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March 28th, 2017

Insight

The failed 'blue model'

George Will

By George Will

Published Oct. 15, 2015

Failed Chicago mayor Rahm Emanuel.

CHICAGO

A Midwestern humorist, Indiana's Kin Hubbard, said people often confuse bad management with destiny. Chicago Mayor Rahm Emanuel knows better. He must play the cards that fate has dealt him, and he is too polite, or at least too prudent, to say that another name for fate is Democratic rule of the city since 1931.

During the past 84 years, the growth of the public sector has been mostly driven by the alliance between elected politicians and public-sector unions. This has made Chicago emblematic of the coast-to-coast crisis of what Walter Russell Mead has labeled the "blue model" of municipal and state governance.

It is not Emanuel's fault that Chicago's three largest employers, after the federal government, are the public school system, the city government and Cook County's government. Although Emanuel is a product of the Chicago politics that made Barack Obama, the crisis brought on by such politics now requires Emanuel to take many measures to make Chicago an exception to the nation's economic lethargy under Obama.

Emanuel's task — condign punishment for any Democrat — is to salvage the blue model by making the private sector dynamic enough to generate tax revenues sufficient to fund improvident public contracts and their pension promises. Hence Emanuel's focus on K-12 education.

A circle with a radius of 275 miles from Chicago's Loop includes nine Big Ten campuses (and the University of Chicago, the University of Notre Dame and many others) that furnish a steady stream of graduates drawn to urban life. The challenge is to hold these taxpayers in the city when they have school-age children. Hence Emanuel's enthusiasm for — scarcity can be the mother of courage — charter schools, which horrify the Democratic Party's paymasters in the teachers unions.

Emanuel and the city's school system, the nation's third-largest, want aid from the state. This is, as the Heritage Foundation's Stephen Moore says, like Puerto Rico begging from Greece. Although state pension payments have grown from $60 million to more than $650 million since 2006, Illinois still ranks 50th among states in percentage of funded pension obligations (47.1). After 13 downgrades in six years, Illinois, which is not paying many of its vendors or even winners of the state lottery, is 50th among the states in credit ratin

g. After Illinois's Supreme Court strictly construed the state constitution's provision that public pensions "shall not be diminished or impaired," Moody'sdowngraded the city, raising the cost of borrowing. Because diminishment is not possible, some increased revenue is not optional.

The vast swath of Chicago known as the "bungalow belt" reflects the city's tradition of homeownership. However, more than 20 percent of Chicago homeowners owe more than their houses are worth. In the Great Recession, Illinois had the nation's third-highest foreclosure rate. Nevertheless, pensions will now be funded in part by a huge property-tax increase.

The levy, of more than half a billion dollars, will be made progressive by exempting property below the median ($250,000) value. And approximately 25 percent of the tax will be paid from the thriving downtown business district. Although Cook County has until recently been losing more affluent residents than it has been attracting, Emanuel is working to reverse this wealth subtraction.

The world is indeed wonderfully out of joint when Emanuel, the embodiment of pugnacious progressivism, is proud, and properly so, of the booming market for downtown residences. This is evidence of increasing numbers of affluent people, including many young workers, who are weary of ever-longer commutes on ever-more-congested freeways. Traditionally, the only things true-blue progressives dislike more than suburbs are suburbanites who, not knowing their place, become gentrifying urbanites. But the price of government workers' pensions must be paid.

Although Emanuel may not know this, he is trying to reverse what has been called (in a 2002 essay by Harvard economists Edward Glaeser and Andrei Shleifer) "the Curley effect." James Michael Curley was Boston's four-term mayor intermittently from 1914 to 1950, and apart from his five months in prison. He built his power base by taxation and redistribution policies that drove away the affluent, making the city's low-income population a larger percentage of the electorate and increasingly dependent on government.

In Chicago, the crisis of the blue model is being addressed by policies designed to produce an influx of corporate headquarters (36 in the past four years) and suburbanites. For the fun of irritating his fellow progressives, let's call this the Emanuel effect.

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