Austrians in New Jersey

The Gubernatorial race in New Jersey is on. Steve Lonegan and Chris Christie are fighting to be selected to run for Governor on the Republican ticket. This election is going to be most interesting. New Jersey is one of the worst fiscal cases in the U.S. The Freedom in the 50 States index, published by Mercatus, ranks New Jersey 49th (just before New York). Indeed, public spending, taxes (especially property taxes), and public debt have gone up dramatically over the last decade, while the size of the private sector and the population have been shrinking. My colleague Eileen Norcross and I are currently writing a policy paper to be published by Mercatus in which we examine the causes of the current fiscal mess and offer some policy recommendations. New Jersey has been following a path of self-destruction for a long time and has fallen victim to organized groups such as teachers' unions. It also has had one of the most activist Supreme Courts in the country.

Some commentators, such as Paul Mulshine of The Star Ledger, have realized the mess they’re in. In a recent article Mulshine praises Lonegan for understanding that both public spending and taxes must be cut. Mulshine sees the Austrian approach to fiscal issues as similar to the old-time fiscal religion, whereby governments should only spend what they can raise in taxes, keep taxes to the minimum required to provide (so-called) public goods, and abstain from using public debt (except in times of war).

Check the TV debate between Lonegan and Christie. What I find most interesting is how much Lonegan understands fiscal prudence and the economics of James Buchanan. He also sees the vital importance of institutions to create the right framework for entrepreneurship and wealth creation. Actually, both candidates understand this to a large extent as both want to reform the Supreme Court. Christie has recently taken the lead in the polls (see here) by criticizing Lonegan’s flat tax proposal.

If one of them defeats the current Governor Jon Corzine, Lonegan and Christie should work together after the election to make radical policy changes in New Jersey an actuality—the way David Lange and Roger Douglas did it in New Zealand in the 1980s. The forces of politics may kill that dream, but this is the only thing that would save New Jersey from oblivion.

Thanks to Eileen Norcross for alerting me to Mulshine's article.

Comments

[Brian Pitt]

Excellent Post!

Unfortunately, however, both Lonegan and Christie are toast in the general election.

[Warren Miller]

Brian, I think your brain is closer to being toast than Lonegan and Christie. The people of New Jersey aren't as dumb as you think.

[TGGP]

"Chris Christie"? What were his parents thinking?

[Jared]

It seems reasonable that, controlling for initial GSP per capita & so on, states that have the best rankings would grow better over the next 50 years than those with worse rankings, and also that extending the index back through time would serve to explain growth through 2009-X to the present.

But I must say, here in the static case, that the overall index is negatively correlated with current per capita state personal income. The relationship is significant when regressing:

ln(per cap income) = a + b*freedom_idx

Any omitted variables in the here & now that are (a) important and (b) would be correlated with freedom_idx?

[David Andersson]

I had a look at the article describing the index. The right to own and use guns is an important component, while the right to have an abortion is not included. Also, high taxes and eminent domain regulations are considered relevant government intrusions, but the death penalty is excluded from consideration. So the index does seem to have a culturally conservative bias.

[Frederic Sautet]

David,

In the introduction, the authors of the index acknowledge that they left out some issues because of their nature, but they have all the data on their website for anyone who wants to do the maths with other criteria.

Not sure if the index as it stands has a "culturally conservative bias", but it does a good job trying to go beyond the standard measures of economic freedoms. Moreover the authors found that the least free states in the index have experienced out-migration, which is what one would expect in a federal system.

Frederic

[David Andersson]

Frederic,

I think it's a laudable effort, and I would love to see an international version of this. I read their introduction, but their reasoning behind the exclusion of abortion rights could easily be extended to, say, banning semi-automatic weapons by someone with the opposite bias (i.e. prisoner-dilemma style problems from banning weapons that are related to crime and protection against crime as opposed to hunting).

As several property rights theories have argued, the distinction between "economic" and other freedoms are conceptually artificial. I would love to see a general global freedom index that includes stuff like freedom of speech, drug prohibitions, gay marriage as well as taxes etc. I bet Singapore would sink like a stone. It would also be nice to see something that indicates the availability/feasibility of Thiebout-style options. My bet is that Switzerland would win a global freedom index (more specifically, the Canton of Zurich).