Opening Bankruptcy Court to the States – Imagine a time a year or two into the future. A large American state has reached the limit of its ability to raise taxes and cut spending. It then is unable to roll over its debt. It defaults. Imagine also that a hedge fund has bought a good deal of that debt in the distressed debt markets. It puts all that debt in a newly formed limited liability company, or L.L.C., and when the state in question defaults on the debt, the L.L.C. files a Chapter 11 petition. And then the debtor (the L.L.C.) seeks to enforce that debt, as it is the only asset in the debtor’s bankruptcy estate. “Impossible!” you say, since states enjoy sovereign immunity. Well, outside of bankruptcy they do. But in 2006, the Supreme Court held that the Bankruptcy Clause to the Constitution represents an exception to the normal rule of sovereign immunity. So maybe this little scheme might work, at least if the L.L.C. were given a few other assets to make the scheme a little less obvious. This possibility raises the question of whether we should amend the Federal Bankruptcy Code to allow states to file for relief under Chapter 9, like municipalities, counties and other subsidiary governmental entities can already do. Even if states never filed under Chapter 9, such an amendment might be a good idea for a few reasons.
About 6 Million Didn’t Work at All Last Year – Nearly 6 million Americans looked for work but weren’t able to find employment at all last year, a new report shows. The Labor Department’s report on work experience in 2009, released today, highlights the long-term unemployment problem that’s likely to linger for years. Some 5.8 million job-seekers were without work for the entire year in 2009, an increase of 2.7 million from a year earlier. The majority of those unemployed for the entire year, nearly 57%, were men. Long-term unemployment, which describes people who have been out of work for 27 weeks or more, has been more pervasive in the latest downturn than any other period on record. Of all those unemployed, 41.9% had been out of work for more than six months as of November. Economists widely acknowledge the vexing nature of the problem. It has the potential to be long-lasting, it’s expensive and it’s not clear what policies would be most helpful in solving it.
The Organization for Economic Cooperation and Development, which administers the test, has put together some handy graphs showing how well a country’s students scored on the reading portion of the test in comparison to other variables, like how rich or educated that country is. Below, for example, is a graph showing a country’s gross domestic product per person versus the country’s reading test scores. The relationship between the two is very weak.
Is the Tax Deal Targeted, Timely, and Temporary? – Is this the best deal we could get in terms of its economic impact? Not by a long shot. Stimulus packages are supposed to be targeted, timely, and temporary, and this bill fails on all three fronts. It certainly could have been targeted better. Take the payroll tax cut. It will apply equally at all income levels and thus, in absolute terms, the highest income taxpayers will receive the highest benefit. Tilting the benefits toward those who are more likely to spend the tax cut rather than save it would enhance its impact. The same is true with items like tax cuts for the wealthy and the estate tax. Is it timely? No, it’s much later than would be optimal. There are lags between the time a bill passes — which this one has yet to do — and the time it actually hits the economy. We don’t need a stimulus several months from now, we needed it months and months ago. Will it be temporary? It’s supposed to be, at least according to what the bill says, but that’s not the intent of the GOP regarding their favorite tax cuts. And as I noted here, it will be hard to raise the payroll tax a year from now if the economy is still lagging, as it’s likely to be, and that sets it up to be extended permanently.