California's Greek Tragedy

Which government will default first, Greece or California?

California and Greece are both in a world of fiscal trouble. But who's worse off? Michael Corkery recently posed the question in his Wall Street Journal column. For months, business writers and pundits have compared the fortunes of these two struggling economies. The big takes:

• Greece Has More Incentive to Get Finances in Order, writes Michael Corkery at The Wall Street Journal: "Default risk may have dissipated for Greece in recent weeks, but the government has been scared into at least trying to get its finances in order. There is less incentive for U.S. states to make the same drastic moves [because] Federal support will create moral hazard….and delay the necessary fiscal adjustment to balance their long-term budgets."

• I'd Rather Be California, writes James Surowiecki In The New Yorker: "The comparison has been overblown. Our states’ debt burden, while sizable, is far more manageable than that of [Portugal, Ireland, Italy, Greece and Spain] which owe three times as much relative to G.D.P. as American state and local governments. And though states will certainly have to cut their budgets again this year, the cuts will be smaller (and therefore more politically palatable) than those of, say, Ireland, which is cutting government spending by almost nine per cent. Most important, the states have a fundamental advantage over euro-zone nations: they’re part of a country, not an ill-defined union, so they can count on help from the federal government. Much of the assistance that the states get from Washington is close to automatic: in normal times, the government sends almost half a trillion dollars in aid (for everything from Medicaid to highways and education) directly to the states...In the E.U., things are very different."

• It's Hard to Tell the Difference, writes Jeb Hensarling at National Review: "Thousands of people marching from the city’s main plaza to a plaza in a neighboring city: Students, faculty, staff, and workers protesting the budget cuts, fee hikes, and furloughs in public education, chanting slogans, waving signs and shutting down a major traffic artery. Was this Greece after the European Union–mandated austerity program was announced? No, this is California, U.S.A."

• Both Plagued by Politics, writes Harold Meyerson in the L.A. Times: "It's true that both the Golden State and the Cradle of Democracy have massively dysfunctional political cultures. Arguably, Greece's new Socialist prime minister, George Papandreou, has made a more impressive start at cleaning up his nation's chronic corruption than California has done in dealing with its political gridlock. But each of these economies would be beleaguered -- California has lost most of its major manufacturing and Greece never really had any -- even if their political systems ran like a Swiss watch."

• One Thing's For Sure, CA Will Fail Without Pension Reform, writes David Crane, a special adviser to Gov. Arnold Schwarzenegger, in the Los Angeles Times: "California's real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported. That's the finding from a study released Monday by Stanford University's public policy program...To put that number in perspective, it's almost seven times greater than all the outstanding voter-approved state general obligation bonds in California. How did we get here? The answer is simple: For decades -- and without voter consent -- state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises."