Reagan's Golden State' losing its lustre

It was Ronald Reagan's centenary this week. Americans celebrated in lavish style: speeches, a commemorative stamp, jelly beans, a 21-gun salute, a video homage at the Super Bowl, even a Jonas Brothers' tribute, besides the inevitable gushing platitudes from presidential wannabes.

It is less sure if Americans pondered how the Gipper's neoliberal beliefs - that tax cuts, privatisation and free markets drive prosperity - shaped the economic nightmare that has enveloped them since the 2008 finance crisis.

This is perhaps nowhere more so than in California, the Golden State that gave Reagan his political leg-up as governor in 1967. He inherited this bounty from Pat Brown, the iconic Democratic whose public works projects made California into what historian Kevin Starr calls an "emergent nation state," the jewel in the US crown.

That was then. Social welfare and public education are in tatters and infrastructure is often creaking or broken.

The incoming governor, Jerry Brown, son of Pat, is faced with a huge challenge: finding the money to drag an increasingly dystopian state back from the abyss.

California has poverty rates a third above the national average, plunging per capita income, one of America's worst debt ratings and, crucially, anaemic tax income.

"We've been living in fantasy land," Brown said after last November's election. "I'm shocked. The mess is much worse than I thought." Sweeping spending cuts were signalled.

Brown also said no tax increases were pending, a mantra devotedly repeated by US politicians of either party.

Nonetheless, he has revisited Proposition 13, the legendary "third rail" of state politics. Prop 13, as it's known, was passed in June 1978, slashing property taxes by 57 per cent.

Since then no politician has dared tamper with this citizen's initiative, signed by 1.5 million Californians.

Their fervent wish was to permanently freeze taxes on residential and commercial property at 1 per cent of their assessed value, a rate reassessed each time a property was sold. Annual property tax is just 2 per cent of the initial 1 per cent. Changing the law would require a two-thirds legislative majority.

Two years after Prop 13, Reagan was in the White House and lean government and tax reduction had become the new orthodoxy.

Prosperity followed. By the time Francis Fukuyama wrote The End of History, a paeon to the irresistible force of democratic capitalism, in 1992 it seemed to be game over.

The Howard Jarvis Taxpayers Association, the group which drove the anti-tax bus to the polls, tagged Prop 13 "the Boston Tea Party of California". American conservatives are fond of wrapping their interests in patriotic colours, but Prop 13 has had a malevolent impact on state finances.

No one knew it, but Prop 13 was the end of the California Dream. As the Sacramento Bee noted last month: "The state's chronic fiscal woes begin with the passage of Proposition 13 and, more pointedly, Brown's decision to embrace it after its passage, shovel billions of dollars in state funds to local governments and schools to replace lost property taxes and then immediately slash state taxes."

Three decades down a track strewn with the wreckage of underfunded social, health and education programmes, California's tax revolt seems like imperial hubris.

If you want a first-rate society you have to pay for it.

Ironically, Brown is arguably part responsible for the passage of Prop 13. As governor between 1975 and 1983 he was unable to thwart suburban protests against property taxes.

But on January 3, his first day back in the governor's chair, Brown announced he would break the spell of Prop 13 that had "contributed to the state's financial dysfunction", by beginning a "complex re-ordering" of state and local government.

But while Brown has shied away from dumping Prop 13, his decision to revisit the citizens' initiative is an admission that economic sacred cows need serious tweaking.

Until recently, US commentators liked to talk about the American Century, with the tacit assumption this cosy set-up would, somehow, endure far into the future.

That belief, and the sense of entitlement that went with it, has been exploded by the recession and a gnawing fear that the US is slipping behind as new rivals compete for economic prowess.

The rapid rise in consumption, and the resource depletion this entails, has become a major environmental issue. At the same time the chasm between rich and poor has widened alarmingly.

According to the Economist, US inequality is worse than at any time since 1929, just before the Great Depression.

Even Alan Greenspan, ex-chairman of the US Federal Reserve, and a free market proselytiser, believes the US has become two economies: one for the very rich, one for the poor.

Thus, between 2002 and 2007, 65 per cent of all income growth in the US went to the top 1 per cent.

The rich have the skills to embrace the global economy. The poor do not. When the gap gets too wide the fall-out can be violent. Egypt is the latest example.

As unskilled jobs migrate to developing nations, or are vanquished by new technologies, a well-educated workforce is vital to prosperity. Last year Chinese students in Shanghai scored top marks in maths, science and reading in an OECD test.

American kids didn't make the top 10 - which leads us back to Prop 13.

In 1978 California's schools were America's best. Today they scrape the bottom.

A state population boom, from 23 to 37 million since 1980, and an influx of non-English speaking students, fed the decline, but lack of cash is the elephant in the classroom.

California sees itself as an innovator. As Brown dances around Prop 13, maybe his battered state can help guide us to a sustainable model suited to 21st century challenges. For, ultimately, three decades of growth at all costs hasn't delivered.

Tarnished state

$37b
California's budget deficit

500,000
Homes facing mortgagee sales

12.5
per cent unemployment