The 'End of America' is Beginning in California

The 'End of America' is Beginning in California

October 6, 2011

S&A Digest - One of the more controversial aspects of Porter's "End of America" thesis is his prediction that – as the financial crisis deepens – many government services people have come to rely on will stop. The government simply won't collect enough tax revenue to pay the pensions, benefits, and salaries of government employees. States and municipalities will declare bankruptcy. Huge cutbacks will take place. Riots and protests (like those going on in New York City and Greece right now) will become commonplace.

This is a problem that runs through the system at all levels: local, state, and federal. It's going to cripple the government's ability to pick up garbage, police communities, and fight fires.

We're in this situation because public employees – and a good portion of the public they serve – have discovered that they can vote themselves the Treasury. Rather than viewing the government as an entity that should set and enforce rules and protect the public in times of war, many people see it as a gravy train.

As Michael Lewis writes in his latest article for Vanity Fair, the gravy train is crashing in California. Lewis, who in our opinion is the best financial journalist in the world, recently traveled to California to investigate the state's financial crisis.

He notes that in the city of Vallejo (which is next to San Francisco), you can park anywhere you like. There aren't any meter maids around to write tickets. Police and fire departments have been cut in half. The city declared bankruptcy in 2008. The pay and benefits of "public safety" workers consumes 80% of its budget. The city's finances have been crushed because too many promises were made for too many years.

This story is playing out in many California cities… and others across America. It's playing out in the private sector as well. Lewis notes his thoughts while talking to Vallejo city manager, Phil Batchelor…

... as he talked about the bankrupting of Vallejo, I realized that I had heard this story before, or a private-sector version of it. The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn't a public-sector problem; it isn't a problem with government; it's a problem with the entire society. It's what happened on Wall Street in the run-up to the subprime crisis. It's a problem of people taking what they can, just because they can, without regard to the larger social consequences.

It's not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They'd been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.

Lewis' article also contains an interesting section on former California Governor Arnold Schwarzenegger, who he interviewed for the piece. It details the suffocating bureaucracy and incredible power of special interest groups that control California... and prevent any meaningful change from taking place.

The story of Vallejo, the section on Schwarzenegger, and the story of a fat pheasant named Henry all make for a great article. It's long... So you might want to print it off and save it for weekend reading. Right now, the article is free on Vanity Fair's website. You can read it here.

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