Monday Afternoon Query

Can’t California, Rhode Island, and Illinois look to an entity that is not $16 trillion in debt for its bailout? I’m happy that Sen. Jim DeMint is fighting the efforts to guarantee state pension debt, but I must disagree with this:

“Our greatest concern is states will assume they can run their pension systems into bankruptcy and then turn to the federal government for bailout,” DeMint said Thursday.

No, the secondary effect, the moral hazard of bailouts, is not the greatest concern – or at least it shouldn’t be.  The greatest concern is that the federal government simply does not have any money to give to anyone, due to it being many, many trillions of dollars in debt with even more trillions of dollars of its own unfunded liabilities.

Looking to the federal government for a financial guarantee or a bailout is like asking for a loan from your drunk, unemployed uncle with overdue child support payments, gambling debts, a crack habit, and a giant hole in the roof of his trailer.

Yes, there is a moral hazard issue, and there’s a plain old moral issue: states that invested in their pensions, or never made promises they couldn’t keep, shouldn’t bail out their spendthrift sister states.  But that’s all beside the point when you’re talking about getting money from an entity that is more broke than any other entity has ever been broke.


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Filed under Economics, Miscellanea

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