Tuesday, June 16, 2009
california bailout rejected
Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states. ...
After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.
the trouble is that denying the bailout is not a tenable position to hold for a government interested in managing aggregate demand. this charade will go on for some time, i expect, but can only really end with a large transfer of money to the state of california -- and a similarly large transfer of political power to washington.
the trick to preventing a lineup of states at the door of the treasury will be making the conditions of a bailout so punitive for the existing state power structure that all the other states will try anything before conceding to a federal rescue. but california and some others will not be dissuaded. if i recall correctly, abraham lincoln settled a great deal regarding the nature and limitations of the political independence of states vis-a-vis the union back in the 1860s. i imagine we'll be revisiting some of those lessons in due course, and perhaps rewriting some.
i am a great admirer of the balanced federal system as originally conceived, but the united states has been consolidating an imperial power structure for more than a century now under which the states have migrated from being the centers of real power to semi-autonomous legal jurisdictions to clownish junior administrative zones within a whole, providing little more than minor leagues in furtherance of the development of the political and legal classes. as dependent as they are on federal funding, and about to become much more so, i would not be entirely surprised if the remnants of state-level political power were severely circumscribed as the crisis progresses.