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Opinion: Tough Times Call for Tough Choices

We need basic changes in the way government operates if NJ is to deal with its fiscal problems and realize stronger economic growth.

Economists have a saying: "You should never waste a perfectly good crisis."

In normal times, it is easy to dismiss the weaknesses in the way government operates. But in times of trouble, when there is no choice but to make hard decisions, politicians have an excuse to do at least some of the difficult things that could not be accomplished when the economy is booming.

Unfortunately, the tough choices being made in New Jersey may not be the ones that lead to long-term changes in the way the government operates. As such, they may lead to problems down the road.

If New Jersey is to deal with its budget deficits and lack of competitiveness, there are three large areas where changes need to be made. First, the basic structure of the government must be dealt with. It is an anachronism and its inefficiencies are debilitating. Second, the level and makeup of spending must be determined. We do too much simply because we have always done it. Finally, the tax code must be tackled. We all know that it makes as much sense as the federal code, which is totally insane.

Probably the biggest mistake that we could make during the current financial crisis is to fail to reform the basic way government operates. The structure of the state’s executive branch is just as bizarre as the tax system. It was created over the years by a series of what were at the time logical and sensible political decisions. Unfortunately, government agencies suffer from inertia: A department that is set in motion stays in motion, even when there is little reason for it to exist. It’s time to recognize that a government office that was required in the past may no longer be needed now or in the future.

One way to deal with the structural issues is to use a form of zero-based budgeting. Zero out all budgets and ask the question, how much should that agency or department get under current circumstances and current and future needs. Just because something already exists doesn’t mean it should continue to receive funds. While politics might make it impossible to actually terminate a division, this process would provide a means to prioritize where cuts should be made and where spending should be increased.

If there are no pink slips sent out by the executive branch, then the opportunity to reform the way government operates will be wasted. Reductions or terminations of departments would be one of the best ways to control costs in the long term and create efficiencies that would allow the government to provide the services it needs to at the lowest cost possible. It would align current and future requirements with revenues rather than reflect past decisions.

Right now, that restructuring is simply not being done and that is a truly wasted opportunity that we may not have for a long time. As a consequence, while the fiscal problems may be eased by a growing economy, scarce financial resources will continue to be misused and that will limit growth and pressure budgets in the future.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. In 2011, he received the National Association for Business Economics Outlook Award as the top economic forecaster. His email address is Joel L. Naroff.

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