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Chapter 1: The National Economic Crisis and the Illinois Economy

Author: J. Fred Gierz, IGPA faculty and professor of economics

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In September and October 2008, the U.S. financial markets began to experience an acute economic downturn when large companies and financial institutions that engaged in profitable but risky financial activity began to stumble and, in some cases, close down. As a result, the federal government adopted aggressive measures, including multi-billion dollar bailouts to those companies that were failing.
 

 

J. Fred Giertz discusses the impact of the national crisis on the Illinois economy (transcript-PDF)
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Experts now agree that the U.S. is in recession, potentially since October 2007. Though many disagree on how long this downturn will last, most believe that it will be more severe than the recessions of 1990 and 2001, and will last at least through the first half of 2009. Both fiscal and monetary responses are necessary, though the drop in the price of oil acted as a small stimulus package for the economy.
 
Though Illinois is not as hard hit as some other states which rely on automobile and other manufacturing, the state of the worldwide economy will have an effect on Illinois nonetheless. Moreover, while other states made sure that times of financial prosperity resulted in balanced or surplus budgets, Illinois has entered the recession with an out of balance budget.
 
The University of Illinois Flash Index provides data to support these findings with respect to Illinois. The Flash Index has tracked Illinois’ economy for 13 years and shows steady decline through November 2008 (the latest figure at the time of The Illinois Report’s publication; the current Flash Index reading can be found here), when the Index reached 100, a reading that indicates no economic growth. Already, this recession is more severe than those in 1990 and 2001 and could continue and stall economic growth in Illinois for at least another two years.

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