New Jersey’s debt downgraded – some thoughts

Steven Malanga at Public Sector Inc. makes several good points on the downgrading of New Jersey’s debt.With credit ratings agencies now looking at pension obligations (based on what the states are reporting), New Jersey, Illinois and California’s outlook are far more serious than when that information was excluded. The result is the market has sent a message that these states can’t temporize on reform.

There is no disagreement in NJ as to whether there’s a problem. The disagreements are over size and approach. It will be interesting to see how Governor Christie’s proposed reforms are treated in the Legislature. Senate Leader Sweeney proposes more modest reforms.

I think the least exciting explanation for why pension plans reached this point is actually the most accurate one – clouded economic thinking convinced everyone involved that it is possible to earn high returns without risk  simply because the government is somehow different when it invests.