrong. Less than a year later Schwarzenegger was in Washington, hat in hand, begging for a bailout after he and the state Democrats used their $13B tax increase to help create a $10B drop in revenue.

On January 12th, 2010, less than a year later, Congressman McClintock again took to the House floor to publicly admonish Schwarzenegger, suggesting he fix his own problems by rescinding the draconian tax increase and admonished the House to not repeat “Governor Schwarzenegger’s folly” nationally.  The next day McClintock returned to the floor and demonstrated a level of leadership rarely seen in SpendingTons DC when he told the House, and his own constituents back in California, that

“Deficits that are made in California need to stay in California, and that goes for the rest of the 49 other states as well.“

Now California has tripled down on stupid. While I’m not specifically referring to the re-election of Governor Jerry “Moon-beam” Brown it is an indicator where this is heading. After re-seating one of the original overseers of California’s decline, the State is now proposing another $6B in tax increases in the midst of an exodus of hundreds of businesses or outright closures.

ON THE MARK

You may be wondering by now why I asked you to remember the point “the Sacramento socialists saw a disappointingly small first year temporary rise in revenues.” Keep this point in mind and consider just how much money was borrowed or printed by “Weimar on the Potomac” and spent by the Democrats at the national level and the constant march to increase taxes on the so called “Rich” who are all too often middle class small business owners hanging on to the economic ledge by their bloody fingernails.

Now was there a minor upward bump in some indicators from federal stimulus spending? Certainly. Flooding a market with cash will have some level of stimulus by nature of simple influx of currency. However, when the government infuses a unit of trade into a market it eventually MUST draw that same unit of trade back from the market, plus interest to pay its debts, thus putting a greater strain on the market at a later date.

Of course it could also take a shortcut and simply flood the market with printed currency like the Weimar Republic thus seeing a temporary positive response in economic indicators such as employment and stock prices while intentionally devaluing the money it will later be required to repay but hey, who would be that dumb?

UPDATE 03/17/12: Found the following link http://online.wsj.com/article/SB10001424052702304537904577277242682364690.html on “COWBOY PRESS” and thought it a great additional read for what is coming at the national level.

UPDATE 03/19/12: From Fox News Courtesy of Breitbart.com. Thanks Sarah at  American Freedom. Check out the video http://www.breitbart.com/Breitbart-TV/2012/03/19/Adam-Carolla-Unions-Have-Bankrupted-California#comments

UPDATE 05/07/12: Another Dan Mitchell article http://danieljmitchell.wordpress.com/2012/05/05/the-laffer-curve-strikes-again-3/