Engineering California’s Economic Collapse

And an effort to remove the 2/3 majority vote required to make fiscal changes to the budget...

Ernest A. Canning

November 20, 2009, 11:27am
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Guest blogged by Ernest A. Canning

California, a state which, at $1.8 trillion, has the world’s eighth largest economy, now finds itself at the edge of an economic abyss.

Despite Governor Arnold Schwarzenegger’s Draconian cuts to health care and education of more than $15 billion, purportedly to close a $26.3 billion gap in the state’s finances, despite a pending 32% increase in student tuition at all University of California campuses and three “furlough” days per month in which state employees are forced to stay home without pay, California now faces a 2010 budget deficit estimated to range from $21 billion to $25 billion.

As shocking as it may seem, this looming fiscal catastrophe did not arrive by accident. It is, according to a number of progressive policy experts, the intended product of a Republican-led privatization scheme…

Privatization Madness and The Shock Doctrine

During a Nov. 17 appearance on Democracy Now (video at end of article) George Lakoff, a professor of linguistics at the University of California, asserted the source of this looming economic disaster stems from a greed-based, Republican agenda which seeks to destroy government, replacing its public functions — health, education, safety — with a privatized, for profit system — an agenda which has succeeded in large measure in California because it is the only state where a 2/3 majority approval is required on all revenue and budget legislation.

Right now we have an economic disaster and an ecological disaster upon us, and those two disasters have the same cause: namely, short-term greed combined with a lack of an understanding of systemic risk, of how systems work both in ecology and in the economy.

What Lakoff discusses is by no means limited to California.

In The Shock Doctrine, Naomi Klein refers to a form of “disaster capitalism” applied on a global scale, where disasters, both natural and man-made (war, deliberately engineered economic collapse), are utilized not merely to permit a tiny class of global economic elites to loot national treasuries but to radically alter national economies by placing everything, e.g., water, health, safety, prisons, even fire fighting, into private hands — vastly increasing the cost of living for ordinary citizens while transferring enormous wealth to an already wealthy investor class.

In Wealth and Democracy historian Kevin Phillips underscored the obscene gap in wealth that already exists for that investor class, noting that by 1999 the net worth of just three individuals, Bill Gates, Paul Allen, and Warren Buffet, was larger than the gross domestic product of the world’s 41 poorest nations and their 550 million people. It was a point again underscored when a pair of government reports exposed the stark contrast between the four largest Wall Street firms reporting $22.5 billion in profits for the first three quarters of this year even as “50 million Americans””including a quarter of all children””struggled to get enough to eat….”

Both Klein and Phillips point to the hard-right economic theories of Milton Friedman and the Chicago School of Economics, which Phillips refers to as a “vice-into-virtue” philosophy, noting:

To Friedman, greed was the basis of society. The challenge of social organization, he said, was to ‘set up an arrangement under which greed will do the least harm: capitalism is that kind of system.’…He dismissed the idea of a res publica — a public interest apart from individual and group self-interests.

It is this radical theory that is embodied in the infamous call by the right-wing anti-tax guru Grover Norquist, referenced by David Brock in Blinded by the Right, to create such a massive sea of red ink that the federal government “could be drowned in a bathtub;” a perverted wish that metaphorically came to fruition when thousands of New Orleans’ mostly African-American residents were left to sink or swim in a toxic soup of flood waters, petrochemicals, and decaying bodies because they were too poor to own vehicles in which they could flee the path of Katrina.

In Moyers on America, Bill Moyers described the hard-right’s agenda as a movement that is “systematically stripping government of its capacity…to do little more than reward the rich and wage war.” And even the war-making function has been increasingly privatized, first with the logistics and support function turned over to private firms like KBR and then by increasing reliance on private mercenary firms like Blackwater/Xe, all at an enormously inflated, taxpayer-funded price.

California’s Electric Shock

The telling blow to California’s economy came shortly after the Bush/Cheney cabal seized power. California’s energy market, deregulated under former Republican Governor Pete Wilson, was ripe for the picking. In swooped the Texas-based energy mafia.

What was thought at the time to be a series of rolling black-outs brought on by excessive consumer demand was ultimately exposed by the Alex Gibney documentary, Enron: The Smartest Guys in the Room, to be the product of deliberate manipulation. The market was scammed.

A hapless Democratic Governor Gray Davis, faced with soaring spot market prices and stonewalled when he sought federal price-control assistance from the Bush/Cheney cabal, was left with no alternative but to enter inflated long term contracts with the Texas-based energy traders.

The combination of lost revenue secondary to the collapse of the dot-com bubble and the Republican-aided scamming of the state’s energy market produced what was then a record California budget deficit.

Enter Rep. Darrell Issa (R-CA), who, with an estimated $251 million net worth, is the richest member of Congress and therefore wealthy enough to have bankrolled the Recall of Gray Davis. During the Recall, the Republican’s slick media campaign blamed Davis for the fiscal crisis the Republican-allied and aided energy traders had engineered.

Ironically, at the height of this manufactured crisis, on May 17, 2001, Arnold Schwarzenegger took part in a private meeting at the Peninsula Hotel in Beverly Hills with Enron CEO Ken Lay and Michael Milken, the infamous “Junk Bond King” who, in 1989, was indicted on 98 counts of racketeering and securities fraud. According to Greg Palast, a 34-page Enron internal memorandum revealed that the true purpose behind the meeting and subsequent Recall was Lay’s desire to head off an unfair business practice lawsuit brought by then Democratic Lt. Governor Cruz Bustamante. The suit sought to recoup some $9 billion from the rapacious energy traders.

While the deception and Schwarzenegger’s celebrity status permitted the Republican Party to capture the governor’s mansion, and while this permitted the Republicans to, for example, stack the U.C. Board of Regents with well-connected individuals bent on privatization of the U.C. system,* Democrats remained firmly in control of both the California Senate and Assembly, yet powerless to prevent Republicans from carrying out their radical privatization agenda due to the 2/3 rule which permitted the Party of No to simply stonewall, refusing to pass any budget that was not favored by wealthy corporations and individuals.

As the radical privatizing state legislative Republicans held out well beyond the last budget deadline, the state’s ledgers were clogged with $470 million in IOUs as the state’s credit dropped to near junk bond status.

The absurdity prompted Ronald M. George, Chief Justice of the CA Supreme Court and a moderate Republican, to conclude that the 2/3 rule had placed elected officials inside “a fiscal straitjacket.”

George Lakoff and the California Democracy Act

Absent another expensive recall, California will be stuck with Schwarzenegger until January 2011. But it does not have to remain hostage to the insanity of the privatization agenda.

Lakoff’s solution is the California Democracy Act, a proposed ballot measure which reads: “All legislative action on revenue and budget must be determined by a majority vote.”

Unfortunately, this straightforward measure has already encountered an obstacle from an unexpected source.

Lakoff submitted the the proposed initiative to the office of CA Attorney General Jerry Brown, which, while not altering its content, erroneously described the act as [emphasis added] one which “changes the vote requirement to pass a budget and to raise taxes.”

Per Lakoff, the CA Attorney General’s description is misleading:

You can raise revenue without raising a tax rate at all, say, by plugging loopholes. If you say ‘raise taxes,’ most people think it means raise taxes on them significantly. But if the majority runs the state, then the majority can decide whether or not taxes should be raised on them, or whether taxes should be raised at all, or lowered, or whether loopholes should be plugged to raise revenue, or whether revenue should be raised by selling oil to oil companies rather than just giving it away.

Hopefully, Lakoff can educate Brown on the importance of an accurate description of this vital measure so as to prevent the hard right from pointing to the Attorney General’s description in support of a deceptive claim that a “yes” vote on the California Democracy Act equates to raising everyone’s taxes.

* * *

Here is Amy Goodman’s 11/18/09 interview of Prof. George Lakoff on Democracy Now…

*In this second video, Bob Samuels, President of the U.C. American Federation of Teachers, explains how Schwarzenegger appointees to the U.C. Board of Regents have perverted the U.C. system, turning it from an institution devoted to undergraduate education to a profit-making and risk-taking financial venture…

CORRECTION: We had originally identified the documentary Enron: The Smartest Guys in the Room as a film by Robert Greenwald. In fact, it was directed by Alex Gibney. We’ve corrected the article above, and regret the error.

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Ernest A. Canning has been an active member of the California state bar since 1977. Mr. Canning has received both undergraduate (UCLA) and graduate degrees in political science as well as a juris doctor. He is also a Vietnam vet (4th Infantry, Central Highlands 1968).

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