Is it too big to fail? Megan McArdle believes the possibility certainly exists (I mean was Arnie really in DC yesterday just to see the sights). Says McArdle:
If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.
But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.
Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.
But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.
My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.
Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.
Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.
What to make of this trend? I think Oklahoma got the 10th Amendment push-back ball rolling, Montana advanced the ball several yards, Texas got into the game recently (albeit, too glibly), several other states are getting their shots in, and now North Dakota takes it’s turn.
The resolution in the North Dakota legislature asking the federal government to begin recognizing the 10th amendment and to stop overreach into state matters, the one the Fargo Forum wrote off as being part of a “secessionist movement, has passed in the Senate. By a strictly party-line vote, unfortunately, meaning not one Democrat in the legislature had enough respect for the sovereignty of North Dakota to vote for it.
The resolution now goes to the House, where I expect it will also pass. Also, I’m guessing, by a strictly party-line vote. Which, if it happens, would be a small bright spot in an otherwise dim legislative session. It takes a certain level of conviction for politicians to vote for a resolution like this one. Would that the Republicans voting for it now had the courage of those convictions when faced with legislation that grows spending and government in the state.
At Say Anything, Rob Port has a copy of a state Senator Joe Miller‘s speech in support of the resolution from the Senate floor. I recommend you go there and read it.
Combined with some Governors rejecting portions of the stimulus funds, and the Tea Parties breaking out all over the country, I’d say it’s a good sign that people are finally telling Washington to take a hike. Personally, I would say that both Porkbusters and the Sunlight Foundation are owed some credit as well, but either way it’s about time that the federal government was reminded of its place. Granted, it’s a fairly small reminder, but maybe one that can be built upon.
So where does all of this lead anyway. Is there any hope that all of this momentum will lead to less federal government interference? How about some support for repealing the 17th Amendment? I’d like to think that it will end up reducing the size of government (i.e. electing fiscally conservative representatives who will cut taxes and greatly slash spending), but once that horse left the barn, the barn was burned to the ground and a giant spending dance was done on the smoldering ashes. Nevertheless, is there some small ray of hope that the states will rein in our profligate Congress?