Aug 10, 2020

David Schleicher on the Municipal Trilemma and its Implications for the Current Crisis

A major municipal trilemma poses serious problems for the federal government, and COVID-19 may continue to exacerbate these fiscal issues.
David Beckworth Senior Research Fellow , David Schleicher

Hosted by David Beckworth of the Mercatus Center, Macro Musings is a new podcast which pulls back the curtain on the important macroeconomic issues of the past, present, and future.

David Schleicher is a professor at Yale Law School, and as a returning guest to Macro Musings, he joins to talk about the historical role that the federal government has played in responding to state and local budget crises, including the municipal trllemma it faces. This trilemma says the federal government can only avoid two of the three following harms: (1) moral hazard for state budgets; (2) worsening recessions; (3) reducing future state and local infrastructure investment. Specifically, they discuss this trilemma as well as its implications for the COVID-19 crisis.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

David Beckworth:  David, welcome back to the show.

David Schleicher:  Thanks so much for having me.

Beckworth:  Oh, it's great to have you on. You were one of the early guests on Macro Musings. In fact I was looking back, it was in May 2017 if I got the date right, so that was about a year into the podcast. In fact I don't think we even had nominal GDP mugs back then. Did you ever get a nominal GDP mug?

Schleicher:  I got the mug, it's great. Me and my colleague Yair Listokin, who also had... We both have the mugs, and we bring them to faculty meetings. So it's a much coveted item.

Beckworth:  Fantastic. Well, if nothing else at Yale, we are convincing the law school to be fans of nominal GDP targeting. That's awesome. So you got your mug, that's great, but you were an early guest on the show, so thanks for helping make this podcast what it is. And I encourage our listeners to go back and check out that episode. We spent some time on a paper of yours titled *Stuck! The Law and Economics of Residential Stagnation.* And that was a very fascinating conversation for me, David. It really tied together some thoughts or me in terms of why these local issues matter for the macro economy. And maybe you could just quickly summarize it for our listeners again, and maybe give us an update. What's happened since we talked last about it?

Update on Labor Mobility Restrictions

Schleicher:  Yeah, thanks. So that paper argued that interstate mobility, people moving from state to state, was falling, and it's a relatively well known finding, but I argued that it undermined the use of the dollar as an optimal currency area, and it also undermined the agglomerative efficiency of the fit between people and jobs, and the growth that that can create of people living and working together, and it also undermined the mechanisms of federalism. And it further argued that all federal policies, but mostly state and local policies, had made mobility worse. They did it by restricting entry into hot job areas, by making it harder to build housing, so limits on housing in Silicon Valley, which could limit entry into this market, by restricting labor mobility through occupational licensing regimes, by restricting mobility by making benefits of a variety of sorts, from pensions to housing, turn on where you live, so that you can't carry them necessarily with you when you move, and by refusing to aid states and localities, and allow shrinking when the economy goes bunk. And the claim in the paper was that these policies were having a deleterious effect on mobility, which was then having a deleterious effect on these broad national goals and the national economy.

Schleicher:  Obviously, in some ways it hasn't been that long. It feels like a long time. March 2020 feels like it was six years, but it's only been a couple of years since the paper came out. And if you want to think about the ways things have changed since I wrote that paper, you could think about it in two ways and in two periods. The first one would be, how has policy changed? And then second one would be, how has the underlying economy on which that policy operates has changed? And then the other one is, right now during the pandemic, and then projecting forward to a post pandemic world.

Schleicher:  On the policy front, there have been some encouraging and some discouraging signs during the pandemic. I think the most encouraging sign has been in the occupational licensing world, where there's been a lot of reform, particularly in healthcare, which is the most regulated sector on these scores. Law would be a close second. In that area, you saw a lot of removals of restrictions on interstate practice, to places that needed nurses, bringing them in from other states. And you saw a vast increase in allowing telemedicine. And you've also seen in a couple of states like Florida and Arizona and a few other places some broader changes in occupational licensing rules.

I think the most encouraging sign has been in the occupational licensing world, where there's been a lot of reform, particularly in healthcare, which is the most regulated sector...in that area, you saw a lot of removals of restrictions on interstate practice...and you saw a vast increase in allowing telemedicine.

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Schleicher:  On the housing front on the other hand, I think that you can think of things as a little negative during the pandemic. The mechanism for making changes in many places has stopped, as they couldn't meet, they couldn't do public meetings. And in some places, particularly the New York City area, I think the politics has shifted against liberalization of housing markets. California's a slightly different story, it didn't achieve some of the radical changes that some people there sought, but there's been general chipping away at the problem. So I'd say on the policy front it's been a mixed bag.

Schleicher:  The reason this is a problem is because it's interacting with the economy, and we're in the middle of a vast economic change, and you could think about this again in two periods. One's during the pandemic, and then is after the pandemic. And so during the pandemic, there's obviously not a ton of moving about. We're staying at home. But in the after period, some people think that, where right now we're talking on Zoom, they think that there's going to be a vast increase in working from home, and this will have the effect of rebalancing the U.S. economy such that we need less mobility, because there'll be jobs in more places, that we'll have fewer superstar cities, or that superstar cities will spread their economic... Tech jobs will move from San Francisco to Nashville. For instance, Adam Ozimek just had a recent paper, a neat paper, suggesting just this.

Schleicher:  I have to say, I'm a little skeptical of this claim, but if it's true, the harm of the policies and stuff would be less. I mean, obviously no-one thinks that working from home's going to result in the decimation or the elimination of Silicon Valley or anything, just some marginal changes, but the negatives of the policies would go down if more and more people could work from wherever because they're doing it online. The reason I'm skeptical though is that people have been arguing that information technology would lead to spreading rather than concentration forever. So the Tofflers are the most famous example of this, who argued, in the future we'll all be in our huts in Montana or something, and we'll just be video conferencing to work.

Schleicher:  Ed Glaeser famously argued that, at least thus far, IT has been more of a complement to in-person location than it has been a substitute, although it's a bit of both. Why is that? Well, first you can run bigger and more far-flung operations from headquarters with better and better IT, and that's also true for video, so you can concentrate the top executives in one place and run a global empire in a way that you could not in a period with less IT. And the second is that we frequently use information technology to set up in-person communications. Like people go on Tinder so they can go on dates, or they use an email to set up a coffee, or they have an unbelievably frustrating conversation on Twitter and then they meet the person for a beer. So thus far, if that's not to say that it won't in the future, that we won't see greater gains from working for home and spreading out. But thus far, that hasn't been the case. So we'll see.

Schleicher:  Ozimek also argues that all of the gains of in-person communication, all what economists call agglomeration gains, the benefits of in-person location, both of deep labor markets and of information spillover, learning from others, can be replicated online. And I'm somewhat skeptical of this. And the reason I'm somewhat skeptical of this is, it's not like people who live in cities don't also use online tools. So Slack is used in an office, where people are already there. They're just also then using it to additionally see other people. You're getting the online stuff and you're getting the in-person stuff. And same thing goes for Twitter and everything else. If Ozimek's right, we're going to be on the cusp of a massive increase in working from home. He thinks that that won't be an occasion with a productivity decrease. I think it will. But of course, who knows, on some level? It's hard to say.

Schleicher:  One last thing I'll say about this is that *Stuck!* and the worldview it captures was getting some criticism in the period after I wrote it, but pre COVID, and it had two forms. I'd say the period right before the crisis was the high point of people being into place based policies. I went to a conference at the Federal Reserve in Boston, and a lot of luminaries were arguing for the attractiveness of place based policies, subsidies to declining areas. Larry Summers was on this. Tim Bartik. A whole bunch of people of that ilk. Separately, a group of people like your former guest Morgan Ricks and Ganesh Sitaraman and a few other people attacked *Stuck!* arguing that, rather than moving people to jobs, allowing mobility to people to move to job, we should regulate industries such that the jobs move to people. So we should re-regulate the underlying industry to provide more subsidies to far flung airports, in order to encourage the jobs to move where the people are stuck.

Schleicher:  I think people should pay attention to these criticisms, because I think that they're bad, but it's important to think about the way that they are. So economists got really into place based policies, Patrick Kline I think is the most notable, and made a very convincing theoretical case that place based policies could be an efficient form of redistribution. But I think these things are pretty insensitive to our actual politics. When you actually look at place based policies, they often look a lot more like the 2017 tax bill's Opportunity Zones rule, which ended up spreading them across all 50 states, ended up being targeted at richer areas than you'd think, and a lot of the benefits ended up accruing to real estate owners rather than poor people who work in these areas. And I think that's a systematically... It's a likely effect of the way we structure Congress, something we'll get back to in a minute.

Schleicher:  And I think that other arguments, like Morgan Ricks's argument, are problematic because first of all I think they miss a little bit about the economics literature, which doesn't suggest that people needing jobs anywhere is equally good, but rather that there are gains from things happening in the same place. And further, I think it's based on a nostalgic view of where people should live. It says where people lived in 1950 or 1970 is good, or 1910, or whatever you want to pick, and we should aim to replicate that as much as possible. But where we lived in 1910 or 1950 or 1970 were products of a particular set of transportation technologies, and information technologies, and economy, and we live in a different one. And there's no obvious reason to me, and no argument that they make clear to me, why we should seek to go back to something else, given the ways our economy has changed. So those are the variety of things that have happened since *Stuck!*

Beckworth:  Well, that's interesting. I have a few follow-up questions, but in general, agglomeration economies still hold, they're still important, and something that I think many of us don't think carefully about. The one development since this crisis I wanted to run by you is, part of the movement to get labor mobility up is to increase the supply of housing in big urban centers where there are lots of jobs. So upzoning, all these pushes against NIMBYism, and we're both fans of this, and you're an expert in this. So it looked like we had some momentum going, then this crisis hits, and then you hear this commentary, "Well, this shows you why we don't want to increase housing and concentrated numbers of people in cities, because of viruses." Is that just a temporary observation, we're going to get past that and that will soon be forgotten?

Housing Supply and the Pandemic

Schleicher:  I suspect that... The argument against housing construction transforms over time, because it's an ideological representation of the desire, either for a lack of change, or really to preserve the value of housing, of people who already own land. And then they say other things. And there've been periods they've said wildly other things. So one of my favorite examples of this is that the early NIMBY movements in California and Los Angeles were rooted in something called the zero population movement, a group of people who thought that the world population was exploding, and this was a problem. And they thought it was a coherent ideological platform, to be against housing in the Hollywood Hills, and to reduce population growth in Africa. And they thought this was like, "Well, it's all less people," or something. And these things doesn't make a ton of sense, but it provided a mechanism for people to... Things you can say in public to justify your belief that people shouldn't build housing near you because it will depress the value of your investment.

Schleicher:  The other thing I'll say about this is that *Stuck!* is based on metropolitan moves. So a lot of what's been happening, or the debates about things, are about things that are intra-metropolitan. So people moving from Manhattan to Westchester. It's all one labor market, but people might want to live in slightly... They want to have a yard, or not have a yard, or that kind of thing. And the stuff in *Stuck!* is at least somewhat insensitive to that. The metropolitan area is the variable it's concerned with. The demand for urban versus suburban properties goes in response to a whole variety of factors, one of which could be in-person. And so obviously if we see a lot more pandemics, not only this one, or this one lasts longer, then it could have bigger effects, the same way that increased urban crime can have an effect on those inter-metropolitan moves.

Schleicher:  And again, it could have an effect on national. I don't want to dismiss that possibility, because if we think that it is genuinely scarier to be in New York City than it is to be in Montana... Again, there's some debate around this subject, about the relationship between density and susceptibility to the disease, there's some push and pull. I'm no expert on this but there's a big debate on the subject. I'd say the correlations look very, very weak if they exist at all. But perception's what matters. Who wins among people writing papers back and forth may have an effect on behavior, but it probably is less of an effect than what appears in the media, or whatever.

Schleicher:  And so it could, depending on what happens in the future... One of the broader principles in *Stuck!* is that we should accommodate people where they want to live, wherever that is. And so if people want to spread out, that will require land use changes also. So if there's increased demand to live in the suburbs, and decreasing demand to live in the city, one thing you have to see is housing growth in the suburbs. And that could be the exurbs where there are no people and that's usually a pretty easy place to build, but inner ring suburbs of rich cities have been much more restrictive even than big cities. So the housing growth in Nassau or Westchester County is minuscule. Housing growth in Silicon Valley is minuscule. And why is that? Well, that's where homeowners are at their most powerful.

Schleicher:  And so the broader principle behind *Stuck!* is not, cities are awesome, everyone should move to cities, because, you know. Instead it's, the economy suggests places where people should move. Society, but also the relationship between information technology, transportation technologies, and what we're doing, change over time, and people move in response to those economic forces. And politics or policy needs to accommodate those movers, ought to accommodate them, because doing so will produce economic gains for the broader economy, and not just the local economy.

The broader principle behind *Stuck!* is not, cities are awesome, everyone should move to cities...it's, the economy suggests places where people should move...but also the relationship between information technology, transportation technologies, and what we're doing, change over time, and people move in response to those economic forces. And politics or policy needs to accommodate those movers...because doing so will produce economic gains for the broader economy, and not just the local economy.

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Beckworth:  Okay. Second question, and final one on your paper, *Stuck!* And that is the bigger point you raised last time, and that is the decline in labor mobility, the decline in convergence among states' economic growth, has consequences for the United States as an optimal currency area. We're a long ways from not being one, but we're slowly inching away from being one, and that means it makes the job of the Federal Reserve much harder to apply a one-size-fits-all monetary policy to regions that are growing apart. My question is, since we talked, again not that long ago, but since we talked, has the case stayed about the same, or do you think we've inched a little bit more away from being an optimal currency area?

The Current Status of the US as an Optimal Currency Area

Schleicher:  Yeah. I'd have to think a little bit more about it. I don't have a clear answer there. I mean the two variables... *Stuck!* is focused on one of the mechanisms for making something an optimal currency area, which is the ability of people to move when there are regional shocks. But another factor is how regional those shocks are, and how different economies are. And how that interacts with a pandemic is something that is, I'm sure, changing every minute. But I'd have to think about it a little bit more to have a clear answer.

Schleicher:  The other one though, another factor in this, is the degree to which the federal government is doing geographic redistribution, so that they are either… those systems of automatic stabilizers, or with intentional regional moves, which would then make the shocks more common. And I think you've seen some things in that direction. So the federal government has obviously spent a lot of money, and its effect on regional… a lot of it went more to small states than big states. You'd have to look at that in relationship to the regional shocks, and the mobility factors...

Beckworth:  That's a great point. Hugh Rockoff has this paper that asks the question, when did the U.S. become an optimal currency area? And he says the 1930s. It wasn't until the 1930s, and a big reason being is because of all these federal government programs that were put in place, that could either bring the regional cycles into sync or at least offset the ones that were painful and different from the national cycle. So I think your point is, what we're seeing today is this large response from the federal government, which is exactly what you would want in an optimal currency area.

Schleicher:  And you've seen a little bit in this direction in Europe, with the Europe-wide borrowing system, which again is smaller than many people wanted, but the idea was very much in a similar... If we're going to have a Eurozone, we're going to need to transfer money from one part to another. Also have some effect on trade balance and a bunch of other factors that you can talk with other people about. But one of the things was using fiscal policy to make the Eurozone more of an optimal currency area.

Beckworth:  Okay. Well that's a nice segue into your paper, that I really want to spend the rest of the time on today, and the issue I outlined at the beginning of the show. And that is the role the federal government has in responding to state and local budget crises historically, and what does that mean for today's COVID-19 crisis. So you have a great new paper, we'll provide a link to it on the show page, and the title of the paper is *Hands On! Part I: The Trilemma Facing the Federal Government During State and Local Budget Crises.* So folks, here we have another trilemma. So step aside, macroeconomic trilemma, which is related to the optimal area currency discussion we just had. But step aside, macro trilemma, and let's bring in a new trilemma that's more the micro or state level. And it's very interesting, a very thought provoking paper.

Beckworth:  Before we get into your paper specifically, I just want to outline some of the facts or developments that have happened at the state and local level. Because clearly this is a recession that has a bearing on that. I'm going to read just a paragraph from a report on this issue. It comes from the Center on Budget and Policy Priorities, and they have an estimate of how much damage is going to be done. And so they now project that the state budget shortfalls expected from the COVID-19 economic fallout will total a cumulative of $555 billion, over the state fiscal years 2020 through 2022. That's quite a big chunk of change there. That's the shortfalls. It doesn't include local and tribal governments, so it could be even larger if you start looking at local governments as well.

Beckworth:  You may also note the millions of jobs that have been lost, and more may be lost soon here. We're at the end of the extended, or the generous federal government unemployment insurance $600 a week. There's talk about extending it, but whatever happens, it looks like it's going to be less. There's a lot of concerns this will bleed into the state and local government finances, so everything from police to firemen, teachers, highway maintenance, all these things are going to be really hit hard. And I think we talked about this last time, but in 2008 a big part of the Great Recession pain was at the state and local level. They really had to contract and pull back.

Beckworth:  And the question is, what role does the federal government have, if any, in responding to the distress at this lower level? Now, under the CARES Act, there's $150 billion that was provided, which again seems small compared to the $555 billion estimate, which may grow. And so your paper was great, because it provides a context in terms of what has been done in the past, and what does it mean for the future, and really for the present crisis. So maybe you could start off with just a bird's-eye view, a summary of what your paper's about, and then we'll maybe look at it piece by piece.

The Municipal Trilemma

Schleicher:  So one thing I'll say is that you can think about federal aid to states in two ways. One is general federal aid, of the form that the CARES Act took the form of, which is money goes to all states. And this is best thought of as a form of distributive spending, so that instead of the federal government spending the money, it gives money to the states to spend it. And this doesn't really implicate some of the concerns in this piece, but is very much what the current political debate is about. So how much money should they give, is it $550 billion? Is it a trillion, as the House Democrats have suggested, when you put in local and tribal governments? The claim in the paper... Mostly it's a history of federal responses to a slightly downstream question, which is what happens when things go beyond fiscal problems, to acute fiscal crisis? When a state or city is on the edge of defaulting on debt. And the claim in the paper is that at that moment, the federal government faces a choice, and it can't achieve all of the ends it might want to.

Schleicher:  The existing literature focuses on two things the federal government might want to avoid, which is the... People like Jonathan Rodden and Bob Inman argued, that if we give bailouts to states and cities, so… and Illinois is on the edge of bankruptcy, and the federal government says, "We'll give you a bunch of money so you can avoid defaulting on your debt," this will create moral hazard. And further, it will create resentment from other states. And so this would lead, as Rodden argues, to greater federal involvement in state and local politics.

Schleicher:  Rodden's argument is that federalism has two equilibrium. One is, the federal government does a lot of the money raising, and does a lot of oversight of state budgets. It's bailing out everybody, effectively, and doing the money raising, but it deeply has its fingers in state budgeting. And on the other side, you have a system in which the federal government agrees to never bail out, or thinks it will never bail out or states have a no bailout policy, and states and localities are relatively independent. But absent that, you end up with problems like you saw in Brazil and Argentina in the 1990s, where states and cities understand that the federal government will back them up, that the federal government isn't providing any oversight of their budgets, and they will just spend and spend and they will create a crisis for the country.

Schleicher:  A second concern is one that also applies to general aid, but pretty acute for fiscal crises, which is acute fiscal crises happen during recessions, they involve huge cutbacks in spending. If you need to pay your debt, but getting no money from the federal government, you've got to stop spending on the things you'd otherwise be spending on. This involves a lot of firing of people during the middle of a recession, creating huge labor market problems and decreasing spending. About 12% of the overall U.S. economy works in state and local government, and so this is a large swathe of the labor spine. So as you noted, in the Great Recession, decreases in employment in state and local government substantially extended the length of the Great Recession.

Schleicher:  My paper says that in fact there's a third concern, or a third policy question and a third concern, which is the ability of states and localities to invest in infrastructure. We rely on states and cities to do most of our investment spending, whether it's in roads, or higher education, or any kind of future oriented investments. There are real reasons why this happens, and we can talk about that in a second. But this relies on their ability to borrow, and if states and cities default, that will have the effect of reducing the confidence of the municipal bond market in lending money to these states and local governments, which would decrease future investment.

Schleicher:  And the claim in the paper is that this presents a trilemma. In the sense that if you do a bailout, you don't worsen recessions and you don't destroy the confidence of bond markets, but you do create moral hazard. If you don't allow default and you don't do a bailout, you will avoid moral hazard and you will avoid harm to the bond market, but you'll worsen recessions. And if you allow defaults, or encourage defaults, or don't stop defaults, you will avoid moral hazard and you'll avoid recessions, or direct, temporary hits on a macroeconomy, but you'll decrease future investment. And you can get two of these goals, but not three. And that's the claim in the paper, and it goes through the history of federal responses to default crises in states and localities and notes that we've responded in lots and lots of different ways. We've chosen different legs of this trilemma at different times for different reasons. But the problem is always there. There's no avoiding the trade-off, that I suggest. You have to pick your poison.

The claim in the paper, and it goes through the history of federal responses to default crises in states and localities and notes that we've responded in lots and lots of different ways. We've chosen different legs of this trilemma at different times for different reasons. But the problem is always there. There's no avoiding the trade-off, that I suggest. You have to pick your poison.

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Beckworth:  It's super fascinating. You have a nice table on page 14, where you highlight these trade-offs. So again, the federal officials can only avoid two of three harms. Moral hazard for state budgets, number one. Number two, worsening recessions. Number three, reducing future state and local infrastructure investment. So you've got to pick which one you want to tolerate, and which two you want to get rid of. So it's a fascinating question. But another point you raised in your paper, and maybe we'll get to this as we get into the history, is that both of the standard two observations, the moral hazard concern, the macro stabilization concern, they both conclude that there's been a hands-off approach from the federal... Federal government has stepped back. Fiscal federalism proponents say, "Look, it's great the government's been hands-off," and the macro stabilization folks are like, "Well, it's been hands-off and we pay a price for it." But both of them reach the same conclusion, and you say not so fast, right?

Fiscal Federalism Throughout History and the Present

Schleicher:  Really good. So the implicit history in the literature is that, in the period before the 1840s, we did bailouts. This is most famous... Hamilton's assumption of state debts. The idea is, the state governments had borrowed a lot of money during the Revolutionary War, and the federal government assumed those debts. And that's a bailout. And the claim in the literature is that this titanic moment happened in the 1840s, when a number of states and the Territory of Florida were on the edge of default, and Congress considered a bailout and rejected this bailout. And the claim in the literature is that this moment created a turn, that we no longer did bailouts, and that this meant that the federal government largely took a hands-off approach to state and local fiscal crises.

Schleicher:  And first I note that bailouts are a little more common than this literature suggests. In Washington, D.C., there was federal aid in the New York City fiscal crisis in the 1970s, a little bit kind of late in the Arkansas Road Debt crisis of the 1930s, but this literature ignores that there's another policy question, which is, okay, you're not going to do bailouts. Who's going to bear the harm? Creditors, or current taxpayers? And we see a lot of policy making in these crises that are about allocating the harms across those two groups.

Schleicher:  I think the reason that the policy discussion has ignored this is that a lot of this policy making, not entirely, but a lot of it is made by courts. And people treat the courts like they're mechanistic actors. They're enforcing contracts, they're enforcing sovereign immunity as it exists in the clouds, or something. But the courts are making a lot of this up as they go along. They're in a swaggering, policy making mode in a lot of these areas. Federal government's often backing them up in certain interesting ways. But they are thinking about and discussing and fighting over the exact same trilemma-like concerns that you see in the other two branches.

Schleicher:  And this question of, should creditors take the hit or should we really stick it to current taxpayers and make them pay their creditors, has been I'd say a more common political fight than the question over bailouts. The basic reason for this is that until, particularly in the period after the 1840s through somewhat more recently, federal government didn't really have the fiscal wherewithal to do big bailouts. State governments were just bigger, in a lot of ways. State and local governments were much bigger. And so their ability to do bailouts were somewhat limited. And so a lot of the fighting took the form of this question of allocation between these two other concerns.

Beckworth:  So another way of saying this is that, even though 1840 appears on the surface to be a clean break, there's been a back door or an implicit support all along that belies the fiscal federalism view.

Schleicher:  Yeah, so it's not that it's a back door... There's another policy concern that they didn't focus on. So there's this other dimension, it's in the same policy universe, that they're not thinking about, or not thinking about as the same type of question, but is in many ways the same policy question. And again, in many of these crises, you see moves at different points, focused on different elements of them, so that at some point during the middle of a crisis, we'll shift from a no bailout to a little bit of a bailout view, or from creditors need to eat it to we're going to protect the creditors. And you see shifts during the middle of crises as well as over time. But it's another dimension of the policy that existing literature doesn't take too seriously, but has I think been the more salient one throughout most of American history.

Beckworth:  Okay. Well it's interesting, because I read some commentators during these past few months, for example being worried about the Fed's Municipal Lending Facility. So the Fed is now helping out the municipal bond market. It hasn't done much there, but its stated support has looked to that market, and I've seen some commentators say, "Hey, federal government's kind of breaking the rules of fiscal federalism by doing that via the Fed, even though the Fed's off-balance sheet." But here's a question I have, and this may be way off, but there's always been some funds flowing to states from federal governments. I mean, the State of New York complains about this all the time, that if you look at the balance of payments between states, there's always some states that receive a lot. Some of the poorer states in the South, for example, they receive a lot of federal government funding. And New York gives out far more in federal taxes than it takes in. So there's always this issue underlying these other issues at least, but maybe this is far afield from the point you're making.

Schleicher:  No, state governments get a lot of money from the federal government. And so when you talk about the argument that Cuomo made in New York, that's looking at the broad economic... It counts money that's spent on the military in the state, and that's not running through the state government. But lots of money does run through the state government. So the federal government matches Medicaid spending, for instance. It has a complicated formula for doing so, but it matches and actually increased them in the Phase 2 bill in the COVID crisis, the second of the three stimulus bills. But the federal government does provide lots of money to states. And then the CARES Act provided money to all states. So it provided $150 billion, it had an allocation mechanism that gave more to small states than to big states, but it provided money to all states.

Schleicher:  The thing that makes the Municipal Lending Facility different, and one of the reasons why they've been so limited in their approach I think, is that that does look a little bit more like a bailout in some ways. Because the money is going Illinois, but it's not going to Virginia, or not going to Utah, because those states don't need to borrow in this way. And so it is a more targeted response to a local fiscal crisis, and creates concerns, at least in theory, about moral hazard. Now, the way the MLF has been set up, it's been designed to try to avoid these concerns. It's very much, in its structure, a classic central banking structure. Their goal was to provide liquidity to the market, so the municipal bond market was totally stopped up. There were runs going everywhere in March. And when they set up, at first they did it through the Money Market Facility, and then through the Municipal Lending Facility, the goal was to stabilize the market. And it was very classic central banking.

Schleicher:  So it was like, "We're going to provide liquidity on penalty terms." So the interest rates the MLF offers are above market, or above what they think market is, and it's really only for jurisdictions that can't borrow in the private markets. And what they did was they stopped a run. It worked, in that respect. It's only thus far been used by the State of Illinois, but many people have argued, no, we should be doing more through the MLF. We should be really helping states out of their fiscal crises. And the MLF has not done that.

Schleicher:  And I think the reason, I don't know, but I think the reason is that they are very concerned about these moral hazard and other concerns. I don't think it's critically believable that the Fed could impose conditionality on money. So traditionally when we provide aid, bailout money, one of the ways you limit the moral hazard concerns is you make it bad to receive it. So the IMF or the World Bank or the states with respect to cities that they're giving money to will frequently say, "You get the money, but you have to accept an emergency manager." So you lose local democracy, or a control board. We saw that in Puerto Rico, we saw that in New York. Washington, D.C. also. Or you have to accept these change policy terms.

Schleicher:  The Federal Reserve isn't going to go to the State of Illinois and say, "You need to change your state fiscal constitution, or reform your pension clause in your state constitution." It would risk the Fed's political independence, and no-one really thinks they know anything about this. It would be a weird role for them to play. And so their ability to condition bailout funds is, I'd say, limited to zero. And as a result, they've been reticent to get as involved as some of your guests and Liz Warren and a few other people have suggested they should, or they ought to. And maybe that's right, maybe it's wrong. Again, one of the points of this paper is that there are always trade-offs. There are real benefits to providing bailouts, there's just also costs. You could debate whether any state is at or near default. You don't have to be at default, because again it's a choice at some level, and we can talk about that in a minute, but when you get to that point, there are no good answers. It stinks no matter what you do. And that's what makes it a trilemma. And you make choices in this respect.

One of the points of this paper is that there are always trade-offs. There are real benefits to providing bailouts, there's just also costs...but when you get to that point, there are no good answers. It stinks no matter what you do. And that's what makes it a trilemma. And you make choices in this respect.

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Beckworth:  Yeah, but these questions are particularly poignant right now, because we're in the midst of this crisis, an unusual recession, it's not your typical, garden variety demand recession. This is truly a large supply shock, it took the floor out from all the states' normal funding sources, so this is an important question to deal with. Let's go into the history, because...

Schleicher: Well, one thing I could say really quick...

Beckworth: Go ahead.

Schleicher:  ... which is, a lot of the argument for these broad aid packages, like give money to every state even if it's not a state in crisis, is that if it’s big enough, it allows you to avoid some of these specific crises. So if you're judging whether giving money to states versus making unemployment $500, $600, or $700, or something, you're trading off between those dollars, one of the arguments for giving it to states vis-à-vis the other one is their direct macroeconomic effect, but another argument is that actually it'll help us avoid having to deal with the situation of what to do if Illinois gets close. Because Illinois would get some money... Ironically, or interestingly, in this regard, states that are in worse fiscal position going into a crisis are likely to be worse transmitters of stimulus, because they're going to be using some of their money to pay their creditors, and they're still going to have to fire people and all the negative things that they have to do. And so the federal government has some interest in their fiscal position, even if they're giving money to everybody, but it is an argument for the general aid package. So I think that general aid packages are a good idea, and one of the reasons I think they're a good idea is that these situations are so depressing.

Beckworth:  That's interesting. So it makes sense to send money directly to households and let that indirectly flow into the state coffers.

Schleicher:  Or send money to all states.

Beckworth:  All states, yeah.

Schleicher:  So send it to Utah, too. If Utah doesn't need the money to stay solvent, it can spend it on tax cuts or hiring people or whatever it wants to do. That money will also have a stimulative effect. Utah is not going to just take the money and sit on it.

Beckworth:  Yeah. This also crosses over some other policy debates I've had on the show, in terms of the Fed. I don't want to spend too much time on this, but like you mentioned, you could arguably say the Fed's response to the state municipal bond market was a liquidity response. It was trying to stem the run on the market. Some would say, though, it's becoming a credit policy, where you veer into these questions you're talking about. And so where do you draw the line between a true liquidity facility and a credit facility?

Schleicher:  I think the thing is that they're terrified about it too. Just their actions, I don't have any insight into their internal debates or anything, but at least in this one area, I don't know about all the other ones, but in this one area, their reticence at becoming involved in credit policy in a more dramatic way is clear. Because they've not made it a particularly easy facility to use.

Beckworth:  Yeah. No, this is fascinating. Well let's look at some of the history here, and we'll start in the far past and work up to the present. But maybe summarize for us again the big one, 1830s, 1840s, the big state debt crisis. Why did the states in the first place get to this position? What happened at the federal versus state level that led them there?

The History of State Debt Crises

Schleicher:  So the federal government wasn't investing in infrastructure. One of the reasons that motivates... The federal government has never been, with a few small exceptions, a very big investor in infrastructure. You talk about the National Highway Program, and there are a few periods where they... But never have they provided more than 50% of the money spent on infrastructure. There have been small periods where they've spent more than 50% of the capital expenditures, but when you factor in operations, it's never been that high. And particularly early... And there are debates about whether the constitutionality of the federal government spending a lot of money on infrastructure, and states really took the lead.

Schleicher:  The most famous example of this is the Erie Canal. New York borrowed, it created a very novel system of financing to fund it, and the Erie Canal is this giant success, that every state in the country says, "Oh my goodness, we want to have the Erie Canal." And so you start seeing canal construction everywhere. And in the South, you saw a lot of state borrowing to fund banks. They're creating state banks to invest in cotton production, or whatever else they're doing in their economies. And you see economic crisis in the late 1830s, and states continue to borrow. Actually Nicholas Biddle is in London, and he's encouraging investors, states are a really good bet, and indicating quietly that the federal government is standing behind these debts. And Brits had done very well investing in American infrastructure. Of course, remember the federal government has assumed state debts at least twice in the 40 or 50 years that preceded this. And states got way, way, way over their Skis. And it happened virtually everywhere.

Schleicher:  One thing… really... A lot of states, because the Erie Canal... The Erie Canal was initially financed by taxes and tolls. Made a tax system to fund... And they didn't end up needing the taxes, because it was so successful, so they funded it entirely on tolls. And in fact, they ended up using it to create an internal industrial development bank. That's how much money they made on the Erie Canal. And so a bunch of states decided, we're going to build all this infrastructure and not have taxes, because it's just going be so awesome.

Beckworth:  Pay for itself.

Schleicher:  Yeah. Jim Wallis calls this taxless finance. Anyway, come the 1840s, you start seeing the piper needs to be paid. Eventually, credit conditions dry up, and a bunch of states come close to defaulting, including New York, which had expanded the Erie Canal. Ohio, Tennessee, Alabama came close. And then a bunch of states do default. Some of the biggest states, Pennsylvania and Maryland default. Pennsylvania and Maryland's default is somewhat temporary. They just eventually raise taxes. But you see repudiations in Arkansas and Louisiana and the Territory of Florida. You see partial repudiations in Indiana, Illinois, and Michigan. Mississippi also repudiated. And it was a huge crisis. It ended up being a diplomatic crisis, a whole bunch of things happened, and Congress considered a bill, which was again... They'd done assumption of states debts after the war of 1812, and they'd done one after the Revolutionary War, and so it wasn't crazy to think that they would come and bail out in this regard, and assume their debts again. But they decided not to. And they decided not to pretty explicitly on moral hazard grounds.

Schleicher:  And this had a huge effect on a variety of things. States start adopting their balanced budget and debt limit rules, that we still see today. And states, as a result, stopped borrowing mostly. And this is a neat encapsulation of the trilemma. The federal government had no capacity to do a bailout, or considered bailing them out and decided not to. The states could have paid their creditors, the federal government could have done something to encourage them to do so, but it didn't. And as a result, the creditors took the hit. And this may have created long term effects on moral hazard and short term effects on the economy that were positive, but the negative effect of making states not good conduits for doing future investment.

And this is a neat encapsulation of the trilemma. The federal government had no capacity to do a bailout, or considered bailing them out and decided not to. The states could have paid their creditors, the federal government could have done something to encourage them to do so, but it didn't. And as a result, the creditors took the hit. And this may have created long term effects on moral hazard and short term effects on the economy that were positive, but the negative effect of making states not good conduits for doing future investment.

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Schleicher:  And so it has this very, very big effect on what happens. And so after this point, states until basically the rise of the automobile become very, very small players in infrastructure, and all of the action moves to local governments. But again, I think this encapsulates the trilemma. They thought about a bailout. If we do a bailout, then we will encourage moral hazard, but will have the effect of creating more confidence with British investors. Decided not to do that, and that had this big effect on credit flow and future infrastructure spending.

Beckworth:  Okay. And that was the defining crisis... As you said, moving forward, state balanced budget laws, a number of lasting legacies from that pivotal event including the impressions you discussed earlier that aren't completely right, but the impression that it's hands-off, because of this defining moment.

Schleicher:  Absolutely.

Beckworth:  Let's move to the other big area where you saw a lot of debate and developments on this issue, and that was railroad bonds. And that spans half a century, 1840s to 1880s or so, or close to that long. So talk about that, and how that was consequential in this conversation.

The Historical Significance of Railroad Bonds

Schleicher:  Really, this is a question about… you see policy making in the courts along these dimensions, or do you see a few other executives getting involved. So states are out of the infrastructure game, we're at the beginning of the railroad era, and state courts particularly start allowing local governments to not be bound by the rules of their state debt limit and public purpose requirement rules, and instead allow them to borrow to fund railroads. And this has a little bit of... I mean, you read the history here, it's a little bit like the monorail episode of The Simpsons. There are these people going around the country saying, "Invest in this railroad needs to come to your town," and there were real reasons you'd want this. So that when railroad came through your town during this period, it had a huge effect on where firms located. Firms wanted to locate near the railroad hubs. Where the firms located, then their suppliers located. It had this big agglomerative effect.

Schleicher:  And so being a hub was a really big deal. And cities all over the country responded to this by basically taking public money and giving it to railroad companies. They did it in a couple of ways… buy stock in railroad companies, they did a few other things. And this then had eventually... The way railroads work is that oversupply can be really bad, because you end up with low marginal cost of providing, and you can't cover your debt service. And a lot of railroads went bankrupt. In several successive crises, we built a lot of railroads all at once. And you guys can read Douglas North, you can read whoever you want about this broader economic history.

Schleicher:  But what happened inside the states is that cities started repudiating their debts. They said, "Either the railroad didn't come, or the railroad did come and it didn't produce the promised economic effects. We're just not going to pay this." And state courts very much endorsed this view, and they ended up ruling that a lot of this debt that was issued was ultra vires, it was not legal, and therefore creditors couldn't ask for the money back. And the Supreme Court then came in and said... But they were hearing the cases because there was a diversity of jurisdiction, the investors from one state and the city of the other state, and it ended up basically overruling state supreme courts about the meaning of state law, in a series of completely wild cases.

Schleicher:  And so this is something that will be more interesting to your lawyer crowd than to your other listeners, but this is the Swift v. Tyson regime, where the federal court was making a lot of common law. And in these cases, they just kind of went into this swaggering policy making mode, where they said, "The [inaudible] is really important, we need to ensure its safety, and we're just not going to let your podunk town not pay its debts, no matter how bad it is for you." And this caused huge problems in towns in Iowa. You saw crime increasing, because they had to fire all their police officers. You saw real devastation. But the federal courts were very committed to preserving the municipal bond market in this period. And the effect of this was that the municipal bond market was preserved, despite all of these defaults.

Schleicher:  So again, it had real negative effects. There was no bailout. So the question with allocation of the harm, the Supreme Court came down very hard on behalf of the creditors, against the current taxpayers. One notable and interesting thing is that during the same period, roughly speaking, the later part of this period, a bunch of states default. So the Southern states mostly default in the 1870s, following the end of Reconstruction. They default, saying that the debt taken out during Reconstruction was taken by governments that don't represent us, with all the political inaction that you can imagine that that includes. And the federal government created modern sovereign immunity doctrine in order to protect them. So in the state default cases, they come out in favor of the states, and in the city ones they come out in favor of the creditors.

Schleicher:  And this had some pretty predictable effects. So in the cities, the bond market was preserved, and in the future you end up seeing huge amounts in the 1880s, 1890s, and early 1900s, huge amounts of investment in useful infrastructure. People are still willing to lend to it, and they understand that there's some kind of legal backstop, so there's this short term harm but you get this new investment. And in the Southern states, you see creditors are not interested. And so Arkansas, who's kind of the American Argentina, because they default three times. They've defaulted in the 1840s, they've defaulted in the 1870s, and they defaulted in the 1930s. It can't borrow money for large swathes of the 19th century, and notably doesn't build a lot of infrastructure. And so you see in two contemporary crises, in response to differing politics surrounding them, two different choices along the trilemma, with the predictable benefits and the predictable costs associated with them.

Beckworth:  Interesting. So we see the trilemma at work, as you just said, in these cases. And it was also fascinating to see Arkansas being this poster child of bad experience with state finances, and having to try to find creditors. All right, let's move to more...

Schleicher:  Oh, really quickly. I focus on courts here, but lots of other stuff happened here… there’s just totally wild stories. At one point for instance, it's 1870 and there are a bunch of Iowa towns that are refusing to accede to federal court positions, and President Grant threatens to send the U.S. military. It's the middle of Reconstruction, and this is Iowa, staunch Northern state, and he threatens to send federal troops to enforce these bond contracts. Which is crazy! But that's how seriously the government took it. Another crazy story is, a bunch of cities tried to avoid these federal judgments on behalf of creditors. And one of the weird formalities of them was, the federal courts thought they had the power to order sitting officials to raise taxes to pay for bonds, but they couldn't raise taxes without the sitting officials.

Schleicher:  So the first thing you saw was state and local officials started hiding from federal marshals. And the federal marshals would have to hunt them down in a game of cat-and-mouse. Then they started getting wise to this, and what they would do was they would get elected, they'd conduct all their official business, and then they'd resign, and the city would be without a mayor or whatever for several years, so there's no-one to put these orders on. The final and most ridiculous version of this were something called corporate suicides. This happened mostly in the 1870s and 1880s. A bunch of state legislatures see their cities are bankrupt, and there are these federal judgments against them, and what they do is they establish a new government.

Schleicher:  So this happened in Memphis, it happened in Duluth, Minnesota, it happens in Mobile, Alabama, and in Mobile they create a new city called the Port of Mobile. And the state says the Port of Mobile now has the power to tax property in Mobile, it changes the boundary slightly. They take the power to tax away from the City of Mobile, give it to this new city called the Port of Mobile. The Port of Mobile then buys all the assets from the City of Mobile for $1 or something. And the creditors are left suing the City of Mobile, which has no assets and no taxing authority. And the Supreme Court kind of says, "No, you can't do this." And they don't really explain why, or what they... They just went, "No. Nah. That's not happening."

Schleicher:  And this raises some really interesting questions that I'm going to explore in the second paper, and do a little bit in this paper, about the relationship between these cases and things like the COFINA bonds in Puerto Rico, which are a classier version of a similar move. But the stories are just nuts, because this is happening over the course of years, it's one of the biggest economic issues in the country during these periods, and the large portion of the whole country are in revolt against the Supreme Court, which is acting on behalf of moneyed interested and bond holders in New York and in London.

It's one of the biggest economic issues in the country during these periods, and the large portion of the whole country are in revolt against the Supreme Court, which is acting on behalf of moneyed interested and bond holders in New York and in London.

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Beckworth:  So how was this all resolved? So states, localities, had one view. They were against these federal rulings toward them. The federal government of course could send troops in, but at some point we got to some equilibrium where states accepted this I guess, right?

Schleicher:  Yeah, so cities, it's mostly about cities.

Beckworth:  Cities, okay.

Schleicher:  So most of these things get negotiated out, and they end up... Because you can only get so much juice from a rock, or whatever it is, the metaphor you want to choose here. They end up negotiating a lot of these things, and the creditors take some haircuts but not as extreme haircuts as they would have taken under the state laws. It ends up working in lots of different ways in different place, and the effects are... But I don't want to understate how big the local [inaudible]. These are huge recessions, and you have cities firing all of their public workers. And cities are a pretty big deal economically then, not quite as big as they are now, but this is a really big deal. And you have a real austerity caucus in the Supreme Court.

Schleicher:  But again, it has this other side, which is that in the later period, American cities built infrastructure like nowhere else. Capital spending in American cities at the turn of the last century was way, way, way, way better... Capital infrastructure was way, way better than it was in European cities. There's this wonderful quote from this unbelievably terrific historian named John Teaford, where he writes about the city of Chicago, where he says, "The City of Chicago had ordained that the level of the swampy city be raised ten feet, and it had been done in order that the flow of the Chicago River be reversed, and so it was reversed.”

Schleicher:  “The achievements of government in Chicago at times rivaled the feats of the Old Testament God." And when we think about the things we love in cities, a lot of them are products of this period. Central Park. A lot of the bridges. The Croton Aqueduct. We built this extraordinary amount of infrastructure. We had wildly more water infrastructure than you saw in London or Berlin. And it was partially because cities could borrow, and they didn't have to ask the political metropole, they didn't have to go to Washington to say, "Can I borrow in order to build?" They just borrowed and built. And there was this capital market that enabled this, that had really big benefits as well as having had these... But it was built on the backs of these extraordinary costs.

Beckworth:  Yeah. Another way of saying that is, because the cities were forced to sacrifice unemployment on the altar of moral hazard concerns, they were able later to have great investment projects.

Schleicher:  It's a trilemma. There are benefits and costs on all sides of how you decide it. And again, we see in the Southern states the other side of this, where you see they default and people are really skeptical of lending them money during this very, very important period of development.

Beckworth:  That's interesting, because I have looked a little bit into the history of the South, between the Civil War and really World War II, and it's really a separate economy from the rest of the U.S. It's divergent, it doesn't start catching up until after World War II, and this may have been a contributing factor to it.

Schleicher:  It's not the only piece here.

Beckworth:  Sure.

Schleicher:  Obviously a lot's going on. I'm telling a through line through American history, but it's one piece among many. But it is, in fact, the case that there are real negative effects to not paying your creditors if you're going to ask them for money again in the future. I mean, there's a debate about this now about the effect of say international sovereign defaults. How big an effect does it have on future borrowing? But at the time, it was pretty clear that it had a very, very large effect on willingness to lend. So for instance, a bunch of Southern state bonds were not allowed on bond exchanges in London and New York, from the 1870s until the 1910s. It doesn't mean they weren't borrowing at all, but it does mean that there was real limits on their ability to do so.

Schleicher:  One other interesting tidbit is that following the First World War, British asked the U.S. government for offsets against money that had been lent to the British for the losses that their investors had suffered in the 1870s with Southern states. So they said, "Look, we didn't get paid back by your states. Our national government doesn't have to pay you back by that amount." And the U.S. government said, "No, that's not how it works. We're not Alabama." Brits were like, "What's the difference between you and Alabama?" And so it became a big international political crisis.

Beckworth: Well, David, this has been very fascinating. We are running low on time, and we didn't have time to get into the fascinating case study of New York City, and Washington, D.C. most recently, so I encourage our listeners to read the paper. Again, it shows that the hands-off approach is not quite right. The federal government has been involved in local budget issues. But talk us through the implications of this for the current crisis. What are the takeaway points?

Implications for the Current Crisis

Schleicher:  In some more recent crises from New York City through Detroit, we've seen an increased willingness to, rather than choose one leg of the trilemma, choose a little bit of pain along all three, which is that you demand some austerity, you provide a little bit of aid, depending on where you provide it's an interesting question, or when rather, and you ask creditors to take a certain amount of hit through municipal bankruptcy law, for instance, or in New York's case a slightly different regime. So one thing to say about this is that, if we face a big city crisis or an Illinois or a Connecticut default crisis, I suspect the answer along the trilemma will not be all of one or all of the other, but rather a little bit of each.

Schleicher:  And we need to think about the... I think the big policy question, or at least what I can offer towards the policy question, is not how to choose between these three big concerns. Obviously, there's a lot going on there, and it will implicate your ideology will affect it, all sorts of things will affect your choice with it but rather, how can we design policy tools that will... For instance, if we're doing bailouts, create the least amount of moral hazard. Or if we're going to ask creditors to take a hit through a bankruptcy-like regime or a default, to spread that cost broadly so it has the least effect on the bond market. And similarly, if we're going to ask for austerity, how can we make austerity create as little pain as possible?

If we face a big city crisis or an Illinois or a Connecticut default crisis, I suspect the answer along the trilemma will not be all of one or all of the other, but rather a little bit of each... And I think the big policy question is not how to choose between these three big concerns.

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Schleicher:  And one of the things that I think is interesting is, we distribute our policy response across a lot of dimensions. So in the Detroit bankruptcy case, the court is directly weighing these types of concerns, through a doctrine called service delivery insolvency, the details of which are not super important. But the court is directly weighing, how much should I ask Detroit to cut before we allow some pain to be felt by creditors? So as a policy matter, I think there are two broad, 10,000 feet type concerns. One is, the extent you can provide aid that doesn't implicate moral hazard concern, like general state aid where every state gets it, that's pretty attractive. Because again, the choices when you get to a jurisdiction on the edge of default, are really ugly. I'm a big fan of the big amounts of general federal aid, which I don't think create too much moral hazard. They create a little, but not too much, because you get it even if you're not in bad fiscal shape.

Schleicher:  The second thing I'd say is that the federal government needs to come up with mechanisms, so if it's going to provide a specific bailout to Illinois, so the head of the Illinois State Senate asked for an Illinois-specific grant, we need to think about ways in which that money can be given, that reduce the moral hazard concerns. And similarly, we're going to need to reform municipal bankruptcy law in certain ways, in order to have less harm on creditors, or we undermine the mutual bond market a little bit less. And you could think about lots of ways you can do that. I'm currently working on a follow-up paper that will have narrow, targeted policy prescriptions, but those big dynamics are... First up, if you can avoid a fiscal crisis, or a series of local fiscal crises, you should definitely try to do that, because there are no good answers in any decision. Every single one of these stories is a sad story, in one way or another.

Schleicher:  The second is that modern policy... Maybe I'll say three. So the second is that modern policy responses don't just choose one leg of the trilemma, but can distribute the harm across all three parts of it, and I think that's probably an attractive solution. You need to do less on any one leg, if you distribute it across all of them. And then the third is that you can start thinking about ways to do... So if you do bailouts, can you build in certain conditionality into it? How can we make infrastructure spending more efficient? If what we're worried about is infrastructure spending in the future, there's a lot of waste in infrastructure spending, so maybe if we're going to harm the municipal bond market, whatever money we get, we can make it go further. And you can think about lots of things along these dimensions, but ultimately there's a political choice, which is, if a jurisdiction is in severe fiscal trouble, there's going to be pain. And it is an unavoidable fact that there's going to be pain, and it has to be allocated somewhere.

Beckworth:  Okay. Well, with that, our time is up. Our guest today has been David Schleicher. David, thank you so much for coming on the show again.

Schleicher:  Thank you so much. It was really fun.

Photo by Joshua Lott via Getty Images

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