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NJ corruption and debt today just like 1837.

I.  KNOW THE HISTORY.

For roughly 20 years before “The Panic of 1837” bank failures,  state government in New Jersey was as corrupt and mismanaged as it is today.   A handful of politicians controlled state government.  They got elected and re-elected with bribes and political support from another small group who owned the biggest banking, construction, shipping, and railroad corporations in NJ.  This handful of politicians  guaranteed enormous profits for the handful of business owners who kept them in power by giving those businesses government loans, permits to form corporations, monopolies, and profitable no-bid contracts that no other businesses could get.

These politicians kept taxes low to please voters by having state government borrow the money needed to run the government and subsidize sweetheart deals for their business allies.   Their request for loans were never turned down because these politicians only granted state charters to bankers who supported them.   If these “public-private partnerships” paid back these loans with interest, there would be no problem.   But most of those loans defaulted instead, and were never paid back.

Many of these projects were not needed or poorly planned.   There are still abandoned canals in many parts of New Jersey that were failures since the day they were built.  They never attracted the traffic promised by their promoters, tolls were never collected, and the loans to build them were never repaid.

Many corporations that got government loans, or made huge profits from government contracts never built what they promised because of mismanagement or outright fraud and theft.

In 2004, Political Economics Professor John J. Wallis of the University of Maryland described all this as “systematic corruption” in research paper  “The Concept of Systematic Corruption in American Political History.”

In 1837, customers of state banks in New Jersey and elsewhere in America panicked when they learned their bank deposits were “invested” in these bad loans and worthless state bonds.   When they ran to the banks to withdraw their money, the banks were closed and their money was gone.

This “Panic of 1837” caused a seven year economic depression in most of America.   Farmers who had lost their savings and could no longer borrow from banks, had no money for seeds.  Factories had no money to hire workers or buy equipment and raw materials.   Stores had no money buy factory goods.    Consumers had no money to buy.    Home and business owners lost their properties in foreclosure.   Many Americans went hungry.  Others turned to crime and alcohol.    Others turned to radical politics.   John Brown became a militant crusader against slavery after he lost his saving, his home, and his leather factory during this economic depression in 1839.   He and others claimed that this economic collapse was part of God’s punishment for slavery.

Many Americans publicly warned that the country was falling apart and that our  experiment with self-government might fail.  One of them was a 29 year old Illinois  lawyer named Abraham  Lincoln.   In a speech to the Lyceum, a social group for young people, he said the country would collapse from within if Americans did not return to the principles of our founders.   See Abraham Lincoln Lyceum Address, 1838.  

Stephen Foster, America’s most popular songwriter of the day captured the mood of the nation’s despair in his song “Hard Times Come Again No More” written several years later in 1851.

But in 1844, the people of New Jersey turned everything around.   They adopted a new State Constitution with three provisions that Professor Wallis later called “simple yet ingenious”.  They were as follows:

  1. State legislatures could no longer create corporations with “special” laws that helped only special, selected people.    The new NJ constitution forced the Legislature to make “general” laws that gave every citizen an equal right to form a corporation and start a business,  .
  2. State government money could no longer finance private business corporations.
  3. State government could no longer borrow money or incur any long term debts or obligations unless most voters approved it  in a statewide referendum.

These three basic reforms had an immediate and dramatic effect.

The state soon got out of debt and remained debt free for the next 120 years.  Taxes were low and the economy boomed.   Thousands of ordinary citizens formed new corporations that created hundreds of thousands of jobs.

Here in Atlantic County, a country doctor names Dr. Jonathan Pitney of Absecon joined with Sam Richards of Hammonton  to form a new corporation in 1854.   That new corporation raised money from private investors, bought an empty island by the Atlantic Ocean and a strip of land that connected it to Camden.   Their corporation then built a hotel and a railroad in less than one year and created Atlantic City as a first class resort.

Thomas Edison, America’s most successful inventor, was so impressed with low taxes and opportunity in New Jersey that he built his laboratory here in Menlo Park in 1878 when he formed America’s first technology research corporation.  (Many people joke that if Edison were alive today, he could never get the permits he would need to do that!)

Henry Leeds formed a corporation that  replaced the old wooden Chalfonte Hotel with an eight story brick and steel “skyscraper” hotel at North Carolina Avenue and the Boardwalk in less than 10 months.

Sarah Spence Washington, opened a beauty salon in Atlantic City in 1913.   When she could not buy products suitable for African-American hair, she formed a beauty products corporation that made her a multimillionaire ten years later.

During this entire time, New Jersey had no state sales tax and no state income tax.   Real estate taxes were low enough for one working parent to own a home and support a family.  However, New Jersey public schools were so good that many foreign diplomats in Washington, D.C. bought second homes in Atlantic City so their children could attend Atlantic City High School.

New Jersey adopted a new State Constitution in 1947 that included those three basic features of the 1844 NJ Constitution.

In 1963, New Jersey adopted its first 3% state sales tax.   However, government taxes and spending did not get out of control until 1968.  That was when the New Jersey Supreme Court approved a loophole that let the state borrow hundreds of millions of dollars without voter approval–if it did so indirectly.

The NJ Supreme Court agreed that state government could not simply borrow money, and pay back the loan with tax dollars.   However, it did let state government create “independent authorities” like the Economic Development Authority (EDA) which were allowed to borrow money.    It also said that NJ state government could fully fund those authorities, because its obligation was “unenforceable” and could be repudiated at any time.

Two years later, New Jersey increased its 3% state sales tax to 5% with a Republican Governor and Legislature..    In 1976, New Jersey started its first  2% state income tax with a Democratic Governor and Legislature.

Except for a brief casino boom from 1978 to 2007 (when Atlantic City had a casino monopoly on the East Coast), New Jersey’s economy steadily declined between 1968 and today.    More debt led to more government spending, taxes, and corruption.

For roughly 50 years, citizens and even public officials like former Bogota Mayor Steve Lonegan filed lawsuits to stop this borrowing without voter approval.   Each time, the NJ Supreme Court ruled that while any debt incurred by a state government authority was not a legal debt of the state and could be “repudiated” or rejected at any time, it would not order those authorities to stop borrowing money.

As a result, the only way for the NJ Constitution to be respected and complied with, is for New Jersey voters to elect legislators who will repudiate–refuse to pay debts and obligations not approved by voters.

To save our state–repudiate!   Don’t swallow their bait–repudiate!   Before it’s too late–repudiate!

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