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South Carolina, Stimulus, and Federalism

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  1. BDG says:

    A lot that is smart and right here…one could as easily substitute “Greece” for “South Carolina” and “debt default” for education. I think that analogy can be useful in thinking our way to alternative solutions to the bitter medicine you’re suggesting.

    More generally, lower-tier governments will always have a big hold-up opportunity when their own collapse will threaten national interests. Even a one-time refusal to pay off the threat (as you suggest) may not be a credible predictor of future refusals — how often will Congress be able to summon up that much political will?

    These are tough issues, but an answer, which Europe seems to be pursuing, is to structure the bailout in such a way as to be excruciatingly painful for local officials — a sort of co-pay to reduce future moral hazard. What is the South Carolina equivalent, do you think?