Saying no to a Puerto Rico bankruptcy will simply leave the territory with a zombie economy that cannot ever right itself, according to an opinion in yesterday’s The Wall Street Journal. Instead, consider the advantages of using the Puerto Rican bankruptcy as an opportunity to write the law that creates the model for the future state bankruptcies. Such a law should include forcing territories and states to shed their public corporations, installing bankruptcy administrators empowered to slim down bloated bureaucracies and set taxation at economically sustainable levels that first pay to maintain infrastructure and all primary state functions. Any leftover moneys and taxing authority would then be used to pay off bondholders, debt holders and pensioners on an equal footing. Like Puerto Rico, most American states have or will be assuming long-term liabilities for public-sector labor-union contracts that have rendered them essentially bankrupt.
