Home -> Law Blog Directory -> Bankruptcy Blogs -> Arizona Bankruptcy Attorney Blog

Bankruptcy

: Arizona Bankruptcy Attorney Blog

Bankruptcy Alternatives for States: Keep Doing the Same Thing and Expecting a Different Result!

By Joseph McDaniel, Esq.

There is one alternative for States that are currently insolvent that I haven't yet discussed, and my only excuse is that I didn't think it was a worthwhile alternative.

In fact, it was so nutty, it never crossed my mind.

But a friend suggested to me that nobody ever went broke underestimating the intelligence of politicians, and he's probably correct.

Now, a normal human can't use this bankruptcy alternative, because when a person runs out of money, he's out of play; he can't magic money into existence.

But a State that's spending far, far more than it takes in has an alternative that a human does not.

It can just keep spending! 

See, a State can keep spending by taking more away from people who work for a living; in Illinois, that meant a 66% increase in taxes.

And that's one way to keep doing the same thing and expecting a different result.

And that will generate a different result; everybody who works for a living, and makes substantial money, and has a pocket calculator,  and can use it, will run away from Illinois!

So by the Law of Unintended Consequences, a State that tries to continue to spend more than it takes in can simply raise taxes to the ceiling, and watch as the amount of money coming into its coffers gradually dwindles.

But a spending addict is like an alcoholic; where there's a will, there's a way!

So even after most sensible folks have fled the tax police in Illinois, Illinois will have some tax revenues and can still pay cash to some folks, as it chooses.

And it can use scrip of some kind (essentially I Owe U notes), and some people will use those like money, except deeply discounted.

Eventually nobody will take the scrip, and nobody will loan another nickel to the State of Illinois, and it will go to the Federal Government for a bailout.

But wouldn't you know it? This is a bad time to go looking for bailouts!

And it seems to me that the progression would be as obvious to politicians in Illinois as it is to me, but I've been wrong in the past.

And he who lives the longest sees the most!

 

Full post as published by Arizona Bankruptcy Attorney Blog on January 29, 2011 (boomark / email).