Subprime mortgages rejected by Calfornia voters.

The day after their defeat in a California special election, it’s clear that most voters viewed Props 1A-E like a subprime mortgages. I’ve used this analogy in a previous post about Bush’s unsustainable tax cuts, and it fits equally well here. In trying to solve an unprecedented financial challenge, these propositions offered voters a quick fix based on completely unrealistic revenue projections.

If Props 1A-E passed, voters were smart enough to realize that in a few short years they would be just like homeowners with subprime mortgages: unable to pay the bills and wondering how they got bamboozled into creating debts they couldn’t repay.

Subprime “victims” were told they could refinance their homes when their debt payments ballooned or bought into a fantasy that the ballooning economy would trickle down higher salaries to them that would cover their debt. Voters in yesterday's election were told that when the state’s income needs would further balloon in a couple of years – in large part because of the elaborate borrowing against future revenues orchestrated by these propositions – that either a huge economic recovery or the “rainy day fund” created by Prop 1-A would cover the gap. (Never mind that it might take decades, if ever, for the fund to grow large enough to keep voters from getting soaked.)

Another sad truth has been reinforced by the election: if the private sector figures out a way to fleece unsophisticated consumers, after politicians denounce the hucksters for their immoral greed those same politicians sometimes have the gall to try to fleece voters in a similar way. The focus on today at the expense of planning for tomorrow that has famously plagued American industry since the 1980's also has deeply infected politics and public policy. In California, with term limits forcing every newly elected public official to immediately set his or her sights on the race for the next office, it’s a miracle the ship of state didn’t sink years before yesterday.

I’ve mentioned in previous posts some long standing issues that must be fixed as part of raising the wreck, such the requirement that any bill with fiscal impact pass by a two-thirds vote. Hopefully this will all play out like a disaster movie formula, and we’ll be rescued in time. My additional hope is that the Governator will make good on his promise to leave politics forever, and that future entertainers who assume that public office is just another venue that would draw on their existing skill set will study the careers of Arnold and Jesse and try stand up comedy instead.

Those who forget their inequality are doomed to repeat it.

On the day the first of Bush’s "economic stimulus" tax rebates hit some citizens’ bank accounts, it should be noted that this is the first federal tax rebate in history in a Presidential election year. No one in Washington previously has had the nerve to so openly pander for votes with money. Many economists believe that this will do little to jump start a recession economy, because any boost in consumer discretionary spending will be so short lived. In these tough times, much of this "free" money will simply go to pay off debt or be eaten up in higher prices for groceries and gasoline. (See update.) As a result of increasing the deficit, the government will then have to borrow the rebate money back from rich investors.

Rather than being motivated to use tax cuts and rebates to revive the economy, Bush and his party have a history of using them to pander. In spite of Republican mythology about the 2001 Bush tax cut, it was not about reviving the economy. It was conceived in 1999, when the economy was booming, as a way of getting votes in the 2000 election.

The main reason we have the 2008 rebates is that Republican are hoping lower income people – who have been economically the worst off during the Bush years – will mostly remember the rebate checks they got in July when they go to the polls in November. This sort of appeal worked for California Republican Governor Arnold Schwarzenegger when he unseated the Democratic incumbent in the 2003 recall election. Schwarzenegger promised to roll back a vehicle licensing tax that had been raised due to the state's poor fiscal health. The tax of up to a few hundred dollars per vehicle hit low income people the hardest. Many minority voters chose a Republican for the first time in their lives.

So why did the Democratic Congress go along with this scam? Because, what could else could they do? Once the President proposed and promoted the rebate, opposing it would have resulted in Republicans campaigning against Democrats on the issue in the Fall. Too bad the Democrats did not have the fortitude to just say no.

A Princeton professor of politics recently described his study of the national economic priorities of the two parties over the past sixty years. Under Democratic Presidents, the actual incomes of the middle-class rose more than twice as fast as they did when Republicans owned the White House. The real incomes of the working-poor increased six times as fast during Democratic administrations! The affluent fared equally well with both parties. If Democrats had held the Presidency continuously since 1948, "incomes would be more equal now" than during even the most egalitarian era of the 1950's. The professor notes that "Every Republican president since Dwight Eisenhower presided over increasing economic inequality, while only one Democrat — Jimmy Carter — did so."

Why do many middle class and working poor voters not reward Democrats for their superior economic stewardship? The professor believes that Republican Presidents’ use of their new mandates to cut inflation and social spending – hurting the least well off – wear off after three years, producing a perceived boost in the next election year for those that have suffered the most. Democrats’ policies helping the poor and middle-class also run their course after three years, creating a perceived decline that coincides with the next election cycle. As Republicans know so well, the public has a short memory.