“. . . 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.”
A number of governors have already denounced McConnell’s position as stupid, which it is. But it’s also vile and hypocritical.
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.
This is, as I said, stupid on multiple levels. For one thing, states don’t even have the legal right to declare bankruptcy; even if they somehow managed all the same to default on their relatively small debts, it would do little to alleviate their financial distress — although it could cause a national financial crisis.”