States declaring bankruptcy could be good for the economy long-term

https://www.foxnews.com/media/peter-king-mcconnell-marie-antoinette

There is some harsh criticism of McConnell for suggesting that states should be able to declare bankruptcy, but realistically some form of debt/payment relief for everyone, including the states, could be beneficial long-term.

The lockdowns have had very positive effects on air-quality. Reducing economic activity is thus proven to be beneficial in this way. The question is how to maintain a smaller economic footprint overall without reducing everyone to total bankruptcy.

When a business or individual declares bankruptcy, the court orders repayment of debts at a reduced level. That means you get a discount on your bills. If states or businesses would reduce their bills, that would mean contractors, employees, and state institutions could have their budgets cut by some amount, and they would have to pass on those cuts to their employees, contractors, and however else they spend their money.

If your income got cut, you might be unhappy about it at first; but if everyone else was only making, say, 70% of their income; then the economy would have to adapt to that by reducing prices, rents, etc. in kind.

The more people and businesses are able to reduce their costs and prices, the farther money goes when you invest and/or spend it.

The challenge in such a deflationary environment, however, would be maintaining fiscal discipline instead of spending and investing as if you are still making as much money as you were before the deflation.

The more people and businesses would successfully cut and manage their reduced spending in an effective way, the more potential there would be for economic growth long-term.

And if the economic reforms achieved in this way maintained the same low levels of air-pollution and otherwise respected climate and environment, the evolving economy would be something Greta could be happy about instead of sad (to use a simple measuring stick for climate reform progress).