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CNNMoney.com ran an article in July of 2010 on Illinois’ debt problem by likening Illinois to Greece. Rarely are states of the US compared to states of the EU. I suspect that comparisons between the American republics and European countries were more common during the first fifty years of the US, when—as in the EU in its first fifty years—most people living in the American states identified themselves principally with their country rather than as Americans. Aspiring politicans typically had their eyes on their respective state legislatures rather than on the Congress of the union because the states that formed the union held most of the domains of power and held the attachment of their respective citizens.  So it is in the early twenty-first century in the EU. Hence, I contend that the EU today is best compared with the US during its first fifty years rather than with its condition in the twenty-first century as a consolidated empire. 

Lest Europeans be too confident that the EU could never consolidate too, they might read Madison’s Notes on the Constitutional Convention, which report the certainty of the delegates that the peoples’ identification with their respective republics could be counted upon to restrain encroachments from the US level of governance. Of course, the state identification in the US has fellen away—though it is still more evident in Texas than say in Illinois. As strong as “nationalism” is now in Europe, Europeans would be wise not to rely on it in structuring their Union for future generations. It is indeed amazing how something so salient today can be so enervated tomorrow. We tend to project our day forward, when the sad fact is that three or four generations from now almost all of us will have been forgotten.

In terms of Illinois, in the middle of 2010 when Moody’s and Fitch downgraded its debt, the republic was on the way to assuming nearly $10 billion in sovereign debt for the year (yet, like Greece, without its own monetary policy). Unlike Greece, Illinois could not count on its Union for help—as the US itself was $13 tillion in debt and the stimulus money was ending at the end of 2010 (just after the midterm Congressional elections). The EU’s help itself reflects the federal balance in that union, as the state officials played an active role with EU officials in putting together the rescue package. The lack of such a balance in the US has contributed to Illinois’ financial condition.

After years of overspending, Illinois had as much as $6 billion in unpaid bills that left schools, social service agencies, and venders waiting months to be paid, according to the comptroller Daniel Hynes. “We’re leveraging our future and that’s not the correct approach, but it was what was chosen out of a lot of bad options,” Hynes told CNNMoney.com. Perhaps not many Illinoisians were aware of the structural imbalance, given their primary attention on matters of the US.  Because the debt problem has compromised Illinois (as the same problem has enervated Greece), the failure of Illinoisians to pay sufficient attention to their immediate republic can be linked to a further “downgrade” of it. Unlike Europeans, Americans cannot count on “nationalism” at the state level as a check in keeping their state officials “honest.” (Corruption in Illinois is indeed a problem)  Lest we take this difference to be enduring, we might remember that even seemingly-solid political attachments can shift radically even as the institutions remain.

In short, Illinois and Greece can be compared and contrasted on the particularities of their debt problems, and so can the EU and US as federal systems of public governance.  Avoiding category mistakes, like comparing Illinois to the EU, is a first step (which CNN has begun to avoid, albeit in small steps) to being able to compare and contrast in ways that do not result in faulty conclusions wherein apples are compared with oranges.  Yet from the vantage-point of the early twenty-first century, both in Europe and America, the category mistake still rules like a huge societal blind-spot. To compare the EU to the US (and any of their respective states with one of the other), it is most accurate to compare the EU now to the US during its first fifty years.  In a looser sense, a state of the EU is on the same level as one of the US, and the EU itself is on the same level as the US—the American colonies having been so in the Greek rather than the Roman sense (i.e., as replicating the home kingdom, rather than as a province thereof).

Source: http://money.cnn.com/2010/07/13/news/economy/illinois_debt/index.htm

The New York Times reported on February 9, 2011 that President Obama was "proposing to ride to the rescue of states" that had borrowed billions of dollars from the federal government by continuing to pay unemployment benefits during the economic downturn. His plan would "give the states a two-year breather before automatic tax increases would hit employers, and before states would have to start paying interest on the loans." Many of the states began the recession with "too little money in their unemployment trust funds," and they "quickly ran through what little they had as unemployment rose and remained stubbornly high month after month. With their own trust funds depleted, 30 states borrowed $42 billion from the federal government to continue paying unemployment benefits." These state were facing an estimated $1.3 billion in interest payments to Washington due in the fall of 2011. To make up for the loss of this interest income to the federal government, the President’s proposal would raise the minimum taxable wage base of $7000 to $15,000 in 2014. "The rate of the federal portion of the unemployment taxes would then be lowered, so the proposal would not raise federal taxes on states that do not owe the federal government money. But it would speed the rate at which states that do owe money repay the federal government, and allow states to collect more unemployment taxes to rebuild their trust funds if they do not lower their tax rates." By February, 2011, eighteen states had already raised their minimum taxable wage base to $15,000 or more, according to the National Association of State Workforce Agencies. Iris Lav, an advisor at the Center on Budget and Policy Priorities, said that the unemployment system as “a constellation of problems that need to be solved. . . . The near-term problem is the economy . . . and both the interest payments and the principal repayments are cutting into employers, and it makes great sense to postpone them. The larger question is how you get states to solvency.”

Analysis:

The proposal itself makes sense from the standpoint of getting thirty states out of a tight fix. The debate on whether taxes should go up in 2011 or 2014 ought to be dwarfed by the larger structural faultlines, which are only hinted at by the President's proposal to ease up on States in trouble in the unemployment compensation system. In other words, the necessity of having extended unemployment's term to cover the length of the recession following the financial crisis of 2008 itself implies higher taxes (or debt). Whether the states' borrowing for unemployment is covered beginning in 2011 or 2014 can be debated (e.g., avoiding recessionary tax increases during a recession vs. the higher deficits), but we ought not allow it to divert attention entirely from the larger structural faultlines that are intimated by the President's proposal.

First, the "rescue" is limited to that program; neither the Federal Reserve nor the U.S. Government would come to the rescue of the states concerning their deficits and debt. Moreover, that the U.S. take on taxes limited the ability of state governments to tax in sufficient amounts to cover their expenditures is not touched. Furthermore, that the U.S. Government would be rescuing states intimates the dependence of the latter and the overwhelming power of the former. Perhaps the "cooperation," or intermixing, of the two systems of government in the unemployment system is problematic because it gives the U.S. Government a way to dominate states. According to Jacobs and Karst, “It is the preservation of the balance between the central authority and the constituent states that is the essence of federalism.” Yet, “In the American federal structure the central authority is stronger." Rescuing thirty states evinces this imbalance, and thus the failure of the United States to preserve the essence of federalism. Maintaining at least one autonomous domain for the states is not sufficient for a viable federal system; balance is essential or the two systems of government will not be able to act as a check on each other. Debating whether to raise taxes in 2011 or 2014 would mean once again ignoring our failure to preserve our federal system; it would mean blindly sitting by once again while the political consolidation of a diverse continent proceeds full throttle ahead to a "one size fits all" and the resultant building pressure, which is apt to explode one day. 

Second, the unemployment system itself, being limited to helping the unemployed for discreet periods often shorter than a given recession, is not addressed fundamentally. In other words, the X weeks feature of being on unemployment compensation treats "convenient" things like food, rent and utilities as though they were optional commodities that could be skipped after the Xth week on unemployment. The nature of unemployment is rooted in survival, which if one believes in human rights, including life, is properly unconditional. The basic structural problem with the unemployment system in the U.S. is in turn a symptom of the inability of the private sector to bring the U.S. population to full employment. That is to say, relying exclusively on business to bring us to full employment is problematic, again from the standpoint of survival as a human right. To be sure, the recognition of survival as a human right implies higher taxes than are necessary in simply treating survival as a matter for the state of nature--as in Paul's dictum that those who don't work don't eat. This broader debate is typically ignored as we debate incremental changes in policy, even if those changes have implications in terms of the broader faultline.

Sources:

http://www.nytimes.com/2011/02/09/us/politics/09states.html?pagewanted=1&ref=todayspaper

Jacobs, Francis G. and Kenneth L. Karst, “The 'Federal' Legal Order: The U.S.A. And Europe Compared A Juridical Perspective,” in Integration Through Law: Europe and the American Federal Experience, Mauro Cappelletti, Monica Seccombe, and Joseph Weiler, eds., Vol. 1, Methods, Tools and Institutions. Bk. 1, “A Political, Legal and Economic Overview” (Berlin: Walter de Gruyter, 1986), pp. 169-244, p. 171.