What comes to mind when you think of California? Silicon Valley, gold mines, beaches, huge trees, surfer girls, Hollywood, skyrocketing unemployment, rising taxes or dysfunctional government? Wait, what?

Something is rotten in the state of California, all right. Regarded as the new economic powerhouse of the United States only 10 years ago, the Golden State now has the fourth-highest unemployment rate in the country. More people have moved out of the state than have come in for about half a decade.

Its current predicament offers a chilling premonition of the potential state of the nation as a whole in the near future.

Flush with tax revenue extracted from the public — mostly from businesses and high earners — in good times, then-governor Gray Davis and his cohorts in the state Legislature splurged on large pay raises to government employees and increases to funding of special-interest favorites.

This turned out to be a good move — not for California, but for the Davis re-election campaign. Davis narrowly defeated Bill Simon in 2002, claiming credit for increasing funding to appealing causes such as the public school system.

To this day, Davis’ private Web site boasts of the “largest five-year increase in total education funding,” and “the two largest school construction and modernization bond measures in history,” and “the largest ever general fund investment in new transportation projects.”

What Davis conveniently did not tell the public was that the state was running a budget deficit of almost $24 billion to pay for these current and future outlays. With the election behind them, the governor and the legislature brazenly raised taxes. Outraged Californians voted to expel Davis from office and replaced him with Arnold Schwarzenegger.

The Governator promised to terminate Davis’ excesses. Initially, he fought hard to cut spending and reverse Davis’ tax hikes. Unfortunately, he was met with heavy resistance from unions and the state Legislature. With many of his proposed reforms sabotaged by entrenched beneficiaries of government largesse, Schwarzenegger reverted from reformer to celebrity.

Niccolo Machiavelli once suggested that to retain one’s power, a politician should try to be both loved and feared. He also emphasized that, if forced to choose between the two, the politician ought to prefer fear because being liked is no guarantee of being successful. Schwarzenegger decided he would rather be popular than controversial and started to go along with the spendthrift impulses of his state’s political class.

Although he was not as active as Davis in worsening the state’s fiscal problems, Arnold joined up with the politicians who rob Peter to pay Paul and automatically gain Paul’s vote in return. He won re-election but has achieved little good since then.

Now Schwarzenegger has signed a new budget, which was passed after a bruising budget fight by the state Legislature. The bill includes a whopping $14.5 billion in new taxes and marginal-rate increases, which will give state’s most productive citizens even more reason to leave. Special-interest groups have resolved to whittle down the $15 billion in spending cuts. Neither of these, even taken at their optimistic face value, will plug the $41 billion budget hole, so the state is also borrowing against its future revenues.

California is a microcosm of the direction of the federal government — full of politicians taxing, borrowing and spending, then winning elections, thanks to the parasitic constituencies who feed at the taxpayer-funded trough of state.

Reach columnist Russ Wung at opinion@dailyuw.com.