First, one of the main points of allowing states to declare bankruptcy would be to get out from under their state employee pension funding obligations. At the very least, it gives worker-hostile elements at the state level more power against state employee unions:
Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout.. . .Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.“They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”
So this one aspect is already a two-fer Republican wet dream. Not only would allowing states to declare bankruptcy allow states to crush unions, and thereby crush workers, an idea at the dark heart of every Republican, but it would take the pressure off Republicans in the state legislatures to do something sensible, like raise taxes. Voila!
Not only that, but if state workers were sufficiently demoralized to go elsewhere, the state government itself would be weakened. And that satisfies Republicans' irrational hatred of government.
There's the possibility, too, that the states could, under the law, move employees from a defined benefit program (that is, pensions with a guaranteed payout per month) to a defined contribution program (more like a 401k, 457b, 503c, or similar plan). This is a standard move the corporations have been using for decades to fuck workers out of a decent retirement, because it is practically impossible to sock enough away in such a plan to pay for life after the office. But then again, it's very Republican to die in a small, unheated apartment in the middle of winter because you couldn't pay your gas bill.
But all of this isn't even the best part for Republicans. No, the best part is that if one or more states declared bankruptcy, that state's credit rating would be shot to hell. No one would be interested in buying that states bonds for years to come. This would make deficit financing almost impossible going forward, and would, in one fell swoop, usher in an era of Republican austerity, the kind they've been aching for for decades now.
Moreover, even any serious move to push such a law through Congress would spook the entire state debt market; since the law would be applicable to all states, not just ones in financial trouble, no potential investor could be sure a state would not just declare bankruptcy as a first option, not a last resort. This would be particularly true if the state legislature were controlled by Republicans, who are vindictive when holding others to their debts, but almost criminal in escaping theirs. Fiscal responsibility is some other schmuck's problem. The nationwide state debt market would be chilled enough that suddenly, states who were maintaining fiscal soundness would suddenly become cash-strapped, or even insolvent, themselves.
So the effect of Gingrich's pet law would be to (1) crush unions, (2) bring state employees to heel, (3) keep Republicans from having to raise revenues, (4) weaken the states' ability to borrow money, (5), weaken the states, generally, and (6) usher in a brand spanking new Golden Age Of Republican Austerity For All (except for them and their supporters, of course).
Sounds like a very good way of creating a Great Depression out of a Great Recession. With Hu Jintao's visit with Obama starkly pointing out how well China is doing economically, and how poorly the US is doing, you would think Republicans would be scrambling to rebuild our economic base. Instead, they are busy dragging us off the cliff into Third World status.
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