Meredith Whitney is the Wall Street analyst -- schooled in New Jersey -- who is credited with as clear a forecast of the 2008 financial crisis as anyone. Now she has turned her attention from the fiscal health of banks to the fiscal health of various states, with sobering comments on New Jersey.
In her new book, Fate of the States: The New Geography of American Prosperity, Whitney says that we pay more money than other states to educate kids, and then many of those kids grow up and have to find work somewhere else because New Jersey is not creating enough jobs.
This is the result of long-term structural forces rather than the policies of the current administration. As Whitney says, it cannot be fixed overnight. But we need to start somewhere.
Here is a summary of Whitney's book from Yahoo! Finance:
Specifically, Whitney says “central corridor” states Texas, Oklahoma, Indiana, Colorado, Utah, North Dakota and Montana are best-positioned for fast economic growth and population migration. What these states have in common are low taxes, pro-business policies, low population density (meaning lower housing costs, shorter commutes, and better quality of life) as well as strong and stable balance sheets, especially relative to other states.
On the other hand, Whitney is very skeptical of the prospects for states that overspent during the boom and now face huge budget shortfalls -- plus falling tax revenues after the housing bust. “Illinois and New Jersey are the worst because they've been doing it the longest,” Whitney says, adding Michigan and California to her list. “They spent as if the good times would never end and made big promises to state and local government employees based on the deliberate bet that they wouldn’t.”
Now, those states are being sucked into what Whitney calls “the negative feedback loop from hell.” Faced with massive deficits and huge pension fund liabilities, they need to raise taxes even as they’re “running out of money needed to pay for libraries, safe streets, clean drinking water and, yes, schools.”
Whitney predicts the “smart money” -- businesses and wealthy individuals alike -- will begin relocating. “One thing really threatening certain states is the power of the 1percent. [This group] is being tempted into more tax-favorable, more biz-friendly states … with higher social services and better infrastructure,” she says.
I think Gov. Chris Christie is popular in large part because he gets this, and people appreciate that he is doing his best to address it. Whether through Sandy relief or fiscal reform, he’s trying to make New Jersey a more attractive place to live and work.
As is true with any governor, his tenure is influenced by some amount of luck. Tax revenues have increased as the economy has slowly mended, so the budget pain is less severe than it might have been.
The governor has also benefited from Democratic leaders in the Legislature who are also trying to do the right thing rather than be obstructionist for the sake of it. But Christie also deserves credit for political skill in working across the aisle.
The Democrats aren’t going to win by saying that Chris Christie is bad. The only chance is to articulate a positive vision that addresses the state’s fiscal problems, one that offers a responsible contrast to some of the governor’s choices. Stonewalling on pension reform is not the place to draw a contrast. Democrats around the country who understand basic math have pushed needed pension reforms.
Talk about building more robust urban centers and improving our mass transit. Talk about protecting the environment while removing silly obstacles to economic growth. Al Gore says it can be done. Talk about how to get better results for our huge investment in K-12 education. Talk about building our economic future by enticing more students to stay in state for college. These issues have to be addressed within the bounds of fiscal reality.
At some level, talk about taxing the rich “just a little bit more” is a canard that evades fiscal reality. It is a little-known fact that about 8 percent of all state income taxes, or $1 billion, is paid by 400 individuals. These are people that have the greatest flexibility to leave New Jersey. That drain has begun, and if it accelerates, an even heavier tax burden will fall on the rest of us.
New Jersey’s future is tied to weaving together intelligent policies around education, job creation, taxation, and infrastructure. We have huge challenges here -- and more indebtedness per capita than almost any other state. People appreciate that the governor gets this, and is decisive in making tough choices to address it. New Jersey deserves a robust debate in the gubernatorial election on the best way forward while recognizing the constraints imposed by current fiscal realities.