Does Anyone Here Know How To Run An Economy? Part 2, Illinois State Government

Fascinating and scary article from Business Week in its July 4, 2011 issue. The article reviewed the current status of the Illinois state government financial situation and included the following facts:

• The state government is $4 billion behind in paying its bills to companies that have already provided goods and services to the state.
• The state owes IBM over $1 million , Office Depot over $660,000 and the 17th Street Bar and Grill, located in Sparta, Illinois, $340.
• At least 114 companies are already owed over a $1 million.
• The backlog in unpaid bills in Illinois is larger than the entire state budget of Delaware's state government.
• Illinois had to borrow money just to make its last two annual contributions to its pension system.
• Illinois is tied with California for the lowest credit rating.
• The state legislature raised the personal income tax rate 67% and the corporate income tax rate 46% in January.
• These tax rates will raise an additional $7 billion in revenue for the state but is just over half of what is needed to cover the $13 billion shortfall in the 2011 budget. This assumes that no businesses and families leave the state to avoid the new tax burden, and thus reducing the expected incremental $7 billion, a very shaky assumption.

Certainly a catastrophic situation. It is very obvious that a long string of failed political management has led to a state in the death spiral of financial insolvency.

But you may ask how does this have anything to do with mismanaging and economy. These are obviously political screw ups but what is the economic impact? The article points out that the large creditors like IBM can probably cover the state payment delays quite easily, the smaller companies that do business with state might be at a far greater risk.

The article reports that some of the smaller companies have had to lay off workers to stay solvent in the absence of getting paid by the state. Some of had to take out loans to stay afloat because of the late payments, resulting in expenses that those businesses cannot now use to hire workers or expand their business operations. Some businesses also report that they have not been able to get a loan to continue operations because the banks are now suspicious that the state may never pay some of its bills.

As an example, the state of Illinois owes the nonprofit South Suburban Council on Alcoholism and Substance Abuse about $1.4 million in back payments. To keep afloat, the Council had to lay off nearly a third of its 155 employees and also take out a loan. Delayed payments are also affecting hospitals, universities, school districts, funeral homes that bury the indigent, health care providers, and social service providers. By not getting paid by the state, many of these organizations will eventually have to start laying off workers also.

More unemployment is a direct economic calamity of the Illinois' political class inability to to operate efficiently. Thus, political incompetence leads directly to economic chaos. And the political class has driven the state government so far into the red that taxes had to be raised, money that could have gone to spurring economic growth now goes to paying down debt. As economic growth slows because of the tax increases, tax revenues go down and the debt further accumulates. A classic death spiral.

Illinois is a perfect example of what happens when we trust too much of our lives, jobs, and financial situation to the political class. By becoming so large in the state economy through reckless spending, when the state begins to go belly up, it drags the rest of the economy with it. Given that the political class at all levels has proven time and again that it cannot operate a large bureaucracy efficiently and effectively, at some point in time that inefficiency, and the wasteful spending that goes with it, will impact the whole economy with Illinois being a text book example.

That is what we are seeing today at the national level. Government has gotten so large and sucks up so much private capital and tax wealth, that the private economy struggles to expand and grow. At some point in time, the fact of having such an inefficient operation, the Federal government, taking up or effecting so much of the economy, at some point in time the inefficiency and political incompetency catches up with reality and we get the Illinois effect, a death spiral towards insolvency.

That is why Step 1 from "Love My Country,Loathe My Government" is so important. Step 1 would reduce Federal spending by 10% a year for five years. This would significantly downsize the Federal government bureaucracy and inefficiency, resulting in two positive events. As a much smaller entity, the Federal government could focus on doing just a handful of things really well.  Currently, politicians and the government it runs try to do everything but they do everything pitifully bad. Second, by reducing spending and eventually reducing taxes, the Federal government becomes a much smaller factor in the overall economy which reduces the risk of an Illinois-like fiasco infecting the entire country.






Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com