?Atlantic City casinos are booming.? Yet its local government is too broke to make payroll without a ?bridge loan? from the state.? We pay $1.5 billion in tolls and gas taxes each year.?? Yet our ?Transportation Trust Fund Authority? is $16 billion in debt and too broke to build or fix a single road or bridge without a billion dollar a year tax hike.?? Our public employees pay more than ever for their pensions.? Yet their pension funds are too broke to pay what was promised–unless they get bailed out with big tax hikes.?? Why?
European economist Vilfredo Pareto, predicted this with this story he told in his ?Manual of Political Economy? published in 1906.??? He supposed that in a country of 30 million people, 30 crooks? formed a company to do a government project that would pay them $30 million.?? The crooks would then work day and night to win public support.?? They would spend thousands of dollars on newspaper ads and ?discreet? payments to business, community, and political leaders.??? If they succeeded, each of them would win a million dollars.
Hardly anybody would oppose them, since each citizen would lose only one dollar from the deal.? In Pareto?s words ?In these circumstances, the crooks will win hands down?.
Pareto concluded that in every democracy, ?political economy? would cause government spending and debt to grow until it crushed the middle class.??? ?By the 1920?s Pareto, wrote that only a dictator like Italy?s Benito Mussolini could fix this problem.? Others admired socialists and communists like Russian dictator Vladimir Lenin.? ??
More than 140 years ago, New Jersey was in that same situation.? Most state and local governments in America were as corrupt and mismanaged as the European democracies Vilfredo Pareto wrote about.?
To avoid raising taxes, state and local governments took out big loans they could not pay back.?? ??This led to nationwide bank failures known as ?The Panic of 1837? followed by a seven year economic depression.?
Like Pareto, many Americans lost faith in democracy.??? But instead of turning to dictators, Americans adopted new state constitutions to control the corruption.??? New Jersey adopted ours in 1844.?
According to University of Maryland Economics Professor John J. Wallis,? ?these? state constitutions had two new features that were ?simple yet ingenious?
One required all state laws to apply equally to everyone.?? This made it hard for small groups of insiders to make special laws for themselves at the expense of everyone else.?
The other required balanced budgets.? State government could not borrow any money unless voters approved a ballot question.?? This dried up the funding for most pay-to- play corruption.? ????
These state constitutions ended the depression and helped create the economic miracle that became known as the American Dream.??? For the next 120 years, state and local governments in New Jersey were affordable and virtually debt free.?? We had no state sales or income tax.??
That changed in the 1960?s when greedy politicians and clever lawyers of both? parties invented gimmicks to get around our State Constitution.?? One was to create the New Jersey Transportation Trust Fund Authority to borrow billions without any voter approval.
The result is that New Jersey now has the same ?political economy? we had just before the financial collapse of 1837.? ??
Fortunately, we still have our State Constitution.?? We can quickly get our government back under control by enforcing it.?? The first step is to refuse to pay any debts not approved by voters as it requires.?? Instead of bailing out the corrupt and mismanaged Transportation Trust Fund Authority with big tax hikes, we should let it go bankrupt.??
Our State Supreme Court repeatedly ruled that taxpayers have no legal obligation to pay its ?debts.?? All bonds and disclosure statements of the Transportation Trust Fund Authority clearly warned investors of the risk.
This would let us fix our roads and bridges without any tax hike.?? It would also break up the unholy alliance of Wall Street Republicans and Big Union Democrats and their iron grip on New Jersey politics.
Seth Grossman, Executive Director