Da Gary Mercantile Exchange?

In 1974 or 1975, the Chicago Bears were unhappy with the condition of their home, Soldier Field.  They made noises about moving to Arlington Heights, a Chicago suburb.  Da Mare, Richard J. Daley, was having none of it.  I recall his angry statement at a press conference, delivered in his very imitable Bridgeport accent: “If da Bears wanna move to Arlington Heights, dey can call demselves de Arlington Heights Bears.”*   Daley laid it on the table for Bears owner George Halas:

“I think that’s fine, George. You’re a businessman. Do what you have to do. By the way, our lawyers say you can’t take the name Chicago with you out there. We’d have to take you to court. That could take years. I wonder how many people will come out to see The Arlington Heights Bears? I wonder how excited the network people will be about broadcasting The Arlington Heights Bears? You’re a fine businessman, George. You make the call.”

[And you wonder where Obama learned about Gangster Government?  He was raised in its American cradle.]

Fast forward nearly 40 years, and another Chicago icon–The Exchange Formerly Known as the Chicago Mercantile Exchange Now Called the CME Group – is making noises about leaving Chicago.  But not for Arlington Heights, because that would not solve its problem.  Its problem, you see, is that the corporate tax in Illinois is high and going higher–30 percent higher, in fact, due to a measure rammed through the state legislature by Governor Pat Quinn by means fair and foul, but mainly foul.  CME Group is thus facing the prospect of paying a far higher tax if it stays in Illinois than if it decamps for more favorable tax climes, like Indiana.

As the linked WSJ piece notes, the threat is likely a negotiating ploy by the CME.  (This is Illinois/Chicago, and the people at CME know how the game is played.)  The likely outcome is that they will get relief.  Rule by Waiver at the state level.

That would be a swell outcome for the CME Group, but would be symptomatic of far deeper problems.

The first is the desperate financial condition of the State of Illinois.

The second is that the attempts to escape this condition by raising taxes is doomed to failure.  Businesses and people can move.  Businesses can die.  Businesses can not be born.  Raising taxes at the state or local level often sets off a death spiral: the tax base contracts as businesses flee or are never born and people leave, so taxes are raised more, contracting the tax base further, and on and on.  Want to see the results?  You don’t have to go far from Illinois to do that.  Go to St. Louis, where it has happened at the city level.  Go to Michigan, where it is happening state wide.

The third is that this sort of tax bargaining favors the big and connected; is inimical to the rule of law; and feeds the Gangster Government phenomenon.  Yes, it’s nothing new.  But with the increasing fiscal desperation of many major states, it’s a growing problem.

So my guess is that the CME Group will continue to call Chicago home.  But the process by which that occurs will be a depressingly instructive example in the country’s slide towards the Natural State.

* This is one of Daley’s great quotes.  My favorite was uttered at the height of the chaos at the Democratic Party National Convention in Chicago in 1968: “Da police are not dere to create disorder, da police are dere to maintain disorder.”

About Craig Pirrong 223 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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