In the annals of government bailouts, few words are as memorable as the 1975 headline in the New York Daily News supposedly summing up President Jerry Ford’s response to New York City’s plea for a huge infusion of federal cash – Ford to City: Drop Dead.
Even though Ford never actually said those words, NTU sympathized with his concern for U.S. taxpayers, despite the fact he later agreed to bail the Big Apple out of the fiscal pickle barrel.
But now the shoe is on the other foot, and the cash is in another hand. The government of Argentina, which continues shirking its responsibility to pay back debts to other nations, is telling U.S. taxpayers and bondholders to drop dead – and New York lawmakers aren’t obliging. Two bills in the State Legislature, S.3767-C and A.7967-A would hold to account intentionally defaulting nations like Argentina who've had judgments against them in New York courts. This is of special concern to the Empire State, since New York City residents alone hold about 10 percent of the deadbeat debts Argentina still owes after a default and restructuring that occurred several years ago. Legislation with a different aim -- denying reckless defaulters access to U.S. capital markets -- has been introduced on the federal level (https://thomas.loc.gov/cgi-bin/query/z?c112:S.912:).
Why should state and federal taxpayers care about this issue? For one, they’ve underwritten tens of billions in financial aid for Argentina through institutions like the International Monetary Fund. Furthermore, U.S. creditors are still due about $3.5 billion from Argentina, even after its debt restructuring. These costs would have offset tax obligations: not the first consideration since investments are often overtaxed anyway, but not a big help for governments in deficit. Equally troubling, though, is the example that Argentina’s behavior – typical of a statist economic model – sets for other nations in financial quagmires. Will Greece, which has indirectly benefitted from U.S. largesse, be the next to go rogue?
Not that our own leaders are paragons of virtue when it comes to borrowing. As we noted in testimony to the New York State Senate (https://www.ntu.org/in-your-state/new-york/ntu-testifies-in-ny-state-senate.html) last year:
For many years NTU has pointed out the dangers of irresponsible borrowing policies that sovereign nations sanction. Admittedly, the United States has in the past several years become more susceptible to such proclivities. …
Yet, even this situation does not rise to the Argentinean debacle. … Argentina’s pattern of disappointing the international community and consistently making poor economic decisions that affect more than its own people is far from over. Argentina’s mistakes are being felt worldwide and international investing has been deterred. Argentine debt repayment will be the first step in restoring its stature among nations.
If policymakers here and in Buenos Aires don’t recognize the dangers of debt soon, “Drop Dead” won’t be an insult – it’ll describe the trajectory of most developed economies.