Megan McArdle tells it like it is:
So what about California? A reader asks. Ummm, that’s a tough one. No, wait, it’s not: California is completely, totally, irreparably hosed. And not a little garden hose. More like this. Their outflow is bigger than their inflow. You can blame Republicans who won’t pass a budget, or Democrats who spend every single cent of tax money that comes in during the booms, borrow some more, and then act all surprised when revenues, in a totally unprecedented, inexplicable, and unforeseaable chain of events, fall during a recession. You can blame the initiative process, and the uneducated voters who try to vote themselves rich by picking their own pockets. Whoever is to blame, the state was bound to go broke one day, and hey, today’s that day!
California must be allowed to suffer the consequences of its bizarre irresponsibility and go bankrupt. If the federal government bails out California it will be beginning of the end of our federal system. California will become a subsidiary of the federal government, and in return will obtain a massive subsidy from the responsible and only-moderately-irresponsible states.
Worse, once California has shown that there’s no need to manage your own budget, other states will surely follow the same path, and ultimately be taken over as well. The precedent will be set that states effectively can exchange local control for a massive federal subsidy. In time, independent state government will be just too expensive for all but the reddest of red states.