NJ $58 billion shortfall

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http://www.nytimes.com/2007/07/25/nyregion/25retiree.html?hp

I assume I'm not the only one who read this article in the Times today? Truly scary and despicable. If a CEO did what Gov. Whitman did in creating this shortfall, he/she would go to jail, and deservedly so. (Oh, and btw many companies are indeed doing very close to this very thing, and the fallout will come in the next decade or so.)

Not to be a chicken little, but true disaster is a very real possibility. NJ (and it's not alone), can't possibly pay its obligations. As massive budget cuts and tax hikes kick in, expect people to start fleeing the state, taking their capital with them. The deficit will grow. And with health care inflation, the $58 billion will rise, and rise, and rise. We could potentially be seeing the first glimpse of the end of NJ as a viable state (well, not that it really was one, but you know what I mean).

Realistically, the state is faced with default, and that carries consequences. It could default on its health payments, leaving people to die, or on its debts, leaving it unable to borrow more and thus finance any of its other budget obligations. The article suggests that a national health care plan in which the federal govt bails out the states is the only/best solution, but health care costs already eat up 30% of the national budget. Can Washington really assume another trillion or two in state liabilities? And should we fill a hole by digging a deeper one?

I hope that some people out there, and especially public sector unions, think to themselves: maybe I'm better off planning for my own retirement and keeping my money in my own hands than leaving it all up to inept and corrupt politicians and corporations who don't care about me. Maybe the notion that defined benefits are less risky to workers than defined contributions will be reconsidered. Maybe politicians will finally start thinking of ways to hold down health care inflation, rather than just piling promises on top of promises that feed the fire.

Or, maybe NJ will just be a microcosm of what will eventually happen to the country as a whole. Right now I'm pretty pessimistic as to which road we are heading down.