Life, Liberty and Lunch

Life, Liberty and Lunch
The entitlement mentality produces darkness in California.
BY CLAUDIA ROSETT
Thursday, January 25, 2001 12:01 a.m. EST

Power shortages have come as a shocker to most Californians, now sharing with residents of Calcutta or Vladivostok such lifestyle features as lost business opportunities and chronic anxiety over sudden electrical blackouts. For this to happen in rich, high-tech California has to be one of the modern world's most clearly inane policy flops. But there may be some value to the exercise if Americans in general take the California energy crunch as the flashing red warning light that it is. Not just signaling that there's no free lunch, but that trying to get one can end up costing the equivalent of many meals.

We've all heard by now how the Golden State got itself into the current mess. Everyone wanted power, but no one wanted power plants, so for years no new ones got built. A lot of folks wanted the cheap rates that genuine deregulation should bring, but policy makers ignored the axiom that you can't keep regulating big chunks of an industry and expect to reap the joys of a genuine free market. So, California--the world's sixth largest economy--is now introducing us all to such new-age lingo as "Stage 3 power emergencies" and "rolling blackouts." The cost in inconvenience, uncertainty and lower productivity seems likely to dwarf whatever goes on with actual electric bills.

For aficionados of human folly, all this has its amusing side. We are seeing California--with its futuristics fads and love of the perfect latte--seize up over such simple stuff as plain old electrical current. And we are seeing a comic carnival of buck-passing. No one wants responsibility. Everyone wants a bailout. California consumers--the folks who didn't want new power plants--want a bailout from their rising bills. Power companies want to be bailed out of bankruptcy. Gov. Gray Davis wants the federal government to bail him out of the cost of bailing out all the rest of this crew.

But before anyone laughs too hard, it's worth noting that it is not just Californians who have bought into this idea that life should be one constantly available bailout from such bothersome stuff as responsibility and reality. In recent years, an increasingly wealthy America has been buying ever deeper into the notion that we are all entitled to life, liberty and lunch.

That's the thinking of those who oppose President Bush's tax cuts, to take just one huge example. The idea behind the wartime-level taxes the Clinton administration left us is that you can ignore the folks who generate wealth, focus mainly on how to keep handing out their hard-earned money; and somehow the crunch will never come. This was the theme with which Al Gore won over nearly half the electorate. With the economy slowing even before Bill Clinton left office, the nation has been working itself into a spot not so different from California's energy system. If we ignore the warning signs, the tax-induced economic brownouts down the road could be far more costly than even the needless nonsense now afflicting the electricity grids of the West Coast.

International financial policy likewise is too often driven by the something-for-nothing ethos. Remember a few years back to the Asia crisis. The stage had been set with the 1994-95 Mexico bailout, which the Clinton administration billed as a rewarding project in finance because U.S. holders of Mexican debt never got hit with the full cost of their risky investments. Instead, average Mexicans took the hit, U.S. taxpayers shouldered a heap of risk, and Mr. Clinton's team told us all was well.

It wasn't, as we found out a couple of years later. The result of the Mexican bailout had been an increase in what economists call "moral hazard"--the expectation that further bailouts would be available, therefore it was smart to discount such guidelines as individual responsibility and make excessively risky investments in developing countries. When that blew up in Thailand in 1997, the Clinton Treasury's solution was to condone devaluations, first in Thailand, then Indonesia, then South Korea. All of these were further attempts to get something for nothing; doomed efforts to create economic stability by devaluing currencies.

Then came the series of multibillion-dollar bailouts for Asia, Russia and Brazil--all leaving a cloud of moral hazard that's still wafting around. It's worth remembering that while world markets seem by now to be well past such crises, that's much how it appeared back in early 1997, two years after the Mexico bailout, and just before the Asia crisis. The real question is whether the global bailout mentality is truly over and done with--and while I'd hope Mr. Bush will find ways to make that clear, the message is not yet out there.

Especially as the U.S. economy slows, the entitlement mentality that produced California's mess looms large as a threat to the entire country--and the world beyond. With such moves as an agenda to cut taxes, and warnings to California that federal aid is no cure for dumb policy, Mr. Bush shows signs that he understands you can't legislate away reality. The bright side of California's blackouts is that they go far to highlight just how false is the promise of a free lunch.

Ms. Rosett is a member of The Wall Street Journal's editorial board. Her column appears Thursdays on OpinionJournal.com and in The Wall Street Journal Europe as "Letter From America."