This post is about Mitch McConnell’s suggestion that states facing budget shortfalls because of the pandemic should declare bankruptcy rather than receive federal funds. Mitch actually called relief funds for states “blue state bailouts,” even though red states need funds, too. This inspired Rep. Peter King of New York to call McConnell “the Marie Antoinette of the Senate.”
My impression is that it’s broadly, but not universally, believed that a state couldn’t declare bankruptcy even if it tried. But let’s look at some background to see what’s going on here.
Something Paul Krugman wrote on April 16:
… But the special loan program for small businesses has already been exhausted. State and city governments are reporting drastic losses in revenue and soaring expenses. And the Postal Service is on the edge of bankruptcy.
So we need another large relief package, targeted at these gaps. Where would the money come from? Just borrow it. Right now, the economy is awash in excess savings with nowhere to go. The interest rate on inflation-protected federal bonds is minus 0.56 percent; in effect, investors are willing to pay our government to make use of their money. Financing economic relief just isn’t a problem.
Yet at the moment further relief legislation is stalled. And let’s be clear: Republicans are responsible for the impasse.
Basically, Krugman is saying that if we want to save the bleeping economy and not slide into depression, the feds should just crank out the money to keep us all afloat until the pandemic is no longer threatening us. This is not the time to be cheap.
Congress is still struggling with a new relief package. Here’s the most recent news —
The House prepared Thursday to pass a bipartisan $484 billion spending package that would restart a small-business loan program that was swamped by demand during the coronavirus pandemic and allocate more money for health-care providers and virus testing.
Once approved, lawmakers would send the legislation to President Trump for his signature, following Senate passage earlier this week.
One thing not in the bill is money for states and cities. Senate Democrats tried to get $150 billion for states and cities added to the package, but Republicans wouldn’t allow it.
From the New York Times, April 15:
States provide most of America’s public health, education and policing services, and a lot of its highways, mass transit systems and waterworks. Now, sales taxes — the biggest source of revenue for most states — have fallen off a cliff as business activity grinds to a halt and consumers stay home.
Personal income taxes, usually states’ second-biggest revenue source, started falling in March, when millions lost their paychecks and tax withholdings stopped. April usually brings a big slug of income-tax money, but this year the filing deadlines have been postponed until July.
“This is going to be horrific for state and local finances,” said Donald J. Boyd, the head of Boyd Research, an economics and fiscal consulting firm, whose clients include states and the federal government.
I am no economist, but I understand that if states are forced to cut services and lay off employees this will not just cause inconveniences; it will prolong whatever recession, or depression, we will face going forward. And it will hurt the economies of red states as well as blue ones.
But somehow relief for states has become a partisan issue. And that’s insane. Eric Levitz wrote for New York magazine (April 15),
Political coverage of negotiations on Capitol Hill in recent weeks has consistently framed aid to states and municipalities as a concession to Democrats. And by all appearances, this is an accurate description of the legislative dynamics. But it’s difficult to understand why. Neither the pandemic nor its economic consequences have been confined to blue states. In fact, the collapse of global demand for oil is hammering deep-red petro-states. Oklahoma’s budget was written around the presumption of $55-a-barrel oil, which is more than double crude’s going rate these days. The Texas Taxpayers and Research Association, meanwhile, has estimated that every dollar shaved off the price of oil knocks $85 million in revenue out of the Lone Star State’s coffers.
Beyond the fact that Republican-leaning states are hurting for aid about as much as blue ones are, the president’s party has a profound political interest in mitigating the economic impact of an election-year recession. This is ostensibly why Republicans promoted mailing checks directly to low-income and middle-class households: to prop up consumer demand and prevent economic decline from feeding on itself. And yet, if states are forced to lay off public workers, cut social benefits for constituents, and cancel planned investments in public goods, then they will deepen the recession.
See also The case for a massive federal aid package for states and cities by Dylan Matthews at Vox.
Why are congressional Republicans taking this position? Levitz attributes this to long-held GOP “small government” ideology, and maybe that’s it. Kevin Drum thinks Mitch McConnell is also seizing an opportunity to crush public sector unions and take their pensions.
Republicans have been targeting the pensions of state workers forever. For the most part, these pensions are protected because they’re part of union contracts, but that just makes them even more attractive targets: If you can gut pensions, then not only will you reduce state spending, but you can crush the unions at the same time. Legally, though, the only way to do this is as part of a bankruptcy restructuring.
So as far as McConnell is concerned, COVID-19 has an upside: by wrecking state finances, it will force them into bankruptcy. And that means Republicans can get their revenge on public sector unions, who are big supporters of Democrats. What’s not to like?
Regarding pensions, there is an argument that starving the states for funds would hurt more blue states than red ones. According to an article in Forbes,
… what the Senator failed to mention is that his Commonwealth of Kentucky does not issue general obligation bonds. He also neglected to mention its bottom-level ranking in state public pension funding, 50th in the nation. If state bankruptcy is permitted, Kentucky has no outstanding state general obligation debt that would be negatively impacted, but it would presumably allow the state to renegotiate the terms the pension that tens of thousands of Kentucky pensioners rely on. It is unlikely their payments would increase.
Mitch might also think that hurting some states might help Republicans keep the Senate.
Of the top ten underfunded state public pensions, five states are straight Democrat controlled in both the statehouses and have majorities in federal representation: New Jersey, Illinois, Connecticut, Rhode Island and Hawaii. Each face budget pressures and have either raised taxes or contemplated raising taxes to deal with budget deficits. Some recently had Republican governors that lost to Democrats, suggesting the electorate is not opposed to Republican rule. A local Republican push in those states to file for bankruptcy over raising taxes might be well received. Well received enough to flip those states over to Senator McConnell’s side of the aisle.
Now, how might this backfire? While it’s true that the worst of the pandemic has, for the most part, slammed blue urban areas the hardest, notably New York City. McConnell may not have gotten the memo that the virus is moving in to red states now.
A new analysis from demographer William Frey finds that coronavirus is now spreading into whiter and more Republican-leaning areas of the country. Despite initially being concentrated in blue and urban areas, it has slowly extended into new parts of the Midwest and the south, into outer suburbs and small metropolitan areas, and into parts of the country carried by Trump.
Some people are clinging to a perception that the pandemic is mostly a blue state — and urban — problem, and perhaps McConnell assumes his position will be popular in Trump Country.
The organizers of the anti-lockdown protests have worked to create the impression of a groundswell of populist rage at elites shutting down the economy in parts of the country far less impacted by the virus, to protect heavily impacted areas.
Those elites, of course, are mostly Democratic governors, relying on scientists who shouldn’t be trusted. As Tucker Carlson put it, the idea that quarantines are necessary to save lives is “a lie,” because “there is no scientific record to consult.”
Tucker Carlson wouldn’t know a scientific record if it bit his ass.
At times these political-geographic fault lines have been made explicit. The New York Times recently observed that in Michigan, protesters from rural areas are “nearly all white,” with some “hoisting Trump signs and Confederate flags,” even as the vast majority of those afflicted and dying are “concentrated in heavily black and Democratic Detroit.”
Trump himself crudely nodded to this when he mused about quarantining off East Coast blue states, as if to protect virtuous Red America — often described as “Real America” by his propagandists — from infestation by an export from diseased Blue America.
As Ed Kilgore noted, Trump and his followers are relying on such sentiments to fuel the anti-lockdown protests, by blaming “social and economic restraints that are still in effect in much of the country on cities, many of them heavily black, where the coronavirus has been most destructive.”
However, there is all kinds of polling saying that most Americans support the pandemic restrictions and are concerned they will be lifted too soon. And if the poorer red states start getting slammed with more sick people than they can handle, you can bet they are going to be begging for federal relief dollars.
I will give Andrew Cuomo the last word.
Cuomo took McConnell to task in a Thursday press conference, first laying out why he finds state and local government funding to be so important, and then decrying McConnell’s “obsessive political bias and anger.” …
… Cuomo then brought up some cold hard numbers. While New York state contributes billions more dollars to the federal government than it gets in return, McConnell’s state of Kentucky relies on billions of dollars of federal funding each year, prompting Cuomo to ask, “Sen. McConnell, who’s getting bailed out here?”
Maybe that issue of red states being parasites on the blue states can be addressed by a future Democratic-controled Congress…
A little off topic…but
https://www.nytimes.com/2020/04/23/us/florida-coronavirus-unemployment.html#commentsContainer
To quote the illustrious Donald J. Trump…."They got caught." Seems the chickens have come home to roost.
Sorry about that. The link was for the comments section. Although they are worth a read. Here's the link to the actual story'
https://www.nytimes.com/2020/04/23/us/florida-coronavirus-unemployment.html
IMO, If Moscow Mitch doesn't agree to help ALL states pay-off the unexpected massive expenses associated with The tRUMP Plague (Covid-19 pandemic), we need to change the system, and cut-off the Red Welfare states, which are the beneficiaries of the extra tax dollars paid by Blue States!
Moscow Mitch, YOUR state is the one that sucks the most milk out of the Blue State's teats! And after decades of the largesse of those if us who live in Blue States, helping keep KY from turning into a honky Western version of Somalia – only with far more inbreeding – you have the temerity to stiff your state's betters?
Well, bless your heart (which, to translate from Southern-speak, basically means fuck you, fuck the jackass you rode in on, and fuck your Mammy and Pappy!).
I have a question for all of you: Who's done more permanent harm to America? Decades of Moscow Mitch in the Senate, or the 3+ years under presiDUNCE tRUMP?
Hmm…
Mebbe that's too tough to call, no?
I'd like to know about the economies of two red states in particular. Florida and Texas. Florida has no income tax. What that means to me (and I'm no expert even though I'm a resident) is that the backbone of tax revenue is business in Florida. What's the main economy of the Sunshine State? Tourism. Does anyone expect tourism is going to come roaring back in 2020 or 2021? If Florida doesn't get help from the federal government, it could turn permanently blue.
Texas. Again, I'm no expert, but petrol seems to be a big part of their economy. Petrol futures hit zero for the first time in history. Somebody more into it than I am can compute the impact of petrol contracting on state revenue but I suspect it's significant. These are the anchor states for the GOP as far as the electoral college is concerned. Trump is no genius but he's figured out how to count Electoral College votes.
I'm not making any predictions but the governors in red states may look at the tea leaves as they relate to McConnell's plan. They're going to be getting the message that in a time their revenues are contracting (and many states can't operate at a deficit) they will HAVE to raise taxes if they want to provide essential services. They're going to be told that if they will accept a knife in the back, it will allow the federal government to knife NY and California.
I'm not sure they will line up for that. There's no reason to think they will be rewarded for it. (See how Trump just threw Gov. Kemp of GA under the bus.) Some will but red states like Louisiana and South Dakota are dealing with real outbreaks. (S. Dakota, if I recall is/was heavily into fracking and that industry and tax revenue just died.) Other Republican governors have been pushing back against Trump so I have some doubts about all red state governors signing on to a suicide pact.
John Heilemann made an interesting observation/ comment. That Mitch is just playing to the base with his stupid comments. If Trump and the repugs think they have problems now, just let California and New York declare bankruptcy. That would flip this nation on its head and there would be no telling where we would end up…probably a complete collapse of the US economy with severe ramifications throughout world economies.
It's possible the Mitch has adopted, and now advocates, the Donald J. Trump method of shedding debt and responsibility. Just walk away and leave somebody else to suffer the loss. Take a financial dump and move on in search of you're next victim.
After seeing clips of yesterday's tRUMP presser, I'm investing my last few bucks into the futures of butterfly nets, straight-jackets, gurney's, straps, and anti-psychotic meds!
Somehow injecting light into people's bodies? Injecting light and heat?
Directly injecting disinfectants and cleaners into the body? (Saying that caused the company that makes Lysol to send a warning that no one should try that!).
"I don't know, I'm not a Doctor, But that's a possibility. We can try that, I'm just saying. What do you think, Doctor?"
'I think maybe that the 25th Amendment isn't enough, Mr. "President." I think we need a 50th Amendment, because at the level of your insanity, we'll need to make doubly sure that you're committed somewhere far, far away from doing any more harm to America and its people!'
Please, God, bring on that comet!
Trump is trying to show his creativity by exploring all possibilities. It only shows that he doesn't understand the basics of science or medicine, and that he is desperate to minimize the effects of this pandemic. I'm surprised the didn't suggest using packets of dish washing detergent as suppositories to cleanse the system of the coronavirus.
Andy Borowitz has posted advice to four year old children that even though they are stuck at home with nothing to do that is NO EXCUSE for them to do anything Trump tells them to do. That Andy has quite the knack for satire.
Krugman cites Inflation Protected Securities at -0.56% which for most mortals and almost all Trumpanistas, some translation. Negative anything gives a lot of people thinking fits and a percentage sign is one of those things that fit in the I used to know how to deal with those category. It is not all that Milo Minderbinderish (a character in Catch 22) for those who have read it with a little elaboration.
The negative part is the simple part. In most investment they pay you to use your money. Here you pay them. Instead of a rate of return per year on your money you pay them to hold on to it. Why would anyone do that? Well, you get some assurances that the buying power of the money they pay you back with will be about the same as what you loaned them. It is a way to park money for a later time when inflation is expected. They charge you an effective fee for this insurance, which is the negative rate. How much that rate is, is in effect, the fee they charge.
So how much is that fee. Well it changes over time and is determined by market forces. The percentage he is quoting is probably the one posted on the date of the article. So how much of a fee is it. Well it is about a half of a cent per dollar, or 56 cents per hundred dollars. Onward, this would be $5.60 per thousand dollars per year you would owe them to store your dollars. How many dollars do you get when the term of your loan to the government is up? Well it is what the government says is the number of dollars that would buy the same amount as you gave them years ago, minus the fees of course. The negative rate indicates those who buy these are predicting more than you gave them (in future dollar quantity) and the fee they charged.
So the smart money sees this "helicopter money" (just fly over and drop money out of a helicopter) we are getting as inflationary. That would fit the basic definition of inflation as an increase in money supply. They just put it on the national credit card so to speak and fired up the printing presses. This is one expensive mistake Trump has made. Early and proper action on this pandemic would have been much less expensive than what we are in now. How expensive is it going to be? Let us just say opinions vary widely.
This info is IMO only, and not intended as other than a translation of Krugman's article for what I know from experience is a communication problem for many. I hope this makes his statement more clear for some, but I make no guarantees in any individual case. You just cannot write the stuff Krugman does on a Readers Digest reading level.