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March 9th, 2010 2:19 pm
Government Bankruptcy and the Illusion of Orderly Crisis Management

Maybe it is 100 years of Progressive institution building that obscures the lessons of history, but the writers of Slate are kidding themselves if they think that just because there are no formal legal structures to handle California and Greece’s looming bankruptcies, then it must also be true that they cannot declare bankruptcy.  That view betrays the positivist’s creed that if a problem isn’t addressed in law, then it cannot be resolved by government. More likely, private creditors will get soaked while the larger governments negotiate a separate peace.

History teaches that the inability or refusal to pay sovereign debt (whether loans or tribute) typically leads to the expansion of government power.  Since both California and Greece are de facto sub-agencies of the US and EU, respectively, here’s betting that on net, the federal governments of the United States and European Union will emerge with even more power than before.

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