States of (Fiscal) Emergency—and a Plan to Fix Them
12:03 PM, May 30, 2012 • By ADAM J. WHITE
For all of the ink spilled over the federal government's haphazard reaction to the 2008 financial crisis, few authors match David Skeel's clarity and insight. In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, the University of Pennsylvania law professor trenchantly yet thoughtfully parses the 2008 crisis's origins (the "stock narrative" that Lehman alone caused of the crisis "is almost completely wrong"), the government's response (Dodd-Frank "was drafted by the same people who designed the bailout strategy, and it shows"), and the likely consequences of that response ("the partnership [Dodd-Frank] has established between the government and the biggest banks, the invitation for ad hoc intervention, and its undermining of general rule-of-law principles").
Given his last book's singular merit, the publication of Skeel's latest book, an edited collection of essays by several authors, deserves policymakers' attention. In When States Go Broke, Skeel and his colleagues zero in on the next looming crisis: the unsustainable sovereign debt of failed states. Not Greece or Spain, mind you; Skeel's "states" are Illinois, California, and other American fiscal disasters.
The federal bankruptcy code already provides for a bankruptcy procedure for insolvent municipalities, but makes no such provision for bankrupt states. And so Skeel and his co-authors consider whether the law should be amended to allow for precisely such an occurrence.
They face an uphill climb. Roger Lowenstein, a fine financial journalist and early critic of unsustainable government spending to boot, has dismissed the notion of a federal bankruptcy law for states as sheer "fantasy."
That said, if anyone is up to the task, it's Skeel. In addition to his groundbreaking work on Dodd-Frank and the 2008 crisis, he literally wrote the book on the history federal bankruptcy law: Debt’s Dominion. And Skeel's stable of contributors includes not just experts on public finance, such as Josh Barro, but also highly regarded constitutional scholars, such as Judge Michael McConnell.
Unfortunately, too few readers will be stuffing this into their carry-ons and beach bags -- not necessarily because of lack of interest, but because of price: Cambridge University Press is offering it at just shy of a hundred bucks. Michael Greve puts it best, over at the new Liberty Law Blog: "The insane price ($99) may reflect the publisher’s judgment that if states go broke, they might as well take book buyers and libraries along for the ride."
Still, interested readers can find much of the basic material if they look around a bit. WEEKLY STANDARD readers already are acquainted with Skeel's basic framework, as it was the magazine's cover story in November 2010. Furthermore, Skeel's own contribution to the new book, a chapter titled "State Bankruptcy from the Ground Up," is freely available online, at least in draft form. And he has considered the issue in still further detail in "States of Bankruptcy," forthcoming in the University of Chicago Law Review.
At least one other chapter of the new book are available online, too: George Triantis's "Bankruptcy for the States and By the States." And while Judge McConnell's chapter is not available online, he (and several other contributors) test drove some of their arguments last year at Stanford conference, the video of which is available online.
Finally, interested readers should take care to consider Greve's own thoughtful points, both in the Liberty Law Blog this week and in a longer Federalist Society white paper that he wrote last year. Greve ultimately shares Lowenstein's pessimism as to the odds that Congress will actually turn theory into sound reform: "When States Go Broke powerfully illustrates the need for meaningful reforms. Most likely, we will undertake none of them." Let's hope -- for once -- that Greve and Lowenstein are both wrong.
And for that matter, let's hope that Cambridge University Press soon rethinks its marketing strategy, and publishes a version cheap enough for policymakers, workaday lawyers, and everyone else without university library cards to get their hands on.