Friday, April 24, 2020

McConnell on states' fiscal crunch - let them eat bankruptcy papers

McConnell to Every State: Drop Dead. Paul Krugman says Blocking federal aid is vile, but it’s also hypocritical.

Covid–19 has killed tens of thousands of Americans, and will clearly kill many more. The lockdown needed to contain the coronavirus is causing an economic slump several times as deep as the Great Recession.

Yet this necessary slump doesn’t have to be accompanied by severe financial hardship. We have the resources to ensure that every American has enough to eat, that people don’t lose health insurance, that they don’t lose their homes because they can’t pay rent or mortgage fees. There’s also no reason we should see punishing cuts in essential public services.

Unfortunately, it’s looking increasingly likely that tens of millions of Americans will in fact suffer extreme hardship and that there will be devastating cuts in services. Why? The answer mainly boils down to two words: Mitch McConnell.

On Wednesday, McConnell, the Senate majority leader, declared that he is opposed to any further federal aid to beleaguered state and local governments, and suggested that states declare bankruptcy instead. Lest anyone accuse McConnell of being even slightly nonpartisan, his office distributed two memos referring to proposals for state aid as “blue state bailouts.”

When I say that we have the resources to avoid severe financial hardship, I’m referring to the federal government, which can borrow vast sums very cheaply. In fact, the interest rate on inflation-protected bonds, which measure real borrowing costs, is minus 0.43 percent: Investors are basically paying the feds to hold their money.

So Washington can and should run big budget deficits in this time of need. State and local governments, however, can’t, because almost all of them are required by law to run balanced budgets. Yet these governments, which are on the front line of dealing with the pandemic, are facing a combination of collapsing revenue and soaring expenses.

The obvious answer is federal aid. But McConnell wants states and cities to declare bankruptcy instead.

Stupid? Absolutely. Krugman observes that “states don’t even have the legal right to declare bankruptcy”.

So McConnell’s position is stupid. But it’s also vile.

Think of who would be hurt if state and local governments are forced to make drastic cuts. A lot of state money goes to Medicaid, a program that should be expanding, not shrinking, as millions of Americans are losing their health insurance along with their jobs.

As for the state and local government workers who may be either losing their jobs or facing pay cuts, most are employed in education, policing, firefighting and highways. So if McConnell gets his way, America’s de facto policy will be one of bailing out the owners of giant restaurant chains while firing schoolteachers and police officers.

Thanks to our Roving Reporter for this tip.

That was Thing 1. There is a related Thing 2.

McConnell’s stupid/vile stance against aid to states does not spare inflicting misery on his own state.

This post in the Daily Beast documents McConnell’s treatment of his own state: McConnell Delivers Gut Punch to His Home State, Dems Say. “If the city isn’t getting any revenue, which right now it basically is not, how are they going to pay their first responders?” asked Rep. John Yarmuth.

"It was kind of like a punch in the stomach to read,” Joni Jenkins, the Democratic minority leader in Kentucky’s state House of Representatives, told The Daily Beast. She explained that Kentucky, like nearly every state and local government in the country, is staring down an unprecedented fiscal squeeze. With normal business and commerce ground to a halt, sales tax revenue is drying up; skyrocketing unemployment rates mean that state income tax revenues will crater, too.

… Rep. Peter King, a Republican who represents a Long Island district near the disease’s epicenter in New York City, called the bankruptcy remark “shameful and indefensible.”

“To say that it is ‘free money’ to provide funds for cops, firefighters, and healthcare workers makes McConnell the Marie Antoinette of the Senate,” said King. …

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