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Wednesday, February 02, 2011

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I think part of the political logic for national republicans on bankruptcy is to forestall a call to bail out bankrupt blue states like Illinois and California.

Illinois is an interesting case because as near as I can tell, the state government doesn't do much. (Contrast Ilinois' local property tax funded schools with the Indiana approach where all school operating expenses come from the state's general fund and ask which place is more progressive). The combined state-local tax burden isn't that great, but I don't think the state only component is very high. I suspect Illinois state government is leaner than people think.

For me the risk to Chicago is exactly the opposite of what people like Scott K. Walker and Mitch Daniels think it is. Yes, businesses are probably better off leaving downstate for Indiana, but it's not realistic to think a business will decamp from the Loop to Indianapolis.

But in my view really the biggest thing Chicago has going for it is cost. Lower real estate costs are lower taxes are the fundamental thing that makes it worth living in Chicago vs. New York or California. When you start jacking up your income tax rates, at some point the differential makes those places look a lot more attractive. I'm making this calculation myself, esp as I see a blizzard outside that is unlikely to strike a place like San Francisco. Plus at the low end creative types like my brother (an actor and freelance graphic designer) are getting killed because of the regressive taxes here. He might be forced to leave.

From what I've seen, financial crises almost inevitably take the form of a panic or sudden collapse of confidence. Look at what is happening over in Europe or the numerous emerging market debt crises. You look like your debt is high but manageable, but you're on the bad track and one day the market wakes up and figures that out. I think the federal government itself is here because while the current debt is manageable, when you run trillion dollar deficits every year and project to do so more or less forever, the end won't be long in coming.

I'd like to explain why state bankruptcy might look attractive to working persons in the private sector. They can't retire until they're 65, and then they find out some workers in the public sector can retire earlier with full health benefits and pensions. Taxes will have to go up to cover these costs. That's a very bitter pill to swallow. I have never understood why people say that people in the public sector make less than those in the private sector. That may be true for some very rare skills, or it may be true for those who are the best of the best, but for most of us mediocre persons, we have done very well financially in the public sector. I carved my niche in universities (I'm working at my third one) and there is absolutely no way I would be making more in the private sector. I often wonder at the fairness of it--people in the private sector get 2 weeks vacation per year, and I get 4-5 plus numerous holidays. I can't help feeling that it is not right that taxes have to be raised to cover the benefits I get when most other people don't have those advantages.

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