The Democrats will own America. Their past will sink them.

Summary: The Democrats have a potentially winning game. But economics are trump in politics, just as in almost everything else. Their past spending sins might crash their parade.

Financial stress dial

 

The Democratic Party’s leaders probably believe they have a winning strategy. Open the borders, offer increased welfare, reparations to Blacks (and then perhaps other formerly oppressed groups), benefits to women – all at the expense of white and males. Vote harvesting (door-to-door collection of ballots, where legal). Assuming they can hold the coalition together and keep their extremists off TV, the numbers look good.

One potential pin for their balloon: many long-time Democrat-run local governments will go broke in the next few decades. The timing depends on the business cycle – how many recessions occur, plus their duration and magnitude. Some States are vulnerable, such as Illinois, New Jersey, and Connecticut (see Pew’s display of states’ financial health).

Counties, cities, local agencies – thousands of entities, many of which are doomed past the point of recovery (although they can still pay their bills). What will put them down are their obligations for pensions and retirees’ medical care. California is poster child for financially weak local governments (see the Pension Tracker of the Stanford Institute for Economic Policy Research).

It was a great game!

Politicians got votes by promising lavish benefits but not paying for them (i.e., fully funding the retirement plans). But all games come to an end – and the bills come due. Experts have been warning us for decades. Here are a few of the many recent ones.

We don’t remember, we don’t learn, we don’t prepare

A common element of our public policy issues is how our amnesia shapes them. We do not remember past extreme weather, so activists blame all extreme weather on our emissions of greenhouse gases. We fight and lose 4th generation wars because we do not learn from our previous defeats (or from the defeats of other nations). We do not remember the long history of debt defaults by State and local governments, and so do not prepare for the coming ones.

Note: failure to pay interest or principle on debts is “default.” Bankruptcy is a process of resolving these in Federal Courts.

States cannot file bankruptcy. The 11th Amendment to the Constitution prevents citizens from using the Federal Courts to compel States to honor their contracts. Only State constitutions and laws can do so, and they often allow flexibility by their governments to debts. Article I Section 10 of the Constitution prohibits States from passing a “law impairing the Obligation of Contracts.” Federal Courts have had differing interpretations of this. The bottom line: States have defaulted 17 times (perhaps more), in many ways.

  • Eight States defaulted during the 1840’s.  Four outright repudiations:  Arkansas, Florida, Michigan, and Mississippi.  Adjustments in Pennsylvania, Maryland, Illinois, Indiana, and Louisiana.
  • Eight States defaulted to varying degrees during the 1870’s and 1880’s:  Alabama, Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee, and West Virginia.
  • Arkansas defaulted on its bonds in 1933; but eventually paid all creditors in full.

Most of these disputes were settled only after long battles in the State legislatures and courts (State and Federal), usually with partial payments (often long delayed).  As a result there is a large body of case law on State defaults, which we might soon dust off and use.

Local governments more often default. There have been countless defaults by local governments since the Founding. There were 46 bankruptcies by municipal governments between 1988 and July 2013. See the history of municipal bankruptcy filings: graphs show filings by year (1938-2015), by State, by type of entity.

Defaults of municipalities are governed by Chapter 9 of the Federal Bankruptcy Code.  It might get big use during the next few decades. To understand how this works, see the US Courts page about Chapter 9. For more detail see the “Primer on Municipal Debt Adjustment” by Chapman and Cutler LLP.

Clock at the end of the world
Clock at the end of the world.

The bottom line: money and politics

After decades of warnings, the coming defaults can no longer be avoided. But the damage can be mitigated with immediate action. But I will bet that we will do nothing.

It will be messy. Millions of people will be hurt, as each defaulting State and local government respond in different ways. Investors will lose money. Medical benefits will be reduced. Pensions will be reduced. Taxes will be raised. Government budgets will be reduced.

Many, perhaps most, of these entities will be run by Democrats. How will that affect perception of the Party? How will people in defaulting local and State governments react to the turmoil of default? Who will they blame? The answers will shape US politics for the next generation – or longer.

For more information

The information about State defaults presented here comes from American State Debts by B. U. Ratchford, Asst Prof Economics at Duke (1941).  For more detailed information I recommend The Repudiation of State Debts: A Study in the Financial History by William A. Scott, Asst Prof of Political Economy at U Wisconsin (1893).

Ideas! See my recommended books and films at Amazon.

Please like us on Facebookfollow us on Twitter. See these posts about government debt, about the debt supercycle, and especially these…

  1. About the coming crisis in public pensions.
  2. Governments cannot go bankrupt – they can default.
  3. American States on the brink of financial catastrophe.
  4. Public employee unions – an anvil chained to the Democratic Party.
  5. Fact & myth about the debt supercycle, a story of modern America.
  6. Harsh truths about the Federal debt, showing how Left & Right lie to us.
  7. Prepare for the bankrupt government pension plans!

25 thoughts on “The Democrats will own America. Their past will sink them.”

    1. Larry Kummer, Editor

      info,

      “Populism” is, like so many terms these days, used without fixed meaning. The usual meaning was as a right-wing politics, much as progressives are on the left. Andrew Jackson is the exemplar. Emphasis on white’s racial identity, nativist, hostile to banks, elites, social engineering, and big government.

      Yang is the opposite of a populist. See his platform. That is for public consumption, the usual cornucopia of goodies, and does not mention the less popular leftist core doctrines – his support for reparations – and other issues, such transgendered, open borders. He is pretty much a standard version of modern progressivism.

  1. States and municipalities seem to be waging a war against their tax payers: taxing more and offering fewer services to taxpayers and more services to dope fiends and illegals. Many cities and states think they can tax their way out of their outrageous spending, but the rich are not bolted to the floor so they leave for FL or other low-tax state. The voters – and this is why the franchise should be limited – approve more taxes in the form of bond measures every 2 years. These bond measures are used for their stated purpose, most often, but conceal the fact that more and more of the general funds of cities are being spent on pension obligations. The principle and interest of the bond must be repaid by the voters. The voters never learn.

    Services are offered to dope fiends who throw trash and needles in the streets, human waste, and create a huge health hazard with disease. They also require expensive ER services and NARCAN ($5k/dose – paid for by the taxpayer). The police are prevented from enforcing ordinances that eliminate this problem.

    The infrastructure – roads, bridges, and sewers – is also crumbling.

    I’d give California 5 years.

    I suppose the Democrats can win elections but they will swiftly bring destruction. Who knows if this will ever wake their voters from their stupor. In Latin America, voters keep voting for more of the same. This seems to be true here.

    1. Larry Kummer, Editor

      Bryce,

      “States and municipalities seem to be waging a war against their tax payers: taxing more and offering fewer services to taxpayers and more services to dope fiends and illegals.”

      I don’t believe you meant that as stated. It’s not true for many (perhaps most) GOP-run states.

      “The infrastructure – roads, bridges, and sewers – is also crumbling.”

      That’s a national problem! I don’t know why. Infrastructure spending has been popular since Lincoln, and helped make America a great nation.

      “I’d give California 5 years.”

      As someone who lived in crazy-central (the San Francisco Bay Area) for 31 years (fleeing to Iowas last year), I agree it’s on a collision course with reality. Titanic, meet iceberg. Rather than a date, my guess is that it will drift along until the next recession – which probably include a crash in tech stocks (and annihilation of the many unprofitable ones). This will not only hurt its economy, but its State tax revenue depends heavily on capital gains – which will drop hard.

      For more about this see:

      Also, California is highly vulnerable to natural disasters. Earthquakes, of course (my house was on the Hayward Fault, one of the two ones most likely to go boom). And megafloods, esp the eventual return of the ArkStorm – details here.

      1. don’t believe you meant that as stated. It’s not true for many (perhaps most) GOP-run states

        The party running the state doesn’t seem to matter in the long run. Both republicans and democrats want more Mexicans. California was once a GOP state. So was Texas. The same bureaucracies that give handouts to the Mexicans also give handouts to dope fiends.

        That’s a national problem! I don’t know why. Infrastructure spending has been popular since Lincoln, and helped make America a great nation.

        It’s a national, state, and municipal problem. California has something like $80 billion in deferred road repairs. Roads in my city are rubble. I see the upside as more localism, walking, and mountain biking through the remains of the roads. 4-Wheelers might be another option. I like the idea of reviving a rail and light rail system. It’s obvious the nation will not continue to pay for roads on the level it has done in the past.

        Also, California is highly vulnerable to natural disasters. Earthquakes, of course (my house was on the Hayward Fault, one of the two ones most likely to go boom).

        We have so many fires you didn’t even feel the need to list them, haha!

      2. Larry Kummer, Editor

        Bryce,

        “taxing more and offering fewer services to taxpayers”

        That’s not correct about state taxes in most GOP-run states. I don’t believe that’s true about services in most GOP-run states.

        “We have so many fires you didn’t even feel the need to list them, haha!”

        Despite the hysteria, it’s not a major problem – like a 7.0 earthquake in a city, or repeat of the Arkstorm flooding the Central Valley. Also –

        • Wildfires affect the southwest as a whole. But only in California are large numbers of people affected.
        • Unlike megafloods and earthquakes, wildfires are a short-term problem. Eventually the fires will restore the forests balance, and homeowners will adjust.
      3. Sorry to keep finding silver linings but a new ark flood will at least clear the tent cities out. I have a boat.

      4. Larry Kummer, Editor

        Bryce,

        I don’t believe there are many tent cities in the Central Valley. You are thinking of the cities on the eastern side of the coastal ranges.

    2. Larry Kummer, Editor

      Bryce,

      A follow-up about California – I think you’ll like these from this week’s National Review.

      San Francisco’s Slow-Motion Suicide” by Michael Gibson.

      California Has Become America’s Cannibal State” by Victor Davis Hanson – Excerpt:

      “California has the ninth-highest combined state and local sales taxes in the country …About 150,000 households in a state of 40 million people now pay nearly half of the total annual state income tax. …What really irks California taxpayers are the shoddy public services that they receive in exchange for such burdensome taxes. California can be found near the bottom of state rankings for schools and infrastructure. …

      San Francisco ranks first among America’s largest cities in property crimes per capita. The massive concrete ruins of the state’s quarter-built and now either canceled or postponed multibillion-dollar high-speed-rail system are already collecting graffiti.

      Roughly a quarter of the nation’s homeless live in California. So do about one-third of all Americans on public assistance. Approximately one-fifth of the state’s population lives below the poverty line. About one-third of Californians are enrolled in Medi-Cal, the state’s health-care program for low-income residents. California’s social programs are magnets that draw in the indigent from all over the world, who arrive in search of generous health, education, legal, nutritional, and housing subsidies. Some 27% of the state’s residents were not born in the United States. Last month alone, nearly 100,000 foreign nationals were stopped at the southern border, according to officials. Huge numbers of migrants are able to make it across without being caught, and many end up in California. …”

      1. Larry Kummer, Editor

        Bryce,

        Another follow-up about California

        Why California’s leftists obsess about climate change and the need to flood the State with migrants from poor nations, they ignore other obvious dangers.

        Reassessing California’s Overdue Earthquake Tab” in EOS — “Paleoseismic records show that the current 100-year hiatus since the last major event on the San Andreas, San Jacinto, and Hayward Faults is unprecedented in recent geologic history.”

        This also reminds us that CA’s three major fault systems are interlinked. They appear to go thru combined periods of active and quiet. We’ve had the latter for a century. The 21st C might show the other side of that coin.

  2. That description of Populism is almost entirely incorrect. The term comes from the Populist Party (aka People’s Party) in the US in the late 1800s and was a left-wing movement. Their base was composed of farmers and agrarian laborers in the Midwest angry at the concentration of private power in the hands of railroad companies, private creditors, and monopolies. They wanted federal intervention into markets, fiat currency, progressive taxation, and public banking – pretty much the opposite of what can be called anti-big-government ideology. It’s why a red state like N. Dakota has a state-run bank to this day – it’s a vestige of the Populist movement.

    Another interesting thing is that the movement was pretty sophisticated on race – they viewed racism as a tactic for pitting workers with common interests against one another. Basically, they viewed race-baiting as a tool of the elite to entrench their power and divide people. And almost the exact opposite of the right-wing narratives today that are often called ‘populist’.

    Where you’re right is that terms like Populism are so abused, they’ve been applied to almost everything – including right-wing movements like McCarthyism and anti-immigrant nativism. But the theft of the word “populism” was always from Left to Right, not the other way.

    Yang is definitely not a populist, he’s more of a gimmick but Warren and particularly Sanders could both be called Populists.

    1. Larry Kummer, Editor

      Martin,

      Not so. As sociologist Margaret Canovan said, “there has been no self-conscious international populist movement which might have attempted to control or limit the term’s reference, and as a result those who have used it have been able to attach it a wide variety of meanings.”

      America’s 19th C populists continued many themes common back to Jackson. Such as hatred of the Northeast financial interests, emphasis on needs of rural American, nativism and racism. Try telling some Leftists today that President Jackson was one of them, or that nativism is a good Leftist doctrine. (These are themes, or averages. Like all political movements in a large nation like America, at each point the movement was heterogeneous (not uniform).)

      Identification of past political movements in terms of current politic are mostly tribal fantasy. As in both left and right disowning Hitler. The specifics identifying left-right on that one dimensional spectrum change over time. Also, movements on the fringes, such as populism and progressivism, often have elements of both Left and Right. That’s what confounds easy labeling of the Nazis. That was true in 2016 US, as Molly Ball explained in The Atlantic: “What Trump and Sanders Have in Common.

      This is critical to understand. Alone neither populists nor progressives have the strength to take power in America. The New Deal became possible because they saw enough common interests to work together (hence the New Deal’s strong nativist and racist elements).

      You might find these of interest, quoting (and linking to) many scholars studying the past and present of populism.

      1. What the press won’t tell you about Trump and populism — See Walter Russell Mead’s famous essay about Jackson.
      2. Why the Left is missing the rising populist movement.
      3. The Right struggles to understand Trump and populism.
      4. Liberals look at Trump and populism, but see only their prejudices.
      5. Racism is the dark side of populism. Will it divide and defeat us?
      6. Populism arises amidst workers abandoned by the Left, seeking allies.
      7. A Harvard Professor explains the populist revolt against immigration & globalization.
      8. An anthropologist reminds us why Trump rose & how populism will survive his crash.
      9. Populism is reshaping the West. Here’s what we can expect to get.
    1. Larry Kummer, Editor

      Occams,

      Why? I don’t see unusual levels of problems in the USA.

      We appear to have lost our love of self-government. But that’s a rare taste. Powerful nations have done quite well for centuries with other forms of government.

      1. Just watch. It’s been a lonnng time in coming, but it has just begun. Fraudulent ‘numbers’ can only last so long; i.e., “unusual levels of problems”?

        No, the government is good at ‘figures don’t lie, but liars figure’, and the Sheep are happy to accept whatever nonsense they’re told.

        “Self-govern”? Amerikans can’t even cross a street on a green light with being TOLD to ‘walk’. What a joke. Helpless.

        And the whole ‘dem-republican’ nonsense is just another Dog & Pony Show, meant for distracting ‘a nation with a collective, room-temp IQ’.

        And it’s worked remarkably well; Amerikans HATE each other, while outright murdering politicians go their merry, gold-filled (shekels) way, with endless debt, endless spending, endless wars, fraudulent ‘war on terror’ nonsense?

        Never changes….because we ALL know who really runs Amerika, anyway…..

      2. Larry Kummer, Editor

        Occams,

        “Fraudulent ‘numbers’ can only last so long”

        I wonder if you’re too used to talking to people in your bubble. What are these “fraudulent ‘numbers'”? It is not self-evident.

        “Amerikans can’t even cross a street on a green light with being TOLD to ‘walk’. What a joke. Helpless.”

        That’s pretty trivial. I think most people find them to be a useful advisory tool, not Hitler.

        “distracting ‘a nation with a collective, room-temp IQ’”

        Please forgive us if we’re just not as smart as you.

        “Amerikans HATE each other”

        I have been in every major city, in every state, of America. With Boy Scouts, I’ve been in scores of tiny towns. There are internal hostilities, just as in every human society, everywhere, across history. But Americans don’t all “hate each other.”

        If you are comparing America with Heaven – yes, we are not as good. On the other hand, Heaven is not a democracy. It is an eternal absolute monarchy.

        “Never changes…”

        I guess if you look at history as a blurr, and ignore the differnces, you can say “nothing changes.” Let’s send you back as a slave in 1850 in South Carolina. Report back and tell us how “nothing changes.”

  3. No one said anything about the Populists being internationalists, which they weren’t – they were exclusively concerned with the US.

    Hatred of financial elites goes back way before Jackson to the founding of the country to events like the Whiskey Rebellion and Hamilton’s efforts to entrench a financial elite within the federal political apparatus. There’s a debate about whether Jackson was a populist or not. He was certainly popular, but also had the backing of significant sections of the elite in Washington and the plantation South. It’s hard to argue he was a ‘populist’ when he had the support of large portions of the elite. In contrast, the Populist party of the 1890s and later was reviled by the Southern elite which was represented mostly by the Democratic party then. So there doesn’t seem to be a whole lot that was specifically Jacksonian about the Populist movement. They certainly didn’t invoke Jackson as some kind of ideal.

    No one, except holocaust revisionists, claims the Nazis were both left and right-wing. They’re universally recognized as a right-wing movement. One of the first things the Nazis did upon taking power was to destroy the trade unions and put labor leaders and socialists in concentration camps. It would be a strange thing for a left-wing group to destroy the source of their power immediately after taking power. And the 25 or so million Soviets who died in the war would probably have something to say about the idea it was just a minor squabble between two left-wing ideologies.

    Some of the left policies Sanders supports are wildly popular – universal medical care and free public education have large majorities of support among Americans. Conversely, Republicans tried to make the midterm election about nativism and the Wall and got flogged. It’s not as simple as you’d like to pretend that some combo of progressives and racisists will be a winning coalition. Besides, Trump is in power because of the electoral college – an invention of the elite used to suppress the popular will – so take claims of ‘populism’ with a grain of salt.

    1. Larry Kummer, Editor

      Martin,

      You’re just making stuff up. I suggest you read some of the experts I cite to learn about populism. One point, however.

      “No one said anything about the Populists being internationalists”

      Yes, nobody said that. You’re replying to your misinterpretation. The quote by sociologist Margaret Canovan was “there has been no self-conscious international populist movement.” All ideological movements in the West are international, and have been for many centuries. That includes populism. She is noting that populism spread across the West, but that it was experienced in each country as national phenomenon (unlike, for example, communism).

    2. Larry Kummer, Editor

      Martin,

      I forgot to respond to your not-knowledgeable mention of the Nazis. I doubt you will read any of the fine hard histories of the Third Reich, starting with William L. Shirer’s The Rise and Fall of the Third Reich.

      I recommend reading an eye-opening “autobiography” – Hitler in Hell by Martin van Creveld. He is one of the leading historians of our time, a retired Professor of History at Hebrew University of Jerusalem. The chapters about the genesis and evolution of Nazi Party are pretty amazing.

  4. The Man Who Laughs

    I have no doubt that you’ve got the facts right about the financial condition of many states and cities, and that you’re right that many of them are in a hopeless state. I also agree with you the Democrats look to have a winning coalition and a much better understanding of how to gain and wield political power than their Republican opponents. The Republicans are sleepwalking off a cliff. At the moment, the chief obstacle the Democrats face is the low caliber of their current Presidential candidates and the fact that the party for the most part seems to be barking mad. But even this might not be enough to save the GOP in 2020. In the long run the Republican party is probably dead, but I’m not ready to call the 2020 election quite yet.

    But I’m not sure that the state and municipal bankruptcies you expect would actually sink the Democrats, assuming that they gain power. Leftist governments have taken entire countries into the abyss without losing their hold on power. How long the Democrats could hold power would be a function of how hard they crash the country, how well they could provide for their key supporters, and how much coercive power they could deploy. Venezuela is one possible endgame for the American Republic. But I’m not sure how much actual system failure it would take to “sink” them. Maybe more than you think.

    1. Larry Kummer, Editor

      The Man,

      “But I’m not sure that the state and municipal bankruptcies you expect would actually sink the Democrats, assuming that they gain power.”

      I agree, unfortunately.

  5. I don’t believe there are many tent cities in the Central Valley. You are thinking of the cities on the eastern side of the coastal ranges.

    Yeah, but a lot of rain will make the creek beds uninhabitable for coastal vagrants. The creeks are much wider than the trickles through them need. Why is that? Periodic floods perhaps. There are flat spots on either bank that look like a ton of silt was pushed through them at one point.

    If the Central Valley flooded, it looks like the SF Bay is the natural drain judging by the map you posted. All of that water would have to go somewhere, though eventually it would drain back into the ground. I suspect the reason Sacramento flooded during the 1860s was that it was on the way to the ocean from the central valley. This is true for many of the East Bay cities.

    Why? I don’t see unusual levels of problems in the USA.

    We appear to have lost our love of self-government. But that’s a rare taste. Powerful nations have done quite well for centuries with other forms of government.

    Compared to other nation-states, I agree. But what if the nation-state order fell as it rose: together? Prior to WWI, I’m sure the world order looked like it would continue as it always had. Also, from a material and physical level, things look fine, or at least no worse than any other nation state. What about the spiritual level? Morally and spiritually, we look more akin to Sodom or at least 1st century Rome every day.

    1. Larry Kummer, Editor

      Bryce,

      All great points! Thank you for the follow-up.

      “But what if the nation-state order fell as it rose: together?”

      That would be a big deal. But there are no unusual signs of that today.

      “What about the spiritual level?”

      Neither I nor anyone else have a yardstick to measure that. Worries about that are ubiquitous background noise in history. Which is a good thing. If we don’t worry about a key factor, then we are likely to have problems about it.

      My personal guess (emphasis on guess) is that our spiritual state is no worse than average. Our minds are, imo, addled by the rapid rate of change. The “crazy years” that Heinlein predicted, as I have often written about. Again, that’s a guess. We’re probably too close to have a reliable perspective on such things.

      1. Bryce Sharper

        My personal guess (emphasis on guess) is that our spiritual state is no worse than average. Our minds are, imo, addled by the rapid rate of change. The “crazy years” that Heinlein predicted, as I have often written about.

        It’s definitely no worse than the average for peoples around the world, but maybe that’s the problem. If we’re merely average, we can’t maintain self-government, the nation-state system, or the West as it has been for 1500 years – a civilization based on nominally-Christian assumptions. If you accept Max Weber and Gorski’s idea that the Western nation-state system was possible because of the Protestant Reformation and work-ethic, the reversal of Protestantism in NW Europe and Christianity in the rest of the West, the nation-state order will not be possible. Lind said in one of his livestreams that the United States really can’t survive the loss of the Anglo-American culture which depends on its cult. I definitely agree that the rapid pace of change is compounding the problem. Many ministers have compared this time to either the first century or the early 5th century, both of which were periods of rapid change.

        One more word about the pension crisis. Westerners, in comparison to peoples from Latin America and even Asia, have been pretty happy to pay their taxes. I say “in comparison to” because we may grumble about it, but we generally accept the need of the government to tax to pay for roads and other services. When Westerners are replaced with non-Westerners, this assumption may no longer be valid. Many Latin Americans don’t pay taxes, from what I’ve heard. Working under the table is common for Latin Americans in the US. The remaining Westerners will grumble much more about paying taxes when they see others evading them. Also, it’s becoming obvious from our crumbling infrastructure that our taxes are not being used to pay for it but instead to pay for bureaucrat pensions. Our leaders assume Western relative goodwill towards taxation is inevitable but they are squandering it.

      2. Larry Kummer, Editor

        Bryce,

        “When Westerners are replaced with non-Westerners, this assumption may no longer be valid.”

        You are running hot today! I’ve long worried about our cultural norms (as a high trust society) shattered by large numbers of people coming with other values. After all, multi-culturalism! Why should they change? But I didn’t consider that. Plus, that suggests quite a few other changes for the worst we can look forward to.

        “It’s definitely no worse than the average for peoples around the world, but maybe that’s the problem. If we’re merely average, we can’t maintain self-government”

        That’s a powerful insight. Depressing, but powerful. Got to agree!

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