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California Dying

Berkeley – While the new Obama administration is commanding global attention, America’s future may be written – as so many times before – in and by its largest state. Once the lodestar for American optimism and achievement, California now illustrates the difficulties confronting the United States – and how much more can still go wrong domestically.

The most populous and wealthiest of America’s 50 states, California has long been a beacon of opportunity for talented and enterprising people from all over the world. One in every four California residents was born in a foreign country. California’s two most famous industries, Silicon Valley and Hollywood, depend on infusions of talent from abroad. Its robust agricultural sector is a massive exporter of food, benefiting from the growing appetites of consumers in developing countries.

Yet California’s technological and entrepreneurial might – standing alone, the state would be the world’s eighth largest economy – coexists with a dysfunctional political system that has brought it to the edge of fiscal bankruptcy. On May 19, the state’s voters, in a special election, rejected an array of tax increases and spending cuts required to balance its budget. Now, California faces either an embarrassing federal bailout or a prolonged period of rule by judges, who under California law have the power to vacate labor agreements, abrogate contracts, and generally restructure the state’s financial commitments.

For President Barack Obama, California’s crisis imperils his own reform agenda. Because other American states also face tough fiscal conditions, the political price of bailing out California may be bailing out dozens of other states too.