This Los Angeles Times op-ed by former House Speaker Newt Gingrich and former Florida Gov. Jeb Bush argues for establishing a process to allow state governments to declare bankruptcy. Under today's law, local governments, but not states, must declare bankruptcy.
Their argument is detailed, and would include the ability of voters in ballot initiative states like California to vote on bankruptcy. Overall, the idea of state bankruptcy strikes me as a bad idea, likely to unsettle the credit markets and make bad times for states even worse.
Many liberals are objecting to this as a transparent attack on public employees' unions and pensions. Your blogger wouldn't mind giving greater power to states to renegotiate pension promises -- but changes in state and federal, not creating a whole new category of bankruptcy, are a better way to do it.
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The best debate on this bankruptcy subject is at Politico's Arena, which can be accessed here. The strongest arguments for bankruptcy have been made at the Weekly Standard; the strongest argument against was made at Slate.
What do you think?