California and Greece
- It is good to pay fire fighters and police officers generously.
- It is good not to raise taxes.
- It is good to give voters what they want and get re-elected.
As Michael Lewis describes in Vanity Fair, San Jose, California did everything that was “good.” As a result, libraries are closed several days each week, parks offer fewer services, a civic center cannot open and less money is available for education. Still though, soaring employee obligations are engulfing municipal finance.
Similarly, the state of California is spending 65% more on employee pay and benefits than 10 years ago. But its higher education outlays are 5% less, state pension funds are not getting the 8% return they expected, health plans are underfunded and tax revenue and federal funds have decreased. Meanwhile, University of California tuition has soared from $776 in 1980 to more than $13,000. ($776 in 1980 is equal to $2133.48 in 2011.)
Commenting on his financial plight, the mayor of San Jose said, “We’re not as bad as Greece, I don’t think.”
The Economic Lesson
Called the tragedy of the commons, when a resource is shared by many rather than privately owned, it tends to be “misused” or “overused”. For a pasture, “misuse” is over grazing; in the ocean, fish populations are depleted; in the air, factories pollute. And, with municipal finance too much money is spent.
An Economic Question: After checking here, discuss whether your state has a finance problem.