There's an important policy and economic lesson is New Jersey's budget crises, that is applicable to the crises that we are likely to see on ever widening scales – it's even more important to understand the big picture of how we got there.The story is quite evident by examining the economic landscape. The legislature and the governor are likely to wrangle over unpleasant issues such as tax hikes or service cuts – all unpalatable choices. The steps that need to be taken are readily evident – spending should not exceed tax revenue – government is NO DIFFERENT than how one would expect in a properly run household or corporation. If there is ever an imbalance, than it should be the extremely rare exception, and not the rule.
But here we are, with deficits as the rule. Expenses have gone up, compounded by the demographic crisis driving up insurance costs, regular inflationary pressures, and the magnified increase in fuel-driven inflation.
The extreme problem here, is that US fiscal policy, and the prevailing opinion of the elitists in power still believe that supply side economics is not only academically sound but the fair and just way to consider fiscal policy. Tax benefits should go to the wealthy investor class – it's their earnings and investment , after all, that create jobs.
Tax breaks and tax cuts have been skewed in one direction, while the brunt of those inflationary pressures has most adversely squeezed the ever-shrinking middle class.
New Jersey's problem is, in the context of expenditures versus tax revenue, is that wages and income, upon which tax revenue is based, have not kept up with expenses. Normally, wages creep up with inflation; this time, it hasn't happened.
