Center for Business and Public Policy
at the University of Illinois, Urbana-Champaign

The New York Times ran a long piece last week about Illinois’ budget problems.  We are dangerously close to passing California as the biggest fiscal mess in the country, if we haven’t already.  Virtually everything is scary, but I found this to be most disturbing:

The state’s income tax burden is not terribly high — Illinois ranks in the bottom half of states — and its government is not terribly large. (The budgets in New York and California, per capita, are much larger).

The Tax Foundation ranks Illinois’ total state and local tax burden (2008) as 30^th highest out of the 50 states and Washington DC.  Federal government data (2009) ranks Illinois 22^nd highest in terms of state and local spending per capita, 12^th highest in terms of debt per capita, and 17^th in terms of GDP per capita.   Relative to other states, we have a very large unfunded pension liability, and as Jeff has pointed out, it is probably even larger than the official numbers show.  And, there are reasons to think that the unfunded pension liability is a symptom of the problem rather than its cause.  Unemployment is high here, but arguably our problems predated the current recession.

Which brings us to the big question.  How did we get into the state we’re in?  If we had an unsually high, or low tax burden, then maybe that would be the cause, and moving taxes in the other direction would help.  If we had an unusually large government, maybe trimming the size of government would be the solution.  But, none of these indicators point to why our state is doing so much worse than others.  The Times article suggests the following:

More broadly, Illinois is caught between blue state convictions about social safety nets and a red state aversion to taxes. For years, the Democratic-controlled legislature has passed budgets that are, in effect, in deficit. Lawmakers routinely skip around the state’s balanced-budget law, with few consequences. (Republicans are near monolithic in voting against any tax increases and borrowings. When one broke ranks to try to keep the pension solvent, he was stripped of a committee position, reducing his pay and pension.)

I would never ever want to be a macroeconomist charged with making economic predictions.  In fact, I’m sorry that anybody makes macroeconomic predictions, because they can’t always be right, and the fact that they turn out wrong gives all economists a bad name!   Yet I particularly like it when some non-economist friend of mine asks  “Do you think the economy is going to improve, or worsen?”  That just gives me a chance to respond, “YES!  That is, yes, I think the economy will improve or worsen.”

So I’m particularly reluctant to write any blog about the poor state of the macro-economy, what should be done about it, and when we are likely to see any turnaround.   But today’s article in the Washington Post is about macroeconomics and environmental policy!  It is called “Obama laments job losses, announces tax credits for clean energy”.   How are those connected to each other?   Only through rhetoric.

Basically, all of the points are valid, as presented by the article and even by the Obama Administration spokespersons.   The economy is bad, and we don’t know when it will improve.  We don’t even know what is the effect of last year’s stimulus bill, because we’ll never know what would have happened without the stimulus bill!  And it’s also true that we might need more stimulus.  And it is furthermore true (even if unrelated) that it might be a good idea to spend more money on green investments, to aid the transition away from burning fossil fuels that worsen global warming, and towards energy efficiency and alternative sources of energy such as solar power.

More specifically, the Washington Post article says:

“The unemployment rate was unchanged at 10 percent, the Labor Department said. Forecasters had expected zero net change in the number of jobs on U.S. payrolls, and some had had expected job growth to return. Those expectations were dashed by a report that — while not without bright spots — suggested that the long slog toward an improved labor market continued in December.”

That paragraph seems unrelated to the prior one:

“As part of an effort to ‘close the clean-energy gap,’ he announced the awarding of $2.3 billion in tax credits to American manufacturers of technologies such as wind turbines, solar panels and cutting-edge batteries. The credits — destined for 180 projects in 40 states — will generate 17,000 jobs and help leverage $5 billion in private-sector investment that would create tens of thousands of additional jobs, while doubling the amount of renewable power over the next three years, Obama said.  …  Since there are far more qualified applicants for the credits than the federal funding will cover, he said, he is calling for investment of an additional $5 billion in the program.”

Yet the Administration might as well link the two, at least to appear to be doing something, and to make headway on another important agenda item.  Just as stated by Obama’s Chief of Staff, Rahm Emanuel, “You never want a serious crisis to go to waste — and what I mean by that is an opportunity to do things that you think you could not do before”.  You can even listen to it on You-Tube, if you click here!

Speaking of “unrelated”, I have another link to suggest.  If you are interested in hearing about progress in Copenhagen toward international agreements on climate change, in the style of Dr. Seuss, click here!