Monday’s agreement between Arnold Schwarzenegger, the governor of California, and state legislators seemed to promise a temporary resolution to an ongoing budget crisis. But before legislators had even had a chance to vote on it, Californians were indulging in that peculiar mix of sanctimony and surrealism which marks almost all political discourse in the state. “What about the children?” ran the headline over the letters section of the San Francisco Chronicle, as if the important divide in the state’s politics were between those who “care” and those who do not.

Caring has nothing to do with it. California’s problems are those of “direct democracy”. The state’s laws are shaped by plebiscites to a degree unmatched outside of Venezuela. In voting on “propositions”, which sometimes touch on detailed budgetary matters, citizens of the Golden State have stood up consistently for two principles: the state should provide vastly more services to its citizens, and citizens should pay vastly less to the state. In 1978, Proposition 13 halved government’s take from property taxes; a decade later, Proposition 98 required the state to spend 40 per cent of its “general fund” on schools. Adding to the problem is the requirement of supermajorities for raising taxes.

The present impasse reflects a problem of long standing, even if its severity is unprecedented. Ronald Reagan won the state’s governorship in 1966 by promising to do something about the budget deficit, which had by then risen to a calamitous $194m. Today, the state not only has a $26.3bn (£16bn, €19bn) budget gap but is constrained by all sorts of powerful institutions and laws from closing it. Until recently the state issued “revenue anticipation notes” but its contractors will no longer accept them. California’s bonds are the lowest-rated of any state. Facing insolvency, Mr Schwarzenegger and legislators have proposed selling off billions of dollars’ worth of state assets, cutting the state’s university budget by 20 per cent and releasing 27,000 inmates from prison. Already the state has given mandatory furloughs of three days a month to state employees. “Furlough” is a euphemism. It means you do not get paid.

At least those are concrete steps. But much of the budget plan hammered out on Monday consists of accounting tricks. Unable to go to the banks to borrow, the state is borrowing billions from local counties and communities by simply not disbursing the money it is supposed to. If cities really want their programmes funded, they can try the credit markets themselves. A payday that was supposed to come next June has been pushed back into July, so that it will fall in the following fiscal year. Another trick is the accelerated withholding of state income tax. Instead of deducting 25 per cent of taxes per quarter, the state will deduct 70 per cent in the first six months of 2010, so that 20 per cent of revenues from the next fiscal year will be brought forward into this one. This is not a solution. This is changing your phone number so you can get some rest from the bill collectors who are dunning you.

Commentators often say that the problem in California is that it is too difficult to raise taxes. This is misguided on two levels. First, for all its difficulties, the state still manages to level the sixth-highest taxes in the nation. Second, when you are talking about economic growth or the role of the state, tax rates matter; but when you are talking about balancing the budget, what matters is that receipts, however they may be collected, match outlays.

It is an enduring mystery why US pundits should see a difference between the philosophy of Democrats (who stand for spending more than you raise) and the Republicans (who stand for raising less than you spend). Typical was a Chronicle editorial blasting Republicans for their insistence that the budget crisis be resolved in a way that did not involve tax hikes. “Many of them,” the paper wrote, “would sooner see their children in second-rate schools and their cars on Third World roads before they would break their anti-tax pledges.” But wait. California already has second-rate schools. In fact, for all its mandates and its massive spending, it has abysmal schools. In the federal government’s National Assessment of Educational Progress, California usually vies with such states as Louisiana and Mississippi for the 50th spot.

A stronger case can be made that tax revenues are too unpredictable. Here Proposition 13 is blamed for moving the burden from property to income taxes, which are more sensitive to economic fluctuations. In a boom economy, there is plenty of money to pay for the unemployment benefits that no one needs. When you have 12 per cent unemployment, as California does now, the state is too strapped to do anything. This accusation is true enough – tax systems themselves can be speculative. But a comparison of California’s fiscal crisis to the one that roiled Ireland this winter is instructive. Ireland’s problem was that it collected too much of its revenue through taxes on property (in that case, on transactions) and not enough through taxes on income.

California’s fiscal difficulties are like a lot of things in life. Everyone warns you that there are certain hard and fast rules – like not confusing wishes with entitlements – that you break at your peril. You begin to break them and what happens? Nothing! Nothing at all, and for the longest time. You are like a ship that has lost its anchor. You can drift very pleasantly, day after day, believing you do not need an anchor at all, before one day you realise, quite suddenly, that you do.

The writer is a senior editor at The Weekly Standard

More columns at www.ft.com/caldwell