Illinois the Epicenter for the Great Depression Soon to Spread Throughout the Union
If America recovered some semblance of economic prosperity during the last nine years, someone forgot to tell Illinois. Saddled with declining tax receipts and with public works bills it can’t pay, Illinois is in serious trouble.
The soon-to-be second-longest business expansion in American history is grinding to a close. If Illinois couldn’t get its act together then, it certainly isn’t going to do it now. The new Great Depression coming to America could be a replica of what is happening in the prairie state.
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The “Land of Lincoln” has several issues to deal with, but a flagging economy tops them all. Illinois’s economic growth has tallied just four percent since 2007, which is lower than the 10% growth that the state experienced during the 1929 Great Depression. Furthermore, there are fewer Illinoisans working now than 10 years ago. This is quite shocking, considering that U.S. economic growth averaged around two percent nationally since 2009. No wonder tax revenue has plummeted in the state. (Source: “Illinois’ Economic Growth Is Worse Than During The Great Depression,” Illinois Policy, June 13, 2017.)
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The chickens have come home to roost. In an effort to avoid dealing with the big elephant in the room—massive pension and retiree healthcare costs—Illinois tried to tax its way out of the problem. Income taxes, property taxes, and sales taxes have all risen significantly. Illinois lawmakers raised state personal income taxes by 67% alone in 2011. The result, as you might have guessed, has depressed economic activity. Less discretionary spending has meant less business investment and more people leaving the state.
The consequences of multiple years of stagnation are yielding real-world consequences. Illinois’s credit rating has been lowered to junk status (the worst in the Union). The state has $14.5 billion in unpaid bills to various public works contractors. This means that things like road repairs may be neglected. The state can’t pay private insurers the health insurance payments that are due. Bond spreads (the cost of financing) since the torrent of credit downgrades have exploded. The state has even delayed payments to state lottery winners, who have been forced to file lawsuits to collect their claims. (Source: “Illinois Bond Spreads Explode As Market Pukes On Latest Batch Of Bad News,” Zero Hedge, June 12, 2017.)
Illinois is in a state of complete financial chaos. As Governor of Illinois Bruce Rauner said earlier this month after the Illinois Legislature failed to pass a 2017 budget in early June, “We’re like a banana republic. We can’t manage our money.” (Source: “Could Illinois be the first state to file for bankruptcy?,” CBS MoneyWatch, June 16, 2017.)
With the way they’ve mismanaged their economy, that description is closer to truth than hyperbole. Sadly, as the economic expansion comes unglued in America, more state corpses are about to be uncovered.
Falling State Economy a Key Indicator of Another Great Depression
Illinois mismanagement runs deep, but the lack of growth initiatives to keep tax receipts flowing into state coffers tops the list. While U.S. GDP growth has hardly been picturesque since the U.S. housing bubble collapse, it’s been enough to foster much more growth than Illinois has experienced.
The causes of the Great Depression that Illinois is experiencing start and end with economic activity. Failure to generate it gave the state no maneuverability to fix its finances. The state government has to resort to increasing taxes, and that always makes things worse in the long term. No wonder no one wants to set up shop in the state.
Take a look at the Illinois growth numbers in the past few years.
| Year | IL Growth State Product |
| 2007 | 1.10% |
| 2008 | -2.40% |
| 2009 | -2.6 |
| 2010 | 1.20% |
| 2011 | 1.90% |
| 2012 | 2.00% |
| 2013 | -0.30% |
| 2014 | 1.50% |
| 2015 | 1.00% |
| 2016 | 0.90% |
| 10-year total | 4.30% |
Again, Illinois’ 10-year growth average from the beginning of the 1929 Great Depression was around 10%. Obviously, 10% growth occurred during a period of spectacular economic contraction, not expansion like we’ve seen since 2008. This has people wondering whether Illinois will be the first-ever U.S. state to default. It certainly wouldn’t be surprising. The state cannot print its own currency and the federal government hardly wants to set a public bailout precedent for other states.
Some hard choices are coming. Hopefully some feasible creative solutions (beyond foisting more taxes on the public) are forthcoming.
