Abstract
New Jersey entered the 2008 recession in a weakened fiscal and economic condition. With the state’s economy and revenues closely linked to Wall Street, the collapse of the financial sector and its aftershocks - rising unemployment and falling income leaves New Jersey facing “a historic revenue collapse, and the most significant downturn in its modern history,” according to the state’s Treasurer. The recession is severe, but, this fiscal dilemma is not new. The state has experienced structural deficits regularly over the past 20 years.This paper presents a series of reforms based on the successful experience of other governments. We begin with a background discussion of the challenges New Jersey will face in implementing these reforms, by reviewing the state of the state and the loss of the “Old-Time Fiscal Religion,” the foundation of public finance until the Keynesian revolution of the 1940s. We explain the limits of public policy and government intervention. We explore the importance of inter-jurisdictional competition and direct democracy and conclude with recommendations for institutional and policy reforms.
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