Tuesday, July 14, 2009

Better Californian government through competition

By now, almost everyone agrees that California government is seriously dysfunctional. The state suffers from a grave fiscal crisis, extraordinarily high taxation (which, however, is still not enough to finance the state's exorbitant spending), overregulation, and numerous other problems. ...

Steven Greenhut suggests that California's problems are structural, not merely the result of bad decisions by individual politicians. He argues that the Golden State's people would be better off if it was broken up into three or four separate smaller states. ...

Normally, the ability to "vote with your feet" is one of the strongest checks on dysfunctional state policies, a point John McGinnis and I discussed in this article. If a state government has poor economic policies, excessive taxes, or bad public services, taxpayers will tend to migrate elsewhere, putting pressure on the state to clean up its act. ...

California has been largely insulated from foot-voting pressure because of its huge size, and the way in which it monopolizes most of the desirable parts of the US West Coast. Because of these geographic advantages, the cost of leaving California is often much higher than that of leaving most other states. As a result, Californians have had to put up with more abuse than most other state governments could get away with.

If California were divided into three or four smaller states, the cost of exit would be lower, and the new states would have strong incentives to compete with each other for people and businesses. Foot-voting would be a far more viable option.
--Ilya Somin, Volokh Conspiracy, on when politicians encounter an inelastic demand curve

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