2008 November 06 Thursday
Irresponsible Spendthrift Voters

Steve Sailer criticises the California initiative process as spendthrift voters show themselves just as irresponsible as politicians who buy votes with pork.

Every year in California, we get to vote on about a dozen initiatives, most of which we voters are completely clueless about. I'm not talking about the much publicized gay marriage one -- everybody is entitled to an opinion on that. It's all the bond issues. Shall we issue $10 billion in bonds for a supertrain from LA to SF? How about $7 billion to removes asbestos from LA schools? (I think they both passed. I'm too depressed to look them up.)

Sure, why not? They're bonds, right, not taxes? So we won't have to pay them. I guess, theoretically, we're supposed to pay them sometime, but no doubt we'll just flip the state to a greater fool before that happens.

Obviously, the initiative system is broken. The state is completely broke, with a predicted illegal shortfall of $25 billion next year in the state budget. Yet voters are continuing to take on debt with no idea how it will be paid. This is the state that sank the world economy. We're too childish to have that kind of spending power.

We hear a lot of criticism lately of irresponsible financial institutions. But what about irresponsible voters? California's voters just went on another spending spree.

Voters in California narrowly approved a $9.95 billion bond issue for high-speed rail, okayed $980 million for projects at children's hospitals, and gave the nod to $900 million for a veterans mortgage program. In Los Angeles, voters approved a $7 billion facilities bond issue for the Los Angeles Unified School District with nearly 70% of the vote, easily eclipsing a 55% requirement, as well as a $3.5 billion measure for the Los Angeles Community College District.

...

California voters approved three separate state general obligation bond authorizations, including the largest, a $9.95 billion authorization to finance a high-speed passenger trains system. They rejected a $5 billion bond measure that would have financed rebates for buyers of a variety of alternative-fuel vehicles.

In Los Angeles County, 67% of voters approved a half-cent sales tax that will raise $30 billion to $40 billion to fund light rail, subway and other transit projects over the next 30 years. The Los Angeles County Metropolitan Transportation Authority hasn't yet said how much it will spend on a pay-as-you-go basis versus bond financing.

Voters approved $2.1 billion of GOs for the San Diego Unified School District with 69% of the vote. In Long Beach, voters approved a $1.2 billion GO bond measure for the Long Beach Unified School District.

San Francisco voters overwhelmingly approved an $887 million GO bond measure to rebuild San Francisco General Hospital, giving the measure 79% of the vote. Santa Clara County voters gave their public hospital, the Santa Clara Valley Medical Center, 78% support in an $840 million GO bond referendum.

The East Bay Regional Park District passed a $500 million open space bond with 71% of the vote.

Schools and trains bring out the profligacy in California voters.

Steve wants to put limits on how much money an initiative can spend. But the problem here goes deeper than the initiative system. Democracy is broken. While democracy is becoming more broken the idea that democracy will break in this way goes all the way back to Aristotle in his "The Politics volume 1": The many poor can abuse power and use democracy to plunder just as much as the tyrant can in a dictatorship.

Yet another question: Who ought to have the supreme authority in the state? The many,—the wealthy,—the tyrant,—the good,—the one best man? Any of these alternatives may lead to bad results. If the poor rule, they may divide the property of the rich. Is not this unjust? ‘Nay,’ will be the reply, ‘the people did it.’ But if they go on and on, the poor majority dividing by force the wealth of the rich minority, the state will be ruined. And on the same principle the rich or the tyrant may rob the poor. Yet surely justice is the preservation and not the destruction of states. The people, if they plunder the rich, are no better than the tyrant; both make might prevail over right. ‘But ought not the good to rule?’ Then a slight will be put upon everybody else. ‘Or the one best man?’—that will make the number excluded still larger. Or, shall the law, and not the will of man, have the supreme power? And what if the law be defective?

Here is another variation on Aristotle's look at the unjust poor fleecing the rich. You can find more great passages in classical Western books in the Liberty Fund's Online Library of Liberty.

Share |      By Randall Parker at 2008 November 06 08:12 PM  Democracy Failure


Comments
as said at November 6, 2008 8:56 PM:

You should check out Hoppe's book "Democracy: The God that Failed." Even though Hoppe is a extremeist libertarian, there are many interesting ideas in that book, especially about immigration.

Jerry Martinson said at November 6, 2008 10:35 PM:

If you need to provide transportation to the poor and those who can't drive, developing a good bus system (i.e. bus rapid transit) with jump lanes and signal prioritization like Curitiba has in Brazil is far cheaper. We should learn how to build a mass transit system from poorer countries with similar land use patterns to what is already in much of urban California that didn't have a chance to waste money on boondogles. The few places where we've half done these in California seem to be relatively successful and if we are to blow precious money on transit, we should at least get a system that we can incrementally invest in and tune as needed.

The "choo-choo train" initiatives and measures in California just make me sick with the amount of overpromising that's allowed to be put forth in the voter guide packets. This last one called "prop 1A" actually was claiming in the official voter guide 220 MPH trains from San Fran to San Diego which is flat out impossible with the amount of funding that they claimed that they needed. It seems clear that they are promising the capabilities of a $100B+ system for only $11B. It's like a used car salesman telling you you're getting a Ferrari for the price of a used Yugo.

A large portion of the route (which conveniently connects two major metropolitan areas by first going east to connect through someone's district) they are promising doesn't even have basic Class 4 79MPH track yet there's all this slick slidewhere making it look like they can somehow make a French TGV-like system cut over the Pancheco pass for trivial amounts of money. Even in the urban areas where there already is class 4 79MPH track, there's been decades of local opposition to upgrade the rail to be separated grade despite it being the 2nd most traveled rail corridor in the US and causing 20+ fatal incidents per year. If you can't separate the grade, the train has to be strong enough to be able to handle collisions with street vehicles (which OFTEN happen). This rational requirement makes the trains far too heavy to go fast like the TGV ones do in France.

Not only that but most of the route that is class4 is already used profitably today by _freight_, _freight_ which actually makes economic and environmental sense to be on rail. AFAIK, you can't really share heavy freight on a class 8+ electric rail for a variety of reasons so you'll have to kick the freight off into trucks or build yet more class 4 track in parallel. The part that I love the most in the web of lies the proponents use is the claim that they will get some large amount of funding from "private" investors. Hmmm... 79MPH (the realistic speed with the funding that they're going to get) going from SF to LA via Fresno and Bakersfield when you can go 70MPH in a direct route down 101 or I-5 in a bus or your own car, or you could take a plane for a cheaper price.... I'm not sure I'd put my money in a company with that kind of business plan. When Buffet drops BNSF for passenger rail boondogles, I'll believe it.

It's disgusting these filthy lies can pass for truth but the newspapers endorsing these things perhaps just don't know any better. Perhaps as media "elites" they think that it is just a "white lie" and that's okay if it makes the US closer to some dream that they had when they studied abroad in Europe at some J-school college.

My outrage is that all this boondoggle money has to come from somewhere else in the state budget that's no boondoggle. The state's already so broke that it is going to have to cut about $2.2B from K-12 education this year (firing the young teachers that they just hired or got NCLB-qual'd, school librarians, etc...) and raise sales taxes by a whopping 1.5%. Somehow I doubt that _any_ of this prop 1a money will even get plugged into improving the existing regional transit systems along the proposed route that might be closer to making any economic sense (such as Caltrain electrification or an intermodal transbay terminal). Instead it will probably go to buying up some worthless desert land along the route.

IMHO it is routine for mass transit advocates within governments to seek "estimates" from companies that can reliably be counted on to produce "low-ball estimates" so that they can politically sell the project and then when the more realistic costs are apparent 1/2 way through the project, it is difficult for taxpayers to object to paying for the other half. Subprime SIVs and ENRON don't have a monopoly on making misleading financial projections. I think the Feds could probably do a better job at stopping some of this nonsense. They already have an independent rating system for cost effectiveness on projects that determines their funding priority for matching federal dollars. I think it would be best if there was the creation of an independent auditing system for evaluating the bids and estimates that had "skin in the game" if the estimates were way off. A part of this would be that if official discourse from a state or local agency began to misleadingly promote their project to the public that they would then be ineligible for any matching federal money.

A lot of this passenger rail mania stems from the fact the press just hasn't been doing a good job showing how the US already has the best rail system in the world. If you ask the average person who watches PBS or listens to NPR, they'd tell you the opposite because they are just thinking about passenger rail which compared to autos just doesn't make much sense in a country as spread out as the US. I've never heard a story in any of the "elite" press about Curitiba's bus system which is quite good and was very inexpensive to run. Rail makes the most economic and environmental sense for heavy freight and the US already has the best rail system because economic forces have tuned it for heavy freight and the Warren Buffets of the world are plugging even more money into it now that the fuel costs are up.

Stephen said at November 7, 2008 12:08 AM:

Perfectly illustrating the difference between representative government and responsible government.

HellKaiserRyo said at November 7, 2008 8:06 AM:

Randall,

what are the yields for California munies and how much does it cost for a credit default swap on California's debt. maybe one can make money on the short side here if the market deems california to be too risky.

Scwharz said at November 7, 2008 9:01 AM:

Jerry is right. California is now a third world nation. It needs to learn from other third world nations how to live with less income and less human capital.

Engineer-Poet said at November 7, 2008 5:56 PM:

Quoth Jerry Martinson:

A lot of this passenger rail mania stems from the fact the press just hasn't been doing a good job showing how the US already has the best rail system in the world.
"Best" always begs the question, "best for what?"  As you note below, not everyone expects the same things.
If you ask the average person who watches PBS or listens to NPR, they'd tell you the opposite because they are just thinking about passenger rail which compared to autos just doesn't make much sense in a country as spread out as the US.
How much of that is due to the massive subsidies given to the Interstate highway system and airlines (using airports built with tax money)?  How much of that is due to the one-time (and rapidly vanishing) boon of cheap petroleum?
Rail makes the most economic and environmental sense for heavy freight and the US already has the best rail system because economic forces have tuned it for heavy freight and the Warren Buffets of the world are plugging even more money into it now that the fuel costs are up.
The US rail system used to handle most overland freight and passengers too; if there wasn't a waterway between A and B, rail was the way to go (far faster than horses).  Freight moved to trucks on roads because highways were tax-subsidized while rail paid property taxes.  Tracks were ripped up just 20 years ago because it reduced the tax bills.

Now we're facing petroleum shortfalls and a lack of credit to rebuild infrastructure, whether it's rails or roadbeds.  Which does it make more sense to keep, the system which requires 20th-century machines and practices to maintain or the one which can get by with those of the mid-19th?  If kerosene costs a purchasing-power-adjusted $10/gallon, would you rather have a Cessna or a Shinkansen?  Having ridden the NYC subway, the Chicago El and the DC Metro, I know what I'd rather spend the money on when the future of fuel looks pricey.  Curitiba may not be a model to follow; when the affordability of fuel falls to 1930's levels or worse, they may be in a deep hole also unless they can electrify their buses.

This is not to say I don't love my Vdub, but at some point it'll make more sense to have streetcars, bicycles and electric delivery trucks.

James Bowery said at November 8, 2008 1:45 PM:

Citizens' dividends neatly solve all this rent-seeking by moving decision-making directly to the market via the citizens.

If all your money supply originates via a citizens' dividend you have neatly solved the problem of democracy -- the populous voting itself ever greater amounts of wealth at the expense of capital -- by allowing asset prices and interest rates to follow strict market pressures which will inflate and deflate in lock-step with the issuance of money via the citizens' dividend.

No one in power wants to do it because power is almost pure rent-seeking nowadays.

averros said at November 8, 2008 3:43 PM:

I'd second recommendation by "as". Hoppe's book is a must-read (though, being a collection of essays, it is somewhat repetetive).

Murray Rothbard's (he was Hoppe's mentor and source of much of the ideas) "For A New Liberty" and "Ethics of Liberty" are the books which pretty much reignited libertarian movement in US and world-wide.

In general, lewrockwell.com and mises.org are places to go for political and economic commentary, respectively.

vk45 said at November 8, 2008 7:15 PM:

Wouldn't private investors be leery about "investing" in any California bond issue at any reasonable interest rate? A federal guarantee might do the trick but we may be approaching the time when a federal "guarantee" won't work either.

Michael B. said at November 11, 2008 12:54 PM:

Muni's are a tax shelter. California residents don't pay state or federal taxes when they buy California state muni's. This makes them attractive to the very rich and funds that cater to them. As for risk, the government has always historically bailed out states and other American governments in order to prevent default. This low risk and the tax shelter aspect puts their interest rates at between 1.0%-2.5% or somewhere around there. That is very low. Unfortunately, this causes crowd out of "productive" investment in the private sector (during a credit crisis like now, it would be slightly helpful to have another few billion more in the market). It's the low interest payments from the tax shelter and federal bailouts that make cities and states take out more debt than they otherwise would. When you add all of the muni debt up, you are suddenly looking at absurd levels of debt and crowd out. Something should be done to remedy it. They might end the tax shelter unless they can show a drop in debt levels every year. They could make it so that when states propose bond issues, they would be forced to call it, "take out $(insert figure) of debt." Then show a chart of how much debt outstanding every year for the past few years, including the current one. Personally, every time I see a request for a bond issue I vote no, reguardless of how important it may be. Too bad more people don't do the same.


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