The Phaserl


Bankruptcy Litigation Does Not Generate New Wealth

Litigation is the fantasy fix for those brawling in a shrinking pool of wealth.

by Charles H. Smith, Of Two Minds:

As municipal bankruptcies become the New Normal, it’s worth noting that litigation does not generate more wealth to distribute, it simply burns existing wealth, leaving less to distribute. Yes, this is stating the obvious, but what’s obvious is precisely what’s ignored when fantasy attempts to trump reality.

Shrinking tax bases, fewer tax-generating jobs, an expanding (tax-free) informal economy: this is the New Normal for many communities. Every single pension and benefit entitlement promised to someone was based on projections of endlessly rising tax revenues skimmed from an endlessly expanding tax base of businesses and workers.

No public pension plan or benefit package can survive a shrinking tax base and the bursting of asset bubbles. Those locales with rising tax revenues are once again drawing straight-line projections into the future: the new real estate bubble pushing property taxes higher will expand forever, the revenues from stock options will rise forever as the next Facebook is surely just around the corner, and hot sectors such as tourism will continue expanding forever, too.

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