Deadbeats Bush and Gingrich Say "States Better Off Bankrupt"

The "moral obligation" crowd now says that state governments in trouble should declare bankruptcy. Who wins? Who loses?

Michael Collins

Not if a state owes you money!

Jeb Bush and Newt Gingrich just published an OpEd in the Los Angeles Times arguing that states would be wise to consider filing bankruptcy to relieve their financial troubles.  They cite three states, California, Illinois and New York, while failing to mention the angry elephant in the living room with similar problems, Texas.

Texas faces a $25 billion shortfall for a $95 billion two-year budget.  That equals California's 18-month deficit inherited by the recently inaugurated Governor Jerry Brown.

"So why haven't we heard more about Texas, one of the most important economy's in America? Well, it's because it doesn't fit the script. It's a pro-business, lean-spending, no-union state. You can't fit it into a nice storyline, so it's ignored," said Business Insider.

Texas is a major inconvenience to Bush and Gingrich. They lay the financial problems at the door of unions and state employee pensions:

"The lucrative pay and benefits packages [read pensions] that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health."  Jeb Bush, Newt Gingrich, January 27

This is blatant intellectual dishonesty.  By giving examples of states with strong civil servant unions, they stack the deck for their explanation of state debt.  Yet the dire budget problems in Texas negate their argument entirely.  That is sufficient reason to dismiss the rest of their arguments and their stated motives, as well.

The Larger Picture - Tear Down that Government at Every Level

In the past few weeks, we have seen a multilevel assault on federal, state and local governments and the programs offered, e.g., public education, roads, public safety, etc.

This year's public fretting over the federal deficit was bipartisan. Peter Peterson's budget commission produced a plan to reduce the federal deficit at the same time that President Obama's hand picked commissionwars and bailouts. reported similar findings.  Entitlements, Social Security in particular, require substantial cuts. They failed to note the real causes of the deficit.

Even though Social Security has a surplus, there's a repetitive mantra that You'll never get your money out of it. The budget hawks have repeated that so often, they probably believe it.  And they should. They're doing everything they can to make sure that we don't see a fair return on our significant investment. The message is clear. Cut Social Security, take less than your were promised, and we'll all live happily ever after (unless you relied on the promise made by the government based on your full participation).

The second assault on government targeted local municipalities - Day of Reckoning 12/19/10. Meredith Whitney of CBS claimed her study showed that the municipal bond market was headed for collapse and chaos. Whitney failed to show her work and asked us to trust her. This created unrest in the bond market. Whitney clings to her evidence just like the late Senator Joseph McCarthy held tight his fictitious list of 400 Communists in the Truman and Eisenhower administrations who were subverting the government.

Now, Bush and Gingrich are attacking state governments and the programs that they provide to citizens. They focus on unfunded pension liabilities that ballooned during the recession we're told is over. They fail to note the cause of those problems: the fact that pension funds relied on the Wall Street casino and fell victim to the vicissitudes of Goldman Sachs, etc., and the failure of Congress and the last two chief executives to regulate risky behavior.

The Neo Malthusian Catastrophe

Economist Thomas Malthus argued that there would be "forced return to subsistence-level conditions once population growth had outpaced agricultural production." The new Neo Malhusians argue that we must return to inferior economic conditions, absent the right to organize and bargain for wages and without the promise of Social Security, because expenditures have outpaced the ability to produce offsetting revenue.

Bush and Gingrich fail to ask the questions of real importance. Why has the economy faltered so badly? The answers wouldn't please them or their patrons.

To begin with, there has been no regulation of risk-filled financial schemes, from subprime derivatives to credit default swaps, since the big banks and Wall Street were set free in the late 1990s.

We're fighting two very expensive and unnecessary wars.

Bailouts!

Then we have the money addiction of the top 1% of the population, which took 65% of the net new income in the United States from 2002 through 2007.

What are they Afraid of?

There is an island of fiscal stability among the states, North Dakota. The traditionally conservative state also has a state bank, the Bank of North Dakota (BND). State funds go into the bank, BND creates credit, and funds are available for the public benefit. Here is the BND statement of purpose for lending.

Lending Services:  On behalf of the State of North Dakota, the Bank administers several lending programs that promote agriculture, commerce and industry. Financing economic development is the thrust of Bank of North Dakota’s efforts. The Bank is specifically authorized to assist numerous other financial institutions in providing financing to stimulate economic development in the state.

Ellen Brown has been advocating state banks for the past two years. She points out: "With over $17 billion available to deposit in its own bank, California could create $170 billion or more in credit -- enough not only to meet its budget shortfall but to fund many other much-needed projects; and rather than feeding an ungrateful Wall Street, the bank's profits would return to the state and its people." Ellen Brown, July 22, 2009

Legislation was introduced in Washington that would create a state bank of Washington. This has attracted attention since it would be only the second state bank if the legislation passes.

"Rep. Bob Hasegawa, D-Seattle, the House bill’s sponsor, said the proposal was modeled after a similar institution in North Dakota and based on the idea that the state’s money should not be at the disposal of Bank of America, where Washington has its accounts.

“Why don’t we create our own institution, keep that money in our state and we make money off our money that we can then reinvest back into our community?” asked Hasegawa.'   The News Tribune, January 26

Aside from their general paranoia and guilt, the potential of a state bank movement may have Jeb Bush, Gingrich, and their patrons frightened out of their wits. They may be particularly fearful of the unpredictable and innovative Governor Brown who needs financial relief now and has the will and spirit to engage in a political showdown. BND is a highly credible state project. A Washington State bank would be significant due to the size of the state and the major business located there.

But a Bank of the State of California would represent a major threat to just about every one of the Neo Malthusians. The state was and can be once again a trend-setter. What a trend that would be.

END

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