Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University. His column appears in Indiana newspapers.
Over the past several years many folks in the Midwest have enjoyed a good chuckle at the expense of Illinois and its hapless public policy. I’ve heard at least four different governor’s chortle over Illinois debt, the gubernatorial cell mates and the general insensibility of the Chicago Way. Of course, Mitch Daniels was the most humorous, likening the situation to that of living next to the Simpson’s family, with all of their dysfunction. I have even indulged in a bit of it myself, but all of this has been good-humored. Governor Daniels was quick to note the seriousness of Illinois troubles and the potential effect on the rest of us. But that was back in 2011 when no one thought the situation could worsen. It is time to stop joking, as the situation has become much more grim.
Chicago is the nation’s third largest metropolitan area, and is the most important city in the Midwest. It offers a focal point for the region, arguably is the nation’s most critical transportation center and has long enjoyed a vibrant economy that could readily survive the bipartisan shenanigans of state government and the corrupt politics of the city. There are now signs that the economic growth, which allowed many to look past the governance failures, is at an end. This will be a disaster for the Midwest.
The most recent census data report Chicago is the only major city to lose population last year. This comes at the tail end of an economy that has been slowing for a generation. The decline of the Chicago economy and subsequently the state economy is ominous for other reasons, most particularly because Chicago faces unfunded liabilities that cannot be met. Current Chicago debt may well exceed $75,000 per resident, while statewide it is at least $45,000 in unfounded liabilities for each citizen. This cannot be paid at any tax rate, and so bankruptcy looms.
A Chicago bankruptcy is likely unavoidable, as even the Obama Administration and Democratic Congress made clear that no bailout was in the cards. The bigger problem is that a state cannot really go bankrupt, and will have to deal with the problem through the same dysfunctional politics. One result is that no one will now prudently lend money to Illinois. The state’s bond rating is near junk-bond status, which means precious little infrastructure improvement and no stability over an inevitable recession. Even if wise, effective leaders were to punch through the uncaring party machines, Illinois faces decades of troubles due to its unfunded debt.
The situation in Chicago is worse due to failed public services. While the rates of violent crimes, including murders, are not substantially worse than other large cities, the scale of Chicago’s problems are eye-popping. More problematic is the continued failure of public education. Even after reforms pushed by Mayor Rahm Emanuel, graduation rates for African-American boys barely tops 50 percent. The malperformance and cost of public education in the Windy City is itself the best argument for school reform in the nation. So why should we care?
The shear human cost of a failed city is profound, and we should all be worried that about half of all 18 year olds in Chicago graduate into a lifetime of poverty each year. These folks live next to us, and their failure or success will label the Midwest for decades. Chicago matters to Hoosiers because more than one in 10 of us lives within the Chicago metropolitan area. More importantly perhaps, the role of Indiana as a transportation hub relies on the ability of Illinois to maintain its public infrastructure. The time for jokes about Illinois has passed.