Daily Archives: January 20, 2011

State Governments Going Bankrupt?

They have pensioners.  They have bondholders.

Screw ’em, though.  Let them eat cake.

States have over promised, like everyone else, and maybe they have to go bankrupt.  Or something.

There are 11th amendment problems with states themselves going bankrupt – which is a federal jurisdiction – that don’t exist with cities and other municipalities.  Those governmental subdivisions have Chapter 9. It’s a special form of bankruptcy – for governments only – that doesn’t involve a liquidation. That’s what a state “bankruptcy” would look like.

In other words, everyone else who doesn’t pay their “debts” can go bankrupt, but has everything they own confiscated and sold off.  But governments get to just “restructure”, and nobody confiscates anything.

As Mel Brooks once put it:  It’s good to be the king.

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28th Amendment – Some Final Thoughts

It’s worth pointing out what you can and cannot do with the law, the constitution and its amendments being the most fundamental law of the political entity known as the United States of America.

We are imperfect and so is any law we make.  The law cannot, as a general rule, redistribute wealth, or ensure that wealth is distributed evenly.  Nevertheless, the law should result in the fair distribution of wealth if the law is wise and just.  This fairness should be thought of as a by-product of good law, not its conscious purpose, the reason being that explicit opinions on how wealth is to be distributed will vary widely and cannot be embodied in a law without favoritism.  Picking and choosing between competing ideas about wealth distribution is as impossible for the law, practically speaking, as it is undesirable in any event.

As matters stand the law has failed this test completely and this is the problem that must be addressed.  The proposed amendment is an effort to recognize this failure and correct it as best that can be done.  It is not the source of the failure, and it is a very imperfect solution to an otherwise totally insoluble problem.

The “jubilee” is a one time departure from the principle I just described:  it is an explicit wealth transfer from one group – creditors – to another group – debtors – unlike anything that has taken place in modern times.  It will unfairly benefit some and unfairly penalize others, though again as a practical matter and under the circumstances the injustice will be collectively minimal, since not only debt but unpayable debt is nearly universal.  Nevertheless, it will cancel this debt once and only once.

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