Zion, IL
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The news this morning is covering Governor Schwarzenegger’s call for a fiscal emergency in California, due to a possible budget shortfall of $14 billion. When I tried to visit the State of California’s budget website, it was down. It’s big news, from a big State.

But is California in financial trouble? Growing foreclosures pushing as much as a 200% growth year over year, shrinking wages, rampant Federal Reserve monetary inflation, and continued consumer overspending may give people the idea that California is in trouble, but that’s just not true. The people of California are not experiencing a fiscal emergency, the government is.

I call repeatedly for people to understand that you are not your government, and they are not you. What defines you in an economic sense is merely those around you who you pay for products or services, or who pays you for products or services. That defines an economy: the billions of quick interactions that exchange products/services for money.

In almost every situation imaginable, you as a consumer have unlimited choice as to where to spend your money, or if to spend you money. Let’s say you go to a steak house, and love the experience, price, quality and speed of service. You’re likely to go again, and maybe even tell your friends. Yet the experience you have is only limited to that experience. There is no long term commitment forcing you to go again, and the steakhouse owners and employees are not required to follow up with you in the future. If you have a bad experience, you never go back. Fairly simple, and voluntary.

Even at work, there is a similar experience. If you find that your boss is not paying you for what you are really worth, the market of possibilities exists for you to discover your true value in an economy. If another person or company will pay you more, you can set your labor’s value by marking-it-to-market and taking a job elsewhere. Your boss has no more control over you than you have over him or her. The same is true for your bosses: they can fire you, or promote you, based on your value to the company. This, again, is purely voluntary. Some will say the boss has more control because they can fire you without cause, leaving you in financial turmoil, but this is also untrue. A casual and focused savings program when you are working is enough to weather any short-term job loss. I have never met a single person who has proven to me that a job loss is truly a financial problem, except those who spent more than they earned, and didn’t save a dime. When your savings is zero, security of your living situation should be THE priority over spending or living life to its fullest. This is especially true when you are young, yet the young today are more focused on debt and entitlements than on thinking about the short term future.

Those who save are not enslaved to their jobs. The excuse for fiscal emergency in a household or family’s budget is tied to their responsibility, not their bosses.

So we see that most fiscal and economic thoughts are tied to voluntary decisions made by consumers and producers. Prepare for the worst, and the worst ends up not being so bad. No one can force you eat at the steakhouse, no one can force you to work a job for less than other businesses are willing to pay you (short of you signing a non-compete agreement). But in other parts of our spending, an area where a significant portion of our weekly budget goes, you are forced, sometimes against your will, to make payments even if you don’t want to, even if you have no need for the product or service that is offered. That part of our spending is government, and California is one of the worst governments to burden the voluntary and charitable individual.

While this year’s budget is, at the moment of this posting, offline and impossible to view, I looked at the budget from 2005-2006, a budget that has grown by an additional 1% in the next year. After browsing for an hour, I continued to be shocked at how short-signed taxpayers are, and why the government of California is bankrupt. It’s a matter of looking at the voluntary actions that taxpayers could take, but instead they accepted forced payments that have increased the cost of living, put a larger burden on both the haves and the have-nots, and have pushed the average taxpayer into a dire position of having to spend more of their income in order to try to bailout generations of bad intentions, bad laws, and bad taxes.

Public Transportation
In my part of the country, Chicagoland, public transportation is going bankrupt. And it should! But California is in even deeper trouble. The State government in 2005-2006 provided a budget of nearly $20 billion for public transportation “needs.” This is $20 billion dollars shifted away from voluntary transactions and into forced transactions. The use of force to acquire finances brings along a high overhead from bureaucracy, as well as lessened oversight into the spending of the money. If I forced you to buy a steak from me, I could charge more than the steakhouse that you went to voluntary. I could reduce the quality of the steak, and require you to pay for the steaks of other people who couldn’t afford my steak. That $15 steak at the voluntary restaurant may end up being $150 from me, since you’re required to buy it, even if you’re a vegetarian and don’t touch it.

Public transportation is the same situation. Many people will quickly argue that the average poor person needs public transportation to go to work, but this idea is a lie, or at least a mass confusion. If public transportation’s ticket price is tied to the real costs of providing it, with no tax help, the people who rely on public transportation may end up having to change jobs. This sounds tragic, but they have a powerful market force in their favor: if they have to change jobs, their employers are in more trouble than the poor worker is. Employers have huge financial concerns in keeping their doors open, and the loss of lower income workers would have an immediate effect on the employers. The net effect of raising ticket prices for public transportation would be for employers to make wage increases to offset the cost of travel, or the cost of living closer. These costs would be passed on to consumers, but from a market perspective we quickly see that consumers in wealthy areas are accustomed to spending more to access services and products in their area than deal with the hassle of driving far to save a buck. Poor people working in wealthier neighborhoods are likely not living in those wealthy neighborhoods, so they rely on transportation to get there. By tying ticket prices to actual costs, the poor people would need an incentive in the form of a higher wage to make the travel worthwhile. This is not trickle-down or trickle-up, it is just a fact of the market economy.

Education
The same marker truths come into play in education. The State of California contributes over $20 billion a year to higher education (college), a tax-and-spend philosophy that likely adds an additional $20 billion to the cost of education. When government provides tax money for a needed service or product, the supply of money added to that market goes up. Prices of a product or service are directly tied to three areas: demand for the product, supply of the product, and supply of money available for the product. Just as the Federal Reserve’s fraudulent monetary inflation cycles adds a new supply of money, causing prices to go up, government taxing-and-spending for a product causes those prices to go up. California lies to their citizens, saying that they need to sponsor education because of the high cost of education, but few look at the high cost of education as an effect of previous government dollars taxed from everyone to pay for the few.

If the State of California cut the education budget to $0, the colleges would still need students. It is ridiculous to think that the colleges would just serve the rich, as the rich are a small percentage of the State. What would happen would be budget cuts in administration, bureaucracy, and overspending, just like the household that witnesses a job loss or pay cut. The same people would still have the opportunity to go to college, but at a lower price. California’s incredible overspending of education is the key reason that education is expensive in the State.

Human Services
California spends a whopping $37 billion on health and human services, an outrageous sum that helps the wealthy and harms the poor. Just as in education, government spending in a market sector causes prices to go up. Spending $37 billion in tax dollars on health care causes the price of health care to skyrocket. There’s an idea that the poor couldn’t afford health care without public dollars, but this is an untruth. Providers in all markets are knowledgeable of the “long tail” in all economies: the wealthy are a small percentage of spenders, and are not big enough to keep the doors open in almost any service or product providing market. As you travel the long tail to the poor and poorer, you see more and more people who want a product, but can’t afford as much for that product. Since there is great profit in providing services to as many consumers in the entire tail of a market, there is incentive for doctors and health care providers to find ways to serve even the poorest in a region. Without finding a way to offer their services to the poor, they’d be overstaffed as their client base would drop significantly.

Instead, the State spends and spends and spends, making prices skyrocket so that the poor who are not familiar with the welfare system are unable to afford basic health care. When government starts a bureaucracy to spend in a market, there are many loops and twists for a consumer to go through to try to acquire the subsidy to use in that market. Health care in California has some of the most impossible to navigate options. If fast food was subsidized, I’d believe that almost everyone would go hungry. The time and frustration spent trying to navigate the bureaucracy of the California health system gives incentive to people to not bother, and the high cost due to government’s spending in the market make health care frustrations an issue for even the upper middle class.

Looking over the California budget, we can see that there is no fiscal emergency. Instead, there is a spending problem. California is a drunk consumer of voluntary spending, forcing it into involuntary spending. It is too large of a bureaucracy to properly ascertain what the market wants or needs at any given moment. It can not change its course when the market changes, but it still steals from the taxpayers in order to support yesterday’s needs, and has no option to take care of tomorrow’s needs.

California has an easy solution: fire the bureaucrats. Wind down the spending, wind down the taxing, wind down the public services. Do it immediately, not in a tiered withdrawal. Let the markets quickly react to saving their own incomes. When the iPod was released, the music market changed immediately. Small and poor individuals quickly found ways to sell their music, and to buy the music they wanted. The large, bureaucratic corporations are left in the dust, unable to compete with the fast-changing market, because bureaucracies can’t react. Not big government, not big business. They work together, hand-in-hand, to find ways to tell people what they want, rather than actually listening to people’s needs and wants.

Never believe in the term “fiscal emergency” from any large government or business. It’s just not true.