The Catalyst? (Originally Posted 9 Nov 2012)

This from today’s Wall Street Journal:

For Republicans unhappy with Tuesday’s election, we have good news—at least most of you don’t live in California.

I said here that anyone who wanted to get a glimpse of where Democrats in the White House and Congress plan to take this country just needs to have a look at what’s happening in California (or Illinois or several countries in Europe).

No state has been a bigger beneficiary of the Maker’s dilemma than California. Silicon Valley is littered with super smart people who move there from all over the world.  Often the places they have come suffer from abject poverty and/or limited opportunity.

They go to Stanford and get an engineering degree.  They go work for an established tech company or a start up. Or maybe they have a great idea and launch a start up themselves.  They work 80 – 100 hours a week supporting the growth of tech companies or developing new ones.  And they make pretty good to ridiculous amounts of money in the process.

So, when the People’s Republic of California decides to take a little more in taxes or implement regulations that increase the cost of everything, the Makers shrug their shoulders and accept it.  What can you do?  It’s just the way it is.  And in most cases, it’s probably still better than where they came from.

But at some point, likely very soon, two things will change to disrupt this paradigm.  The politicians will continue to push the limits as far as they can, believing that there will always be an endless supply of smart people who will move to Silicon Valley and accept their Faustian bargain.  But at some point the liberal politicians will go too far, and kill the goose that has been laying their golden eggs.  In a super interconnected world, there is no rule that requires Silicon Valley to be the center of the tech development universe. Eventually that brain power will take their productive capacity and go elsewhere, someplace where they actually get to keep a little bit more of the value they create.

The second thing that I predict will happen, likely before the first, is the PRC will ask the US government to cover the unfunded pension obligations of the state.  They will try to make their profligacy everyone else’s problem. And when a state that delivers more than 20% of the electoral votes required to win the presidency comes looking for a little help, what Democratic president is going to turn them down?

When that happens, I think dissolution is a real possibility.  Do you think people in Utah, Idaho, Montana, Wyoming, the Dakotas, and the Plains states are going to willingly allow their tax dollars to be diverted to pay the pension obligations of a state that did not live within its means? I don’t.

I think that becomes the catalyst. So from my perspective, I am glad Sacramento has an unassailable super majority.  It’ll get us to the end game all the sooner.

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