Following on Friday's "Run Fast, Run Far": "New Census data: 75% of Illinois cities shrank last year, Chicago population drop nation’s 3rd-worst".
From City Journal, June 13, 2023:
A new book runs through the available options—none good.
In a Bad State: Responding to State and Local Budget Crises, by David Schleicher (Oxford University Press, 248 pp., $29.95)
Imagine, sometime in the next decade, that the governor of Illinois and the mayor of Chicago hold a joint press conference to declare that the state and city can’t pay their bills. Schools close, crime spikes, garbage goes uncollected, and public employees protest proposed job and pension cuts. It’s a mess. What, if anything, should the federal government do?
Yale law professor David Schleicher opens his new book with this scenario and question. In a review of past federal responses to state and local fiscal distress, he finds that the national government has answered with policies ranging from austerity to defaults to bailouts.
In the complex and infrequent event that American states or cities find themselves on the fiscal precipice, federal policymakers want to achieve three things: prevent major macroeconomic contraction, preserve the bond market so that states and cities can continue to borrow and build infrastructure, and discourage states and cities from making irresponsible future budget decisions. The hitch, Schleicher observes, is that the national government can achieve only two of the three goals. Solving a fiscal crisis is like remodeling your home: you want it to be fast, cheap, and good—but if it’s fast and cheap, it won’t be good; if it’s good and fast, it won’t be cheap; and so on. This is Schleicher’s “trilemma” of fiscal troubles in our federal system.
Consider three likely reactions to the hypothetical insolvency of Illinois and Chicago. Some federal officials will argue that austerity is not the answer. Laying off hundreds of public employees and slashing services will tank the state’s economy. Human suffering will result as crime increases; student-teacher ratios in classrooms will spike; homelessness will rise as health care becomes scarcer. Raising taxes in such an environment will encourage individuals and businesses to flee the state. In short: austerity is too economically painful.
Other federal officials, primarily those elected from other states, will argue that the taxpayers they represent should not have to bail out the profligacy of others. If the federal government bails out Illinois and Chicago, then surely other state and local governments will spend irresponsibly, expecting a federal rescue if things go awry. The federal government shouldn’t encourage moral hazard.
Still other federal officials will say that default cannot be the answer because state and local governments build and maintain much of the nation’s infrastructure—roads, sewers, trains, buses, and more. To do this, they need to borrow money by issuing bonds. Default would not just cut off Illinois and Chicago from the bond market; it would also increase the borrowing costs of other states and cities around the country. Slowing down state and local government infrastructure spending will reduce national economic growth.
This example shows that powerful arguments exist against austerity (cutting services and raising taxes to balance the books and make payments jeopardizes citizens’ well-being); against bailouts (asking others to pay for irresponsible budgeting encourages future recklessness); and against default (cutting the state or local government off from debt markets increases borrowing costs in other jurisdictions). In short, state and local fiscal crises create situations in which all options are bad.
How have federal policymakers weighed these options? Schleicher examines the limited number of cases. When Alexander Hamilton planned for the national government to assume the states’ Revolutionary War debts, he was, in effect, crafting a federal bailout of some fiscally distressed state governments. But when local governments faced debt crises induced by the issuance of bonds to build railroads in the late nineteenth century, the federal government chose austerity....
....MUCH MORE
Also last year: "Meanwhile In Chicago: New Mayor Brandon Johnson Comments On 12 Murdered, 50 Wounded Over Memorial Day Weekend"
...As noted in our earlier post, the political machine from whence sprang Mayor Johnson has controlled the mayor's office for the last 92 years.
"What we saw this weekend was a manifestation of community disinvestment,poverty, trauma that our city has struggled with far too long,"...Maybe 91 years too long....
Chicago has passed the point of no return so the main occupation of the politicians is to siphon for themselves and their cronies as much money as they can, and try to stave off the inevitable until they leave office.
