“Insoluble insolvency” is a, primarily US-based fiscal term coined by Jim Tozzi of the Center for Regulatory Effectiveness to describe a state where a government’s long-term, structurally driven debt cannot be resolved by conventional methods like raising taxes or cutting spending. Unlike traditional insolvency, it implies a mathematically unsolvable fiscal crisis, often linked to unfunded obligations.
Key Aspects of Insoluble Insolvency:
Definition: A condition where a government’s total liabilities, particularly long-term obligations, exceed its capacity to pay, and the situation cannot be fixed through conventional economic, tax, or regulatory remedies.
Origin: The concept was formulated by Jim Tozzi and developed through the Center for Regulatory Effectiveness (CRE) in the 2000s.
Distinction from Traditional Insolvency: Traditional insolvency (or bankruptcy) involves an inability to pay debts that can often be restructured. Insoluble insolvency suggests that the system itself requires a fundamental, structural redesign to resolve the issue.
Context: It is often applied to discussions regarding the U.S. government’s unfunded liabilities, such as Social Security and Medicare, which are considered to be driving the country toward a, theoretical point of irreversible fiscal crisis.
Alternative Approaches: It suggests that, in these scenarios, traditional regulatory and fiscal policies are insufficient, necessitating deeper, structural changes.
For more information, you can read the detailed analysis provided on the Center for Regulatory Effectiveness (CRE) website.
