Why is Gray Davis in trouble?
Hal Varian looks for the explanations for the California electricity crisis of 2001 and for its current budget shortfall and asks if Gray Davis was to blame, in this New York Times column: "Lessons From California’s Budget". Lots to learn here. Among other things some advice on what to tax:
- "...Fundamentally, the deficit is a hangover from the days of irrational exuberance. California was the epicenter of the dot-com boom of the late 1990's, and tax receipts flowed to Sacramento. Tax revenue from stock-option grants and capital gains alone rose from $7.5 billion in 1998-9 to $12.7 billion in 1999-2000 to $17.6 billion in 2000-1.
"When money flows in, governments find it hard not to spend it...
"Then the house of cards came tumbling down. Revenue from options and capital gains fell to $8.6 billion in 2001-2, and $5.2 billion in 2002-3.
"Reversing those spending decisions was not as easy as putting them in place: much of the increased revenue went for education, tax cuts and other long-term commitments.
"This brings us to the second lesson in economics: don't spend transitory income on permanent commitments..."
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