Challenges Facing California
The state of California is one of the largest state in the United State of America. It has a population of about thirty eight million and harbors the most populous counties together with cities like the Los Angeles, San Jose, Sacramento, Fresno, San Diego and the Long Beach. Therefore, satisfactory progress and good governance, is a prerequisite. The State of California, however, faces a lot of economic crisis, which is as, a result of poor governance and the super majority rule, which make it ungovernable. The key roots of the economic crisis in the state of California include imprudent mortgage lending, housing bubble, global imbalance, nonexistence of accountability and clearness in Mortgage finance. Moreover, there exist failure in risk management, financial innovation, poor taxation systems, high welfare dependence and high level of unemployment. These are clear cryptograms of trifling governance.
To begin with, the profligate lending system in the state of California and the United State at large enabled many people to buy overpriced commodities and properties that they would not afford in reality. This led to increased demand on several vital supplies and properties such as houses, water and electricity supply. Therefore, mortgage crisis is one of the factors that contributed to the economic crisis. This arose as a result of excessive borrowing and a faulty financial modeling, which made many Californians hurriedly borrow loans despite the increasing interest rates. Banks were also willingly giving loans without considering the assets of the individuals with the aim of getting involved in the collaterals accrued from the homes. Housing bubbles is another reason for the economic crisis in the State of California, with the easy money policies, states and federals permitted the housing price to escalate rapidly to unsustainable levels. The high population of the state of California composed a high level of liberal citizens’ resulting into increased level of housing loans. Another notable feature is the failure of risk management systems; this in some firms is a divided scrutiny of market risk and credit risk.
These only worked in few cases where market opportunity was sustainable, but failed in most cases due to the undistinguishable risks. Human frailty another issue that made California ungovernable. This is a behavioral in finance, which always postulates that investors do make optimal choices and tend to suffer limited self-control. The regulators, therefore, ought to help people manage complexity by better disclosure and emphasizing financial prudence. The other issue that results into the economic crisis is the high level of unemployment; this makes the majority of the population depend on the welfares, as a result, the depended ratio on the government escalates (Juanita 1993). Thus, lack of employment encourages a lot of mischief in the society such as crimes, prostitution and hooliganism. Non-bank runs are also critical factors in this economic crisis as it results into the institution that practice short borrowing and long term lending system. This leads to severe liquidity risk, which highly hampers the economic growth in the state of California. The other thing that caused significant recession in California is the Industrial decline. California has been in the forefront of industrial change for a long time, technological innovation and globalization; therefore, a decline in such results into a big lay down of employees and decreased GDP of the state. The earning from the exports substantially decreased and the expenditure highly increased this result into increased recession and poverty. California has the highest state and local government budgets than its funds, this leads to serious borrowing crisis and inability to pay debts, thus, more economic crisis.
Finally, it is vital to elaborate the effect of natural disasters on the economy of California. There are times of overwhelming droughts, wildfire outbreaks, endless attacks by earthquakes and the crippling mudslides experienced almost yearly in the state of California. These natural calamities highly hamper economic development of the state. Earthquakes destroy building and investments, leading to high unemployment and a general decrease in the economy. Droughts and mudslides affect the agricultural products and thereby decrease in the exports and food supplies. These natural calamities contribute magnificently to the economic crisis in this state. All these contributing factors are manageable by good government policies that ensure good and optimum use of resources plus maximum exploitation of material for the benefit of the economy. It is thus true that the state of California has become ungovernable.
The governor of California, Mr. Jerry Brown plans to resolve the budget crisis includes the use of the preposition 30, cutting off the expenditure of various sectors and increasing taxation to raise more funds. There is also a plan for deep reduction in the social service funds. In the recent revised money plan laid down by the Governor, there is a plan to increase tax on the rich and to reduce around eight billion dollars. The plan also entails increased spending on K-24 education. This will overhaul the adjustment system thus saving the state around three billion over a period of two years. The governor has also a plan to transfer cash for redevelopment agencies to fund core services in the cities, distinct districts and counties (Larry & Terry 2008). There is also a plan to decrease the total amount spend on Medicare and welfare by about three billion dollars. Moreover, his plan calls for the year 2009 tax hikes for another five years. This comprises levies in a quarter-point upsurge, in personal income taxes. He has also proposed reduction in the expenditure in the school by cutting the universities costs and raising the fees. The cost of health care is also planned to reduce, and the government insurance scheme to get reduced considerably. These plans of the governor are workable. First his plan for the preposition thirty had passed, meaning most of the citizens are optimistic on Jerry’s governance. Moreover, the various philanthropist tried to campaign against this plans using millions of dollars, yet these plans got the majority vote from the citizens.
It is true the state of California has become ungovernable; this is mainly due to the super majority rule, which is a requirement by budget and taxation law enactment. This is one of the greatest oddities of the state that in order to pass a budget or increase tax, the legislature have to win two-thirds and above in the house. This has made the state unable to change the budgets for the last two decades; hence the gridlock always rules the day in the state of the Sacramento. In contrast constitutional amendment can be achieved by the simple majority, making it hard to tackle substantial issue as the opposing bill is easily achievable. The ungovernable nature of the state of California predispose the resident of the state to a high level of economic crisis characterized with an increased rate of unemployment, increased drugs and substance abuse among the youth, poor health care plan, increased rate of the student drop out from school, increased number of population on the welfare program, increase health care cost. Moreover, there would be poor management of the public schools, crime and labor enforcement would substantial be on the rise. The supply of commodities, such as water and electricity, would be highly hampered (Edgar 2007).
As a result of employment lay downs, majority of the residents will be jobless and hence idle. This results to increased crime rates as most youths would resorts to other ways of getting money such as robbery and stealing. The level of insecurity is another concern in such a scenario. Insecurity would be extremely high, and the residents would live in fear hence less productivity. The increased unemployed in the society would also engage in both consumption and selling of illegal drugs and substances abuse. The level of education and its quality would be compromised since the majority of the resident will not be able to afford the costs of attaining. Another serious effects that would be observed is cost of housing, this would expose residents to high lending to enable them acquire houses. The government would also be highly drained as the level of dependence on the welfare system would be exceedingly high, hence most of the state limited funds and borrowed finance would not be employed in a productive system, rather it would be used in the welfare. California is a state with a population of about thirty eight million residents, therefore, in case of economic crisis due to poor governance, the state suffers seriously and faces a lot of economic injustices. There would be overcrowding and competition to the limited and expensive resources (Winston 1987). The mortality rate is another factor that will ensue due to the increased cost of medication. Hence the state of California facing economic crisis due to poor governance is of economic de-value to the residents.
There are various proposals provided by experts and organization bodies to enhance governance in the state of California, and hence curb the perennial budget crisis. Firstly, the banking experts have explained the risk that leads to financial crisis, professor Giovanni Dell’Ariccia and Professor Robert Marquez (a graduate of Economics from the California university) both of the international monetary fund explain vividly in the possible reasons for economic crisis in the state of California.,’’ When banks have easy access to capital and the demand for credit is high, then taking excessive risk that could endanger the financial system’’. Secondly, an interview of Michelle Singletry, a columnist and writer for Washington post and Kathy Kristof, a columnist and a personal finance at the Loa Angeles Times give an advisory role in the management of crisis, in the state of California. The two columnists’ focuses mainly on the need for the diversification of the residents of state of California to stop investing in one single business, they also give elaborate advice on the need to quit when a particular investment line is not workable. Moreover, they illustrate the need for unity of the state to allow for the change of laws that hamper the budget crisis and the taxes. Economic experts have a hand in improvement of the budget crisis in the state of California. This can be vividly evidenced in the government incorporation of principle to stabilize the economy. The following Berkeley experts have critically played a role in ensuring that the economy of California is stable, they developed workable ideologies. Professor Alan Auerbach, a professor of economics and law, he exercised his expertise in public policy and finance, he highly contributed in the need for economic stabilization by carrying out a research on corporate taxation, population aging and fiscal imbalances, he also recommended on the effect of tax cut on the economy of California. The other expert is Professor Henry Brandy, is the Dean of Goldman School of public policy. He is an expertise in electoral politics, political participation welfare policies, and also a Co-author of the 2012 report: California’s economic payoff that spelled out the need for, and economic importance of- stronger state investment in higher education. Finally, John Ellwood, professor of public policy at the Goldman school of Public policy. His expertise is in the financial management budgeting in the public sector and the politics of the budgetary process in California. He worked as US government agency and played a critical role in the board of budget project in the state of California (John 2008).
There are several commentaries on economic deficit in the State the California. Firstly, during the World Ag Expo in Tulare, the manager of California Farm Bureau Federation National Affairs and Research Division Jack King commented. His view was on the topic, ’’ what is in the store with the congress.’’ He explained the existence of good dairy product and the agricultural commodities within the state and offered at good prices, but the federal does not set out programs that can ensure the products find market. He talked of the farm bill that restricts the direct sell of the products thus adversely affecting the economy. He also emphasized why he mentioned the debate on farm bill, and actually encouraged the need to employ modern technologies in the agricultural field. That would ensure research into plant disease prevention, research into new crop varieties, pest exclusion at the borders, these would ensure maximum export from California hence aid in the trade development and funds for opening market. There is also another recliner commentary that directly hit on the financial crisis in the state of California. This commentary put into the stand and the advocacy of the liberals that have hindered economic development in this state. They advocate for less government regulation, depressing of taxes and being less union friendly. Their answers according to this commentary are full blame on the government regulation issues. Finally, it is imperative to focus on the various proposals forwarded to divide the state of California. These proposals have been into consideration since the state of California joined United States in the year 1850. Most of these proposals call for the partitioning of the state of California into two or three states for easy governance. The principal focus is in its division into the Northern California and Southern California in case that is two states. The initial proposal to divide California into southern and northern based on the issues of taxation and common interest of the local which whooped seventy-five five percent of the votes and got hampered by the civil war was tremendously influential and would have been beneficial to the economy of the two states. The other fascinating proposal was the 1940 move. This occurred when the southern Oregon and northern Carolina decided to form the state of Jefferson this would have also turned the two states to a manageable level hence reduced the economic crisis. Finally, the current proposal that occurred I n the early 1990s which made a proposal of diving California into three states, this passed the assembly, but several counties putting it into halt in in 1992. These divisions would be into manageable size and the problems of overpopulation a disuse arising from such governance would be eliminated.
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