Can We Really Bail Out California?
So California's fiscal doomsday clock is now officially set at one to midnight. The state has just 50 days until financial meltdown, according to its comptroller. The consensus seems to be that the Federal government simply has no choice but to bail it out.
But what happens if we bail California out? New York had a fifteen billion dollar budget deficit; why should the Empire State struggle to balance its budget while its citizens' federal tax dollars leak westward? Why not Texas, or Florida? Why not all the states, for that matter? And if the Federal government does bail them out, why bother with any fiscal restraint at all?
I'm pretty sure that the feds can afford to bail out California. I'm pretty sure they can't afford to bail out fifty states who have learned that if they are just intransigent enough about spending more money than they make, Uncle Sugar will come in and pay the bill.
Presumably, the way you avoid this is by putting harsh conditions on the money. But what harsh conditions can the Feds impose? California has the largest and most powerful Congressional delegation. And I'm struggling to think of any penalty the Feds can hand down without alienating critical constituents like the public sector labor unions.