The fundamental misunderstanding people have about bankruptcy is that they view it as a failure state, when it is actually a vital cleaning mechanism. In a healthy economy, bankruptcy ensures that capital, talent, and real estate are released from poorly run businesses and returned to the pool for better allocation. Without this process, we end up with zombie companies that can barely service their debt but cannot grow or innovate, hoarding resources that could be used by more productive ventures. When a business model no longer matches reality, the market forces it to close. It is ruthless, but it preserves the health of the overall economy.
The problem with government is that it lacks this termination function. Government agencies are theoretically immortal. When a private entity fails to deliver value, it loses revenue and dies; when a public entity fails to deliver value, it often receives more funding under the guise of fixing the problem. This creates a system where inefficient departments can consume vast resources indefinitely because there is no mechanism to stop them.
This structural flaw is most damaging regarding public sector unions. In the private sector, collective bargaining works because both sides face a shared constraint: if wages exceed revenue, the company goes bust and everyone loses their jobs. In the public sector, this constraint vanishes. You have unions negotiating with politicians who need votes and campaign support, while the taxpayer—who actually foots the bill—is not at the negotiating table. The politician isn’t negotiating with their own money, nor are they constrained by the risk of insolvency since the state can raise taxes. This creates a situation where the management is effectively captured by the labor force, negotiating how much to extract from the public.
Franklin D. Roosevelt understood this dynamic perfectly. While he was pro-union, he explicitly opposed public sector unions because he recognized that the employer is the whole people, and strikes against the government are fundamentally different from strikes against private owners. We need a mechanism to fix this, whether it is a powerful commission to retire outdated agencies or a legal framework for agency bankruptcy. There must be a way to liquidate bad bureaucratic structures. If a department cannot justify its existence or its financial obligations ensure future ruin, we need a legal way to dissolve it and void its contracts, or the system will eventually collapse under its own weight.