When states go bust
That is the headline for my piece in the latest Weekly Standard about letting US states declare bankruptcy. Here’s a taste:
Itâ€™s a solution of apparent Alexandrian elegance and simplicity: Empower Americaâ€™s cash-strapped states to slice cleanly through a strangling knot of debilitating debt and government union cronyism by letting them file for bankruptcy. Long-term liabilities could be restructured, unaffordable labor contracts rewritten, fiscal health restored. No federal bailouts necessary. …Â Kevin Drum of Mother Jones put it this way: State bankruptcy â€śpromises to become a pretty serious battle. For Republicans itâ€™s got everything: The tea parties will love it, it provides an alternative to raising taxes, and .â€‰â€‰.â€‰â€‰. it helps defund a key Democratic interest group. Whatâ€™s not to like?â€ť
Surprisingly, quite a bitâ€”at least among some Republicans and conservatives. In a January 24 session with reporters, House majority leader Eric Cantor brushed off the idea. …Â A more pointed critique was offered by members of the highly respected free-market Manhattan Institute, Nicole Gelinas and E.â€‰J. McMahon, in the op-ed pages of the Wall Street Journal and other papers. Among their many objections to state bankruptcy: It would violate the constitutions of many states; it would damage the balance sheets of banks holding a quarter of a trillion dollars in state and municipal bonds; it might even cause such investor panic as to risk repeating the 2008 financial meltdown. â€śBond-market brinkmanship and bankruptcy threats canâ€™t save the states from themselves,â€ť Gelinas wrote in the Boston Globe on January 23.