Monday, January 10, 2011

Mixed News for California's Economic Health

My home state of California seems to take one step forward, one step back in its stumble towards recapturing some economic vitality.  The new administration in Sacramento is demonstrating some common sense on the state budget, preparing massive cuts to many sacrosanct programs and keeping tax increases.  California muni bondholders should rejoice . . . shouldn't they?

Uh, not so fast.  State environmental regulators have adopted a cap and trade emissions regulation regime.  I have become increasingly skeptical of the claims from global warming alarmists ever since questions were raised about their scientific methods.  Regulating to mitigate a hazard that may prove fictional is a questionable way to make public policy.  Like it or not, carbon restrictions are here to stay and so are the costs to businesses.  Those costs will harm California's growth (and thus its tax base) until large employers become proficient at trading away their emissions credits or investing in clean technologies with quick paybacks.   The silver lining here is the opportunity for startups working on miracle technologies. 

The pain won't last forever, California.  The budget will fall into balance and environmental entrepreneurs will shine.  That's what I like about living in the Golden State.  Surf's up, dude. 

Full disclosure:  Long California state munis.