The grass is greener here

Indiana economist grants that Illinois has the better economy

An Indiana economist grants that the economy is slightly better in Illinois, in spite of — or is it because of? — Indiana’s relatively low taxes and regulations. (Shutterstock)

By Ted Cox

The grass is greener right here in Illinois.

An Indiana economist published a column this week trying to determine who had the better economy: his state or Illinois. While he found that both states actually lagged behind the national average in the rise in worker compensation over the last two decades, he ultimately gave the nod to Illinois thanks to its more stable growth rates.

Indiana economist Morton Marcus had a column published this week in Indiana newspapers, picked up in Illinois by Crain’s Chicago Business. Jumping off from a reader’s assertion that “Illinois is in a downward spiral,” Marcus looked at whether that was the case and, if so, why?

Using data from the U.S. Bureau of Economic Analysis, he examined worker compensation in the “private non-farm sector which generates 82 percent of all compensation.”

“The average annual growth of compensation in the U.S. during this period was 4 percent,” Marcus found. “Illinois grew by 3.2 percent (43rd among the 50 states) and Indiana by 3.1 percent (45th). Both states, with similar rates of growth, seriously lagged the nation.”

Yet then he looked at the stability of the economy, using the national highs and lows over that period of a 4 percent growth rate in the first quarter of 2000 and a 5 percent decline in the economy exactly nine years later in the depths of the Great Recession, for a nine-point range.

“Illinois’s stability, as measured by the range of growth rates, was 22nd in the nation at 8.4 points,” Marcus found. “Indiana ranked 37th with a 10.5-point range. By this measure, our western neighbor looked more stable than we did.”

In other words, Illinois was more even-keeled than the national economy, while Indiana was subject to more extreme highs and lows.

That extended to what Marcus called “variability,” meaning short-term fluctuations in the state economies. “In terms of variability,” he wrote, “Michigan ranked first and Montana last. Indiana (9th) was more variable than Illinois (20th).”

Michigan, buffeted by the boom-or-bust auto industry, had the most turbulent economy in the nation the last two decades, Montana the most stable. “Most people favor high levels of growth with little variability,” Marcus stated. “In terms of growth rates, Illinois and Indiana were low and nearly tied. Illinois showed less variability than Indiana, and this gave the Illini a somewhat better record.”

Game, set, match.

But wait, Illinois, don’t go getting cocky. What about that “downward spiral?”

Marcus found valid reasons behind that public perception, in that while “both states had declining shares of compensation in both periods. Illinois lost most of its declining share in the recent decade; Indiana’s loss, relative to the nation, was mainly in the earlier decade.

“Critics say Illinois’s poor performance resulted from excessive regulation and taxation, plus favoritism of unions,” he concluded. “Why then was Indiana, with light regulation, business-friendly taxes, and hostility toward unions, so similar to Illinois? Aren’t we that ‘state that works?’”

Allow us to pick things up where Marcus leaves off. True enough, Indiana has maintained a reputation as a low-regulation, low-tax state over the last two decades and well beyond that, while Illinois has maintained stronger regulations and supports for union workers. What changed in that second, most recent decade? Well, Illinois suffered the impeachment and removal from office of a corrupt governor. His replacement was never able to generate a consistent working relationship with the General Assembly. His replacement, Republican Bruce Rauner, declared war on unions and legislators and let the state go two years without a budget, causing state funding reductions and general turbulence throughout the Illinois economy, in a failed attempt to implement the same sort of laissez-faire regulations as in Indiana and Wisconsin under former Gov. Scott Walker.

It’s only been in the last year that Illinois has adopted a genuinely balanced budget under Gov. J.B. Pritzker (something even Senate Minority Leader Bill Brady was willing to grant), with provisions for an enhanced revenue stream if voters approve a change in the state constitution this fall allowing a progressive income tax, with brackets Pritzker and the General Assembly have already set to allow 97 percent of Illinois taxpayers to pay the same or less in income taxes, while only the top 3 percent of earners making more than $250,000 pay more.

As Gov. Pritzker pointed out just last week in his annual budget address, Illinois is enjoying record-low unemployment, with improving prospects thanks to its revived funding for education, including higher education and state universities, and a record $45 billion capital plan, Rebuild Illinois, just getting cranked up.

So, like Marcus, we’ll end with a question.

Dare we suggest that it’s actually Illinois’s regulations, and its value placed in union workers, that have brought it more stability over the years, and that that restored stability is now thriving hand in hand with renewed economic growth?