In the reading of tea leaves after the 2010 election, most of the ink being spilled is focused on the humbling of President Obama and the resurrection of Republicans in Congress. Here in California, Senator Boxer was re-elected and Jerry Brown beat billionaire Meg Whitman for Governor. Prop 19 failed to legalize pot but so did Prop 23 meaning the California Global Warming Solutions Act is still intact.
So the common reaction is—it could have been worse, much worse for California. My reaction is that the danger signs just went up—way up for the Golden State.
- California is in Denial. The election results brought a correction in our political marketplace throughout most of the country. Beyond the report card on the performance of President Obama and Congressional Democrats, the voters reaffirmed the center-right balance of power in the country and told politicians at both Federal and State levels to steer the ship of state back to that center-right course. Here in California we didn’t get that memo and despite our high unemployment, desperate state deficit conditions and huge economic problems we sent the same people back to Congress and called back Governor Moonbeam as if we could restore Happy Days to its high ratings position on TV. As a result, California is even further misaligned with the views of the rest of the country and we won’t have Speaker Pelosi to protect us from the Republican Huns as the GOP is regarded here on the left coast. And San Francisco just banned toys in McDonald’s Happy Meals to fight childhood obesity meaning all the kids will be as crabby as their parents.
- Proposition 23 only got a stay of execution with 60% of Californians favoring retaining the Global Warming Solutions Act. But Politico reports that in the rest of the country 30 House members who voted for Waxman-Markey were defeated Tuesday. With even a growing number of Democrats lining up against Cap and trade legislation and Senator-elect from West Virginia won a tight race by running a commercial using his gun to shoot a hole through Waxman-Markey nailed to a Mountaineer tree. I don’t think California is going to get much help with AB32 from Congress. And to make matters worse, several states are lined up to sue California over AB32 because, they allege, just like ObamaCare, AB32 violates the interstate commerce clause of the US Constitution by imposing California terms and conditions on out of state power producers and manufacturers
- What Green Jobs? In September 2009 as part of a swing through California to raise money for Democrats, in Silicon Valley, President Obama announced $535 million in stimulus funded loans to Solyndra to build new solar power manufacturing facilities in the San Francisco Bay area. In December 2009 Solyndra filed an IPO and said it sought to raise an additional $300 million. In May 2010 President Obama visited one of the Solyndra plants to tout the green jobs growth in California and every Democrat and Governor Schwarzenegger showed up for the free publicity. But conveniently, the day after the election Solyndra announced that it was scrapping its new factory expansion, shelving plans to hire 1000 new workers and dramatically scale back its expansion plans due to competition from China. Solyndra took the government funding to build a new manufacturing facility, despite not having demand for their old one. The market problem for Solyndra is that their technology is not yet proven so customers find it hard to finance projects using it, thus making it difficult for Solyndra to scale-up production and drive down costs. Until they have a performance track record in the market it is tough to be a viable competitor for commercial projects. Some industry analysts have questioned the wisdom of the government making such a big bet on unproven technology by giving them all that stimulus money for premature expansion. Today it looks more like good politics rather than good economics.
- California is Energy Isolated. The big problem facing California after the election is that it is more isolated and out of the mainstream than ever—just at a time when it needs help and cooperation from the Federal Government, other states supplying it, investors and small business job creators. As a net importer of about 20% of its energy California is dependent upon the rest of the WECC wholesale power market for its electricity. Because it a large market for the output of power generation it has been able to get away with its vanguard policies. But California forbids new nuclear power plant construction in the state and bans utilities from buying all but meager amounts of coal fired generation. The high cost of doing business in California made other Western states more attractive and if they grow faster than California they will slurp up more of the clean energy resources California will need as it recovers. There is no energy shortage in the WECC today because of recession driven demand reduction and slow recovery. But a weakened California will not be able to forever dictate commercial terms to other states. And all the clean energy policies adopted will matter not if California can not restore its economic growth engine to sustainable levels and get its citizens back to work.
California has prided itself in being the advanced guard of new thinking leading the way for a more reluctant nation. California is leading alright but not in ways anyone wants. Is California headed for the economic cliff—maybe? Is it inevitable that we will fall into the sea—no! But there are interesting parallels between California and the rest of the US and the US versus China. California is dependent upon imports for its economic vitality and it gets away with it’s vanguard policies because it can export the manufacturing and pollution creation to others. That is exactly what the US has done with China. Now we are dependent upon China even if our strategic interests are not always aligned.
The challenge we face as a state and a nation is to restore our strategic competitive advantage and build a sustainable defense against economic, political and other global volatility. Today we are vulnerable and time is not an ally.
The question is whether Governor Moonbeam will be the “pragmatist” he promised the voters or is he the same old Jerry of the 1970’s—-with less hair and no movie star girl friends. In Sacramento as in Washington we need a steady hand on the wheel.