Wednesday, January 21, 2009

Me to California: Drop Dead

In 1975, the municipality of New York had a severe crisis and required outside assistance to prevent default. The city received a loan from New York State and when that was not sufficient, asked President Ford for assistance. Ford was slow to offer assistance, prompting the New York Daily News to print the headline Ford to City: Drop Dead. Of course that was something of an exaggeration, because in early December of that year President Ford signed a bill authorizing loans of up to $2.3 Bn per year for the following few years. But, the conditions that were attached were very important: tax increases, wage freezes or cuts, staff cuts, and all the rest of it. And equally as important, the terms of the loan also commadeered the city's revenue streams to pay back the feds before the city's political establishment could get a hold of it.

We are again in period of debt crisis, of course. As big as it is, New York City is only one municipality. We are now in a situation where several states and many municipalities are danger of bankruptcy. But California is the worst case. And it's inconceivable that Congress and the Obama Administration will not bail out a state that gave 55 electoral votes to Obama and elected umpteen Democrats in the House of Representatives. Therefore, let the Congressional Republicans get out in front: yes, we'll propose the government loan California (and implicitly every other state) whatever it needs to stay afloat, with similar terms that President Ford bailed out New York City. By circulating the idea first, the GOP can frame the issue on their terms instead of merely offering some less of the same alternative.

The operating principle is that we ought to help our states and municipalities if we can, but the terms of assistance should be onerous enough, especially to the political classes there, so that they should never plead poverty to the feds if there's any chance they can make it without federal money.

The other team is the majority of course, and they might choose to give California money instead. Everybody really knows, that the GOP is, relatively speaking the party of fiscal conservatism. George W. Bush was an expensive exception, but an aberration nonetheless. We might as well take the opportunity to remind everyone.

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