January 24, 2011

"We're getting very close to the point where we could have states default on their debts for the first time."

"What should happen then?" Right Wing News asks Thomas Sowell, who answers: "They should go bankrupt. I'm looking forward to it."

47 comments:

AJ Lynch said...

We can't declare bankruptcy. It would besmirch the reputations of our beloved public servants who we elected and who ran up the govt credit cards but did it with all good intentions.

On a serious note, will state bankruptcies cause a run on banks and stock market drop?

mesquito said...

And this would be bad?

Rumpletweezer said...

Thomas Sowell is among the handful of people who, even when I disagree with them, I know that they are probably right. On this issue, though, he is most certainly correct. The politicians who made these promises are long gone. There's no way to make them accountable in this life. That's why my vision of heaven is a series of rooms. When you die you go to a room. In that room is everybody who ever did you wrong. You get to kick them until you're satisfied. Politicians will show up in lots of rooms. We'll get to kick them until were satisfied. The downside is that we get to be in lots of rooms too.

ken in sc said...

It means tax-free bonds will lose a lot of value. It will ruin some people, possibly me.

rick said...

We have municipal unions buying elections. The electee then fills the union coffers at taxpayer expense. At some point the merry-go-round must stop. It might as well be right now.

I also am looking forward to it.

rick said...

@Ken in SC. May I suggest dumping these bonds ASAP.

Shanna said...

Thomas Sowell sounds like the boss on Parks and Recreaction there a little bit.

There is no reason to "look forward to it". It's not a good thing (that's not to say we should bail them out, either).

Fen said...

I can only wish. I heard talk of dividing CA into 3 territories, readmitting each as a seperate state once they are solvent again.

If wishes were horses...

More likely, we're all going to have to pony up to save CA.

Fen said...

ah see what I did there? :)

Pure coincidence.

MadisonMan said...

I'm not sure economic turmoil is something to wish for.

A soft landing would be far preferable to a hard one. The difficulty is electing politicians that will make the right choices. And having an educated electorate to know what has to be done. That's a tall order, and not very bloggable. Common sense so rarely is.

ricpic said...

There will always be lenders out there. But the hurdle to get them to lend to states that declare themselves bankrupt will be much higher. Which means that post bankruptcy "the common good" won't be so good, making the individual good soar.

Leland said...

Yes, Shanna, we should look forward to it. The reason, the longer we wait for it to happen, the longer others can't make decisions while waiting for the inevitable to happen. Better to allow the event to occur, so we know what it looks like, and can then solve the problem in reality rather than speculation.

No, Sowell doesn't want people to suffer. He knows that suffering will occur and rather minimize the length and severity of suffering. Unlike Piven, Sowell doesn't want Athen riots because we waited too long.

The Drill SGT said...

rick said...
We have municipal unions buying elections. The electee then fills the union coffers at taxpayer expense.


In nearby Montgomery County Md, the problem is so severe and visible that local politicals have to pay to get Teachers Union endorsements, which then assure them of a mobilized workforce to get elected.

The Drill SGT said...

MadisonMan said...
A soft landing would be far preferable to a hard one. The difficulty is electing politicians that will make the right choices.


The problem I foresee is perhaps the opposite. After the dismembering of Bankruptcy law at GM and Chrysler and the Wall Street firms by Obama etal, what gives you confidence that when bankruptcy comes to a state near you, that the ones getting the Golden Parachute and a soft landing will be the creditors or the taxpayers or the voters.

I think we'll see bankruptcies where the Unions get the soft landings, like GM

Fen said...

I'm not sure economic turmoil is something to wish for.

If it doesn't hurt, they'll do it all over again.

So it needs to hurt really bad.

AllenS said...

Thomas Sowell and Walter Williams are two of the smartest people this country has ever produced.

AJ Lynch said...

If it doesn't hurt, we will keep electing the same old douche nozzles for 20 -40 years and they will continue to cover up the big financial disasters like Fwannie, Fweddie, Soc Sec, state and city pension bombs.

I am referring to senators like Biden, McCain, Kennedy, Grassley, Feinstein, Specter, Hatch, Conrad, Kerry. These idiots have presided over the financial predicaments we are in and said and done nothing to prevent it.

rick said...

@Allen S....couldn't agree more.

rick said...

My sister-in-law and her new husband are two retired school teachers in Pa. They retired in their late fifties. They are making so much money in retirement they are struggling to spend it all (their words). Can you guess which party their union supported over the last 20 years? That "investment" has paid off handsomely.

And of course they get free health care until Mediscare kicks in.

AJ Lynch said...

Rick:
OT a bit but I never got wrapped up in the hand-wringing over the big salaries of pro athletes. My view was "if a business agrees to pay someone a million dollars and the paycheck does not bounce, then the person earned the money".

I sorta have the same view re govt workers - unfortunately for them, the paychecks & retirement checks issued by the taxpayers are gonna bounce.

Rich B said...

From Milton Friedman-

"I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office.”

I think this has already started - especially in NJ where I live.

NotYourTypicalNewYorker said...

The remedy for the spending that's been done will be very painful indeed.

Best to get it over with sooner rather than later but politicians will go down kicking and screaming before that ever happens.

As we speak the left is demanding to know the particulars of what exactly the GOP intends to cut, not for remedial purposes but for bludgeoning purposes. They need to get their visual hard luck stories lined up for the cameras.

Yesterday news broke that Obama will advocate more spending in the SOTU address.

And so it goes.

Roger J. said...

Mad Man--I always like your take on things--but please (and Shanna join in)--what do you mean by a soft landing? What are the policy options available that a public sector union will sign onto?

The situation in CA for example amply demonstrates the voters are if possible even more stupid than the pols. How do you educate an electorate? And even if educated why do you think they will do the right thing? (however defined?)

Until people are actually confronted with consequences of their actions--and in case of union pensoners, getting 5 cents on the dollar of their pension funds, they will do nothing.

My thought? let them (public sector unions and their pensioners) go under. Tough love and all of that.

With a republican house now,and a republican senate in 2012, does anyone seriously think there will be a federal bailout?

First and most logical step to me, is eliminate the NLRB and delegitimize public sector unions, and return them to being public servants. Interesting times ahead.

Fred4Pres said...

Bankruptcy would end failed policies. For California and other states it is a way out.

However, does that mean the state park system gets auctioned off?

Sloanasaurus said...

I think it would be a mistake to allow banks to declare bankruptcy. The people need to learn a lesson from the mismanagement of their governments.


We should just let the issue play itself out. States will get to the point where they can no longer issue debt and will be forced to balance their budgets - to the point where the budgets are largely debt payments.

Those states will become basket cases as jobs will move elsewhere. But that is the price of bad government.

The people

The Drill SGT said...

Those states will become basket cases as jobs will move elsewhere. But that is the price of bad government.

FWIW, California is losing citizens, but gaining illegals, so its still growing...

Reconquista

AJ Lynch said...

I heard CA & IL are going to start billing people who want leave their state. Emigrants must pay their share of the state debt before they can leave [snark].

bagoh20 said...

When you have financial obligations you can't possibly meet, that's what you do. There is no other workable option. Temporarily, you can get money from others, if they are stupid enough to give it, but that will just make you both bankrupt. It simply must happen for some people, companies and states.

holdfast said...

Can we hope that the first couple of state bankruptcies will cause the politicians and unions in the others to smarten up?

showhank said...

I think States will repudiate their debts, it has happened in the US before. I think the entire idea of bankruptcy for a state is a non starter. They would have to give up some level of sovereignty and this is most likely unconstitutional, and not needed. Repudiation works just as well. The section below from economist Murray N. Rothbard shows that repudiation is nothing new.

http://mises.org/article.aspx?Id=1423
*********************************************
………During the deflationary 1840′s succeeding the panics, state governments faced repayment of their debt in dollars that were now more valuable than the ones they had borrowed. Many states, now largely in Democratic hands, met the crisis by repudiating these debts, either totally or partially by scaling down the amount in “readjustments.” Specifically, of the 28 American states in the 1840′s, nine were in the glorious position of having no public debt, and one (Missouri’s) was negligible; of the 18 remaining, nine paid the interest on their public debt without interruption, while another nine (Maryland, Pennsylvania, Indiana, Illinois, Michigan, Arkansas, Louisiana, Mississippi, and Florida) repudiated part or all of their liabilities. Of these states, four defaulted for several years in their interest payments, whereas the other five (Michigan, Mississippi, Arkansas, Louisiana, and Florida) totally and permanently repudiated their entire outstanding public debt. As in every debt repudiation, the result was to lift a great burden from the backs of the taxpayers in the defaulting and repudiating states………
*********************************************
The NYT from 1876 has a detailed article on repudiation in Alabama.
http://query.nytimes.com/gst/abstract.html?res=F50F17F93E5E137B93C1A9178ED85F428784F9
*********************************************
THE ALABAMA STATE DEBT.; REPUDIATION AS A SCIENCE. HOW IT IS PRACTICED IN THE SOUTH STARTLING FACTS CONNECTED WITH THE DEBT OF ALABAMA FINANCIAL HISTORY OFTHE STATE DEMOCRATIC JOBBERY AND CORRUPTION BEFORE AND SINCE THEWAR. WHO CONTRACTED THE DEBT. THE DEBT IN DETAIL. THE COMPROMISE PROPOSITION.
*********************************************

Other than the pension funds and insurance companies that will be bankrupt I can see very few downsides in the long term for the States that repudiate, however the credit markets will be off limits for some time, they will have to make due without deficit spending or borrowing for large infrastructure.

edutcher said...

Well, there is no money to bail them out, unless you want to do QE3, which means Weimar Republic.

And, like Greece, the unionistas will be rioting in the streets, crying about how they've been abused by the "rich".

EDH said...

I think a good first step is to start quantifying individual public sector pension obligations in terms private sector inflation protected annuities cost equivalents.

Using those imputed values, it would give a whole new insight into the true sources of wealth stratification in the United States.

Calypso Facto said...

Sounds like a job for Paul Ryan, Budget Hunter!

Bruce Hayden said...

I do think that public employee pensions and retirement benefits need to be revisited. It is these supposed sunk costs that are really driving much of the problems that many of the states are facing.

The worry I have though is that a lot of retired people depend on those retirements. And, yes, some, if not a large number, have pensions and retirement benefits far higher than they would have had from the private sector. But not all.

Then, I think of all the people who lost parts of their pensions when their companies went under, or, due to the recent stock market crashed, occasioned by the bubble created by Democratic housing policies bursting.

I somehow cannot get too mad though at any villein outside some of the politicians who pushed for public sector unionization. The government employees racking up their pension benefits at the expense of their taxpayers are just acting rationally when they buy politicians. And the politicians, being bought in such a manner, are just acting rationally too. The irrationality is assuming that any of the above would not happen, if allowed by the system. We have seen public sector corruption as long as we have seen governments. The Romans, the Byzantines, the ancient Chinese, all had major problems in this area.

Dust Bunny Queen said...

It means tax-free bonds will lose a lot of value. It will ruin some people, possibly me.

So, why haven't you sold already? Whose fault is that?

The States, Cities and Counties should all go bankrupt and government should shut down until the people and the politicians wake up and face reality.

This is the only way to get through to some people.

This is the only way we are going to seriously face the problems and begin seriously fixing the problems.

It is going to be painful.

Too bad.

VW: upsit

Big Mike said...

I wish Sowell was not so relentless upbeat -- I'm certain that there are serious downsides to state bankruptcy, but his comments suggest that it'll all be rose petals on red carpets.

Ignorance is Bliss said...

MadisonMan said...

That's a tall order, and not very bloggable. Common sense so rarely is.

I bet Thomas Paine could have managed it.

Dust Bunny Queen said...

I heard talk of dividing CA into 3 territories, readmitting each as a seperate state once they are solvent again.

Your lips to God's ears.

We have been wishing for this for years in my area.

http://www.currycountyreporter.com/news/results.cfm?story_no=6844

Jack Wayne said...

I think the people commenting here have not thought deeply enough about the implications.

For example, if you live in a state that goes bankrupt or repudiates, will you continue to pay your taxes? Or will you resist?

If you are a bank that will go under after backruptcy or repudiation will you sue for the state's assets? Can you win?

Isn't bankruptcy or repudiation a cop-out? All a state has to do is repudiate the unfunded debts (like pensions) and balance their budget by cutting spending down to the nub. If they declare backruptcy or repudiate without trying these measures, what does it mean? In a true bankruptcy court, it would not be allowed.

There are dozens of other questions that need answering.

Shanna said...

Mad Man--I always like your take on things--but please (and Shanna join in)--what do you mean by a soft landing?

For me, all I mean is that it may be necessary, but we shouldn’t rejoice in it. It’s still going to be painful for a lot of people…and many of those people who will be in the most pain will be people who probably didn’t cause the mess in the least (the people who cause the problems always seem to come out alright, don’t they?).

Dust Bunny Queen said...

if you live in a state that goes bankrupt or repudiates, will you continue to pay your taxes? Or will you resist?

I live in California. I pay as little taxes as I possibly can and return I get very little from the State. I already thought about it.

It would be the best thing that ever happened to this screwed up state if it did go BK and default on all of its debts and especially on the bloated obscene public employee pension/benefit packages.

I'm afraid that Shanna is correct. The people who cause the problems and those who are sucking the lifeblood out of the tax paying public will probably come out clean.....yet again.

In the meantime....we need to have some pain. The sooner the better.

MadisonMan said...

The difficulty I see -- for Wisconsin pensioners, at least -- is that if the Wisconsin pension fund is bankrupt, it's because the Stock Market has completely tanked. So pensions would be the least of your problem in that case (I think Wisconsin's pension fund, which is isolated from bureaucrats in Madison so it can't be raided).

Pennsylvania's pension fund, in contrats, is woefully underfunded (That's the one my Dad is in) -- but it's the one that the Legislators belong to as well, so do you think they'll let it go under?

The Crack Emcee said...

Shanna,

Thomas Sowell sounds like the boss on Parks and Recreaction there a little bit.

There is no reason to "look forward to it". It's not a good thing (that's not to say we should bail them out, either).


Not to dump on you but you sound like someone who judges things/others by how you "feel" - it's a big reason why we're in this situation.

Yes, the merry-go-round must stop and we must shove a monkey wrench in the works at the first opportunity - and do it gleefully. They must learn.

They're damaging all of us with their actions.

Revenant said...

There is no reason to "look forward to it". It's not a good thing (that's not to say we should bail them out, either).

I disagree, Shanna.

*Going* bankrupt is not a good thing. *Declaring* bankruptcy is; it marks the point after which things can begin to improve. The point at which you acknowledge the fact that you cannot make good on your obligations.

California -- among other states -- is already bankrupt. It has no possible way of making good on its obligations. The government just hasn't admitted it yet. Once it does, things can start to get better.

Eric said...

I think a good first step is to start quantifying individual public sector pension obligations in terms private sector inflation protected annuities cost equivalents.

One thing I would really like to see from all of this is government accounting rules that more closely mirror those in the private sector. In California one of the big drivers for municipal bankruptcy is the lack of accounting for pension agreements.

AST said...

The first priority should be to get the economy going again, by repealing Obamacare and fixing tax rates at the current level permanently. Revisit all regulations and drop those that do nothing but give large businesses an advantage over smaller ones. Open up public lands and coasts for drilling and mining. Get rid of the ESA and 2/3 of the EPA. We have tremendous energy resources that we've placed off limits because of people who think they're saving the earth.

Get the economy going again and then start slicing the unrealistic pensions and the government payrolls at all levels.

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