Kamikaze Capitalism: GOP Out to Destroy

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Brett Arends' ROI

Nov. 22, 2010, 6:59 p.m. EST

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By Brett Arends, MarketWatch

By Brett Arends, MarketWatch

BOSTON (MarketWatch) "� Can everyone please stop talking total nonsense about the California budget?

I know that facts and truth seem to be optional these days. I know that in the exciting new world of infinite media everyone can choose to believe whatever fantasies they want. But in the case of California, it's getting on my nerves.

Last week Chris Whalen, the high-profile analyst at Institutional Risk Analytics, caused a stir by arguing California was going to default on its debts.

Opinion Journal's Allysia Finley argues that California is suffering from spending addiction like an out-of-control starlet.

"I think they're going to default"? I think eventually the debt will have to be haircut,"? he told Henry Blodget, the former dot-com analyst and now editor of Business Insider. "I don't think the Republican Congress is going to sign on for a bailout of California."? Default was "inevitable,"? Whalen added, and suggested Sacramento might have to start issuing its own currency.

Alarming stuff. But when I e-mailed Whalen, asking him for specific calculations, none were forthcoming.

"My general comments have to do with my guess as to the impact of mounting foreclosures and flat to down GDP on state revenues,"? Whalen replied.

Your guess? These are important problems, to be sure. But do you have any actual numbers?

"Revenues fall and mandates rise to the sky,"? he wrote. "You do the math."?

Er, no, actually. It's your assertion. You do the math.

Whalen blamed the matter on Blodget.

"I am a bank analyst,"? he wrote. "I have not written anything on this. My comments have taken on a life all their own"? This is all Henry's fault. Call him."?

Some prediction. Meanwhile Blodget chimed in on the e-mail exchange: "It's a bold prediction! Don't back down now!"?

Bah. Welcome to the media world in 2010.

But this is hardly an isolated case. California bashing is everywhere these days "� especially since Californians had the temerity not to vote Republican a few weeks ago.

You've probably heard a variant of the following storyline:

California is a basket case. The Greece of America. Decades of crazy liberalism and runaway spending have crippled the economy. Wealth creators are fleeing in droves. The people left are spending themselves into rack and ruin. They can't balance their budget, once again, so they are asking the rest of us for a bailout. And they even voted for Jerry Brown, a Democrat! It's time we said enough is enough. No bailout for California! And get out of their muni bonds while you can "� they're going to default.

It's persuasive. You can hear it anywhere. But it's total hogwash. You might just as well believe that California is inhabited by pixies from the planet Mars, or that the budget problem in Sacramento has been caused by a giant sea monster destroying downtown San Diego.

It's not just slightly wrong. It's almost totally wrong.

California's a basket case? The state has one of the highest living standards in the country, yet over the past 10 years the economy has still grown much faster, per person, than the national average. According to the U.S. Bureau of Economic Analysis, it's up 15% "� compared to 8.9% for the U.S. overall.

It's grown faster than low tax neighbors like Arizona, Utah or New Mexico. It's grown three times faster than Texas.

And this was from 1999 through 2009: In other words from the peak of the dot-com years through the depths of the recession. It managed this growth despite the double blows of the tech and housing busts.

Most of the states that have grown faster than California during that time are farm states, riding an incredible boom in agriculture prices.

Fact.

Back in the Silicon Valley glory days, in the late 1990s, California attracted an incredible 42 cents of every venture capital dollar invested in America. Ah, those were the days "� when the private sector was still willing to back California with its own money. As any conservative will tell you, that's the real voting in the economy.

How far has California fallen from those giddy days?

According to the latest data from PricewaterhouseCoopers and the National Venture Capital Association, in 2010 California just got a miserable, er, 50 cents of every venture capital dollar invested in America.

Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money,"? has just been published by John Wiley & Co.

A strong holiday selling season could help J. Crew fetch a higher price, writes Angela Moore.

11:56 a.m. Today11:56 a.m. Nov. 23, 2010

Honey, its not how much you make, its how much you have left over after you done your spending. California is living proof that you can't grow your way out of a spending problem. So I take your (Brett's) argument is California just have to raise taxes and "Viola!" their spending problem is solved. Funny how none of our lax bond rating agencies are buying any of this and have given..."

- hanubo | 5:38 p.m. Nov. 22, 2010

"The truth about California http://on.mktw.net/hXkvEL" 5:31 p.m. EST, Nov. 22, 2010 from MKTWArends

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"Five reasons business people make bad politicians http://on.mktw.net/btZVWh" 3:13 a.m. EST, Nov. 9, 2010 from MKTWArends

"Wall Street is like a heist movie http://on.mktw.net/cm21xz" 12:06 a.m. EDT, Nov. 2, 2010 from MKTWArends

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